UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

Commission File Number: 001-35467

Battalion Oil Corporation

(Exact name of registrant as specified in its charter)


Delaware	20-0700684
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

3505 West Sam Houston Parkway North, Suite 300, Houston, TX 77043

(Address of principal executive offices)

(832) 538-0300

(Registrant’s telephone number)

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


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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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

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

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive oﬃcers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

☐

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Smaller reporting company ☒

Emerging growth company ☐

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

As of March 27, 2023, there were 16,450,407 shares outstanding of registrant’s $.0001 par value common stock. Based upon the closing price for the registrant’s common stock on the New York Stock Exchange as of June 30, 2022, the aggregate market value of shares of common stock held by non-affiliates of the registrant was approximately $31.9 million.

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

DOCUMENTS INCORPORATED BY REFERENCE

Information required by Part III, Items 10, 11, 12, 13, and 14, is incorporated by reference to portions of the registrant’s definitive proxy statement for its 2022 annual meeting of stockholders which will be filed no later than 120 days after December 31, 2022.

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Special note regarding forward-looking statements

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

●

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

●

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;

●

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, and other inflationary pressures

●

our ability to secure adequate sour gas treating and/or sour gas take-away capacity, including our ability to put our planned acid gas treatment facility for our Monument Draw area in service in time to handle production volumes and achieve anticipated reductions in the future costs of treating sour gas;

●

drilling and operating risks, including accidents, equipment failures, fires, and leaks 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;

●

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

●

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

●

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

●

the possibility that our industry may be subject to future regulatory or legislative actions (including 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;

●

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

●

competition, including competition for acreage in our resource play;

●

environmental risks, such as accidental spills of toxic or hazardous materials, and the potential for environmental liabilities;

●

exploration and development risks;

●

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

●

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

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in the United States will worsen and that capital markets are disrupted, which could adversely affect demand for oil and natural gas and make it difficult to access capital;

●

impacts and potential risks related to actual or anticipated pandemics, such as the novel coronavirus (COVID-19) pandemic, including how it has and may continue to impact our operations, financial results, liquidity, contractors, customers, employees and vendors;

●

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

●

insurance coverage which 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. 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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Glossary of Oil and Natural Gas Terms

The definitions set forth below apply to the indicated terms as used in this report. All volumes of natural gas referred to herein are stated at the legal pressure base of the state or area where the reserves exist at 60 degrees Fahrenheit and in most instances are rounded to the nearest major multiple.

Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume, used herein in reference to crude oil or other liquid hydrocarbons.

Bcf. One billion cubic feet of natural gas.

Boe. Barrels of oil equivalent determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or NGLs based on an approximate energy equivalency. This is an energy content correlation and does not reflect a value or price relationship between the commodities.

Boe/d. Barrels of oil equivalent per day.

Btu. British thermal unit, which is the heat required to raise the temperature of one-pound of water from 58.5 to 59.5 degrees Fahrenheit.

Completion. The installation of permanent equipment for the production of oil or natural gas or, in the case of a dry hole, the reporting of abandonment to the appropriate agency.

Developed property. Property where wells have been drilled and production equipment has been installed.

Development well. A well drilled within the proved areas of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

Dry hole or well. A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.

Extension well. A well drilled to extend the limits of a known reservoir.

Exploratory well. A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir.

Field. An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.

Gross acres or gross wells. The total acres or wells, as the case may be, in which a working interest is owned.

Hydraulic fracturing. The injection of water, sand and chemicals under pressure into rock formations to stimulate oil and natural gas production.

H2S. Hydrogen sulfide, a colorless, flammable and extremely hazardous naturally occurring gas that is sometimes produced from oil and natural gas wells.

MBbls. One thousand barrels of crude oil or other liquid hydrocarbons.

MBoe. One thousand Boe.

Mcf. One thousand cubic feet of natural gas.

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MMBbls. One million barrels of crude oil or other liquid hydrocarbons.

MMBoe. One million Boe.

MMBtu. One million Btu.

MMcf. One million cubic feet of natural gas.

Net acres or net wells. The sum of the fractional working interests owned in gross acres or gross wells, as the case may be.

NGLs. Natural gas liquids, i.e. hydrocarbons removed as a liquid, such as ethane, propane and butane.

Operator. The individual or company responsible for the exploration, exploitation and production of an oil or natural gas well or lease.

Productive well. A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.

Proved developed producing reserves. Proved developed reserves that are expected to be recovered from completion intervals currently open in existing wells and capable of production.

Proved developed reserves. Proved reserves that are expected to be recovered from existing wellbores, whether or not currently producing, without drilling additional wells. Production of such reserves may require a recompletion.

Proved reserves. Those quantities of oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for estimation.

Proved undeveloped location. A site on which a development well can be drilled consistent with spacing rules for purposes of recovering proved undeveloped reserves.

Proved undeveloped reserves. Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion.

Recompletion. The completion for production of an existing wellbore in another formation from that in which the well has been previously completed.

Reserve-to-production ratio or Reserve life. A ratio determined by dividing estimated existing reserves determined as of the stated measurement date by production from such reserves for the prior twelve month period.

Reservoir. A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

Spud. Commencement of actual drilling operations.

3-D seismic. The method by which a three dimensional image of the earth’s subsurface is created through the interpretation of reflection seismic data collected over a surface grid. 3-D seismic surveys allow for a more detailed understanding of the subsurface than do conventional surveys and contribute significantly to field appraisal, exploitation and production.

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Undeveloped acreage. Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves.

Working interest. The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and a share of production.

Workover. Operations on a producing well to restore or increase production.

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PART I

ITEM 1. BUSINESS

Overview

Unless the context otherwise requires, all references in this report to “Battalion,”, “the Company”, “our,” “us,” and “we” refer to Battalion Oil Corporation and its subsidiaries, as a common entity. Battalion is the successor reporting company to Halcón Resources Corporation (Halcón). On January 21, 2020, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation with the Delaware Secretary of State to effect a change of our corporate name from Halcón Resources Corporation to Battalion Oil Corporation.

We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets currently in the Delaware Basin in the United States, where we have an extensive drilling inventory that we believe offers attractive long-term economics.

Our working interests in 40,375 net acres in the Delaware Basin as of December 31, 2022 are in Pecos, Reeves, Ward and Winkler Counties, Texas. This resource play is characterized by high oil and liquids-rich natural gas content in thick, continuous sections of source rock that can provide repeatable drilling opportunities and significant initial production rates. Our primary targets in this area are the Wolfcamp and Bone Spring formations. As of December 31, 2022, we had 103 operated wells producing in this area in addition to minor working interests in 13 non-operated wells. Our average daily net production from this area for the year ended December 31, 2022 was 15,438 Boe/d.

At December 31, 2022, our estimated total proved oil and natural gas reserves were approximately 92.0 MMBoe, consisting of 50.0 MMBbls of oil, 18.1 MMBbls of natural gas liquids and 143.7 Bcf of natural gas, as prepared by our independent reserve engineering firm, Netherland, Sewell & Associates, Inc. (Netherland, Sewell). Reserves were prepared using a crude oil price of West Texas Intermediate (WTI) of $94.14 per Bbl and a Henry Hub natural gas price of $6.36 per MMBtu, based on the preceding 12-month first day of the month average spot prices as required by the Securities and Exchange Commission (SEC). Approximately 50% of our estimated proved reserves were classified as proved developed as of December 31, 2022. We maintain operational control of 99.4% of our estimated proved reserves.

Business Strategy

Our primary long-term objective is to increase stockholder value by safely and cost-effectively increasing our production of oil, natural gas and natural gas liquids, adding to our proved reserves and growing our inventory of economic drilling locations, while acting as a responsible corporate citizen in the communities in which we operate. To accomplish this objective, we intend to execute the following business strategies:

●

Develop our Liquids-Rich Acreage Positions to Grow Production and Reserves Efficiently. We intend to drill and develop our multi-zone resource play to maximize value and resource potential. Our near-term development plans are focused on acreage preservation primarily in our liquids-rich Monument Draw area, maintaining production levels, and developing through the drilling and completion of new wells.

●

Enhance Returns Through Continued Improvements in Operational and Cost Efficiencies. We are the operator for the majority of our acreage, which gives us control, to some extent, over the timing of capital expenditures, execution and costs. It also allows us to adjust our capital spending based on drilling results and the economic environment. As operator, we are able to evaluate industry drilling results and implement improved operating practices that may enhance our initial production rates, ultimate recovery factors and rate of return on invested capital. We continue to focus on cost-saving measures including reducing corporate administrative expenses and pursuing operational efficiencies.

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●

Maintain Adequate Liquidity. Our management team is focused on maintaining adequate liquidity while pursuing our near-term development plans. We believe our internally-generated cash flows from operations, cash on hand, and recently completed preferred equity funding in March 2023 as further described below will provide us with sufficient liquidity to execute our capital and operating program over the next twelve months, address near-term debt maturities of approximately $35.0 million in 2023, and maintain compliance with our debt covenants. We also employ a hedging program to reduce the variability of our cash flows used to support our capital spending. As of December 31, 2022, we have no additional borrowing capacity under our current Amended Term Loan, and as such, we will continue to pursue additional sources of liquidity and cost-saving opportunities further described in Item 7, Management’s Discussion and Analysis, “Capital Resources and Liquidity”.

●

Attain Growth Through Strategic Business Combinations. From time to time, we may pursue merger and acquisition opportunities to meet our strategic and financial targets, including the maintenance of a conservative leverage position. Selective business combinations provide opportunities to acquire high quality assets complementary to our acreage, expand our drilling inventory and gain operational scale. We believe our management team’s geologic and engineering expertise, particularly in the Permian Basin, provides a competitive advantage in the identification of acquisition targets and evaluation of resource potential.

Our ability to achieve our Business Strategy is subject to numerous risks and uncertainties, many of which are beyond our control. Additional information regarding our risks can be found in Item 1A. Risk Factors.

Recent Developments

●

Preferred Stock Equity Issuance. On March 28, 2023, we sold, in a private placement, an aggregate of 25,000 shares of Series A Convertible Preferred Stock (the “preferred stock”) to certain funds managed by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC, who represent our largest three existing shareholders and received $24.4 million in proceeds. Holders will have no voting rights with respect to the shares of preferred stock and will receive annual dividends, paid either in cash at a fixed rate of 14.5% annually or accrued (“PIK accrual”) at a fixed rate of 16.0% annually at the option of the Company. Currently, the Company’s Amended Term Loan Agreement prohibits the payment of cash dividends. PIK dividends will be cumulative, compound and accrue quarterly in arrears and will be added to the Liquidation Preference. For a further discussion of the redemption and conversion provisions associated with the preferred stock, refer to Item 7. Management’s Discussion and Analysis, “Capital Resources and Liquidity” and Item 9B. Other Information.

●

H₂S Treating Joint Venture. In May 2022, we entered into a joint venture agreement with Caracara Services, LLC (“Caracara”) to develop a strategic acid gas treatment and carbon sequestration facility (the “Facility”) in Winkler County, Texas. The joint venture, operating as Brazos Amine Treater, LLC (“BAT”), has also entered into a Gas Treating Agreement (“GTA”) with us for gas production from our Monument Draw area. In exchange for contributing to the joint venture a wellbore with an approved permit for the injection of acid gas and surface land, we retained a 5% equity interest in BAT, an unconsolidated subsidiary. We expect the AGI facility will be mechanically complete in early April 2023 and in service in the second quarter of 2023; however, various operational and other risk factors, some of which are beyond our control, could impact the timing of these estimates. For further details on the joint venture arrangement, see Item 7. Management’s Discussion and Analysis on Financial Condition-“Recent Developments”.

Risk Management

We have designed a risk management policy for the use of derivative instruments to provide initial protection against certain risks relating to our ongoing business operations, such as commodity price declines and price differentials between the NYMEX commodity price and the index price at the location where our production is sold. Derivative contracts are utilized to hedge our exposure to price fluctuations and reduce the variability in our cash flows associated with anticipated sales of future oil and natural gas production. Our requirement, under our Amended Credit Agreement (Amended Term Loan Agreement), is to hedge approximately 50% to 85% of our anticipated oil and natural gas

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production, in varying percentages by year, and on a rolling basis for the next four years. However, our decision on the price at which we choose to hedge our production is based in part on our view of current and future market conditions. Our hedge policies and objectives change as our operational profile changes but remain consistent with the requirements in effect under our Amended Term Loan Agreement. Our future performance is subject to commodity price risks and our future cash flows from operations may be volatile. We do not enter into derivative contracts for speculative trading purposes.

While there are many different types of derivatives available, we typically use fixed-price swap, costless collar, basis swap, and WTI NYMEX roll agreements to attempt to manage price risk. The fixed-price swap agreements call for payments to, or receipts from, counterparties depending on whether the index price of oil or natural gas for the period is greater or less than the fixed price established for the period contracted under the fixed-price swap agreement. Costless collar agreements are put and call options used to establish floor and ceiling commodity prices for a fixed volume of production during a certain time period. All costless collar agreements provide for payments to counterparties if the settlement price under the agreement exceeds the ceiling and payments from the counterparties if the settlement price under the agreement is below the floor. 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.

It is our policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions deemed by management as competent and competitive market makers. As of December 31, 2022, we did not post collateral under any of our derivative contracts as they are secured under our Amended Term Loan Agreement. We will continue to evaluate the benefit of employing derivatives in the future. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk and Item 8. Consolidated Financial Statements and Supplementary Data—Note 7, “Derivative and Hedging Activities,” for additional information.

Oil and Natural Gas Reserves

The proved reserves estimates reported herein for the years ended December 31, 2022, 2021 and 2020, have been independently evaluated by Netherland, Sewell, our independent reserve engineering firm. Within Netherland, Sewell, the technical persons primarily responsible for preparing the estimates set forth in their reserves reports incorporated herein each have over 20 years of industry experience. Each meet or exceed the education, training, and experience requirements set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers and are proficient in judiciously applying industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserves definitions and guidelines.

Our board of directors has established a reserves committee composed of independent directors with experience in energy company reserve evaluations. Our independent engineering firm reports jointly to the reserves committee and to our Director of Corporate Development and Reserves. The reserves committee is charged with ensuring the integrity of the process of selection and engagement of the independent engineering firm and in making a recommendation to our board of directors as to whether to approve the report prepared by our independent engineering firm. Our Director of Corporate Development and Reserves is primarily responsible for overseeing the preparation of the annual reserve report by Netherland, Sewell. He has approximately 13 years of oil and gas operations experience and has earned a Bachelor of Science degree in Petroleum Engineering from Texas A&M University, an MBA from Rice University and is an active member of the Society of Petroleum Engineers.

The reserves information in this Annual Report on Form 10-K represents only estimates. Reserve evaluation is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. In addition, results of drilling, testing and production subsequent to the date of an estimate may lead to revising the original estimate. Accordingly, initial reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered. The meaningfulness of such estimates depends primarily on the accuracy of the assumptions upon which they were based. Except to the extent we acquire additional properties

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containing proved reserves or conduct successful exploration and development activities or both, our proved reserves will decline as reserves are produced.

Proved reserve estimates are based on the unweighted arithmetic average prices on the first day of each month for the 12-month period ended December 31, 2022. Average prices for the 12-month period were as follows: WTI crude oil spot price of $94.14 per Bbl, adjusted by lease or field for quality, transportation fees, and market differentials and a Henry Hub natural gas spot price of $6.36 per MMBtu, adjusted by lease or field for energy content, transportation fees, and market differentials. All prices and costs associated with operating wells were held constant in accordance with SEC guidelines.

The following table presents certain proved reserve information as of December 31, 2022 (dollars in thousands):


Proved Reserves (MBoe)⁽¹⁾
Developed		46,302
Undeveloped		45,718
Total		92,020
PV-10⁽²⁾	$	1,568,238
Discounted Future Income Taxes		(106,562)
Standardized measure of discounted future net cash flows	$	1,461,676

(1)

Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or 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)

PV-10 represents the discounted future net cash flows attributable to our proved oil and natural gas reserves before income tax, discounted at 10%. PV-10 of our total year-end proved reserves is considered a non-U.S. GAAP financial measure as defined by the SEC. We believe that the presentation of the PV-10 is relevant and useful to our investors because it presents the discounted future net cash flows attributable to our proved reserves before taking into account future corporate income taxes and our current tax structure. We further believe investors and creditors use our PV-10 as a basis for comparison of the relative size and value of our reserves to other companies. Refer to the reconciliation of our PV-10 to the standardized measure of discounted future net cash flows in the table above.

At December 31, 2022, we had estimated proved reserves of approximately 92.0 MMBoe comprised of 50.0 MMBbls of crude oil, 18.1 MMBbls of natural gas liquids, and 143.7 Bcf of natural gas. The following table sets forth these reserves:


	Proved	Proved	Total
	Developed	Undeveloped	Proved
Oil (MBbls)	22,501	27,521	50,022
Natural Gas Liquids (MBbls)	10,195	7,856	18,051
Natural Gas (MMcf)	81,636	62,048	143,684
Equivalent (MBoe)⁽¹⁾	46,302	45,718	92,020

(1)	Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or NGLs based on approximate energy equivalency. This is an energy content correlation and does not reflect the value or price relationship between the commodities.

At December 31, 2022, total estimated proved reserves were approximately 92.0 MMBoe, a 3.9 MMBoe net decrease from the previous year’s estimate of 95.9 MMBoe. Proved developed reserves of 46.3 MMBoe increased approximately 3.9 MMBoe from December 31, 2021 as a result of PUD reserve development of 8.3 MMBoe and positive revisions of 1.2 MMBoe, offset by production of 5.6 MMBoe. Proved undeveloped (PUD) reserves of 45.7 MMBoe decreased approximately 7.8 MMBoe from December 31, 2021 as the result of the transfer of 8.3 MMBoe to proved developed producing reserves and downward revisions of 6.4 MMBoe due primarily to increased capital and

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operating costs, offset by extensions of 7.0 MMBoe primarily associated with infill drilling activity. All of our PUD reserves are planned to be developed within five years from the date they were initially recorded. During 2022, approximately $119.8 million in capital expenditures went toward the development of proved undeveloped reserves, which includes drilling, completion and other facility costs associated with developing proved undeveloped wells.

Reliable technologies were used to determine areas where PUD locations are more than one offset location away from a producing well. These technologies include seismic data, wire line openhole log data, core data, log cross-sections, performance data, and statistical analysis. In such areas, this data demonstrated consistent, continuous reservoir characteristics in addition to significant quantities of economic estimated ultimate recoveries from individual producing wells. We relied only on production flow tests and historical production data, along with the reliable geologic data mentioned above to estimate proved reserves. No other alternative methods or technologies were used to estimate proved reserves. Out of total PUD reserves of 45.7 MMBoe at December 31, 2022, 28.1 MMBoe were associated with 33 gross PUD locations that were more than one offset location from a producing well.

The estimates of quantities of proved reserves contained in this report were made in accordance with the definitions contained in SEC Release No. 33-8995, Modernization of Oil and Gas Reporting. For additional information on our estimates of oil and natural gas reserves, the preparation of such estimates by Netherland, Sewell and other information about our oil and natural gas reserves including a table detailing the changes by year of our proved reserves, see Item 8. Consolidated Financial Statements and Supplementary Data—“Supplemental Oil and Gas Information (Unaudited).” We account for our oil and natural gas producing activities using the full cost method of accounting in accordance with SEC regulations which is further described in Item 8. Consolidated Financial Statements and Supplementary Data—Note 4, “Oil and Natural Gas Properties.”

Wells and Acreage

Our principal properties consist of leasehold interests in developed and undeveloped oil and natural gas properties and the reserves associated with these properties.

The following table sets forth the number of productive oil and natural gas wells in which we owned an interest as of December 31, 2022 and 2021. Shut-in wells currently not capable of production are excluded from the well information below.


	Years Ended December 31,
	2022		2021
	Gross	Net	Gross	Net
Oil	111	91.2	107	84.4
Natural Gas	9	6.9	8	6.4
Total	120	98.1	115	90.8

The table below sets forth the results of our drilling activities for the periods indicated:


	Years Ended December 31,
	2022		2021		2020
	Gross	Net	Gross	Net	Gross	Net
Development Wells:
Productive ⁽¹⁾	9	8.5	6	6.0	7	6.3
Dry	—	—	—	—	—	—
Total Development	9	8.5	6	6.0	7	6.3
Total Wells:
Productive ⁽¹⁾	9	8.5	6	6.0	7	6.3
Dry	—	—	—	—	—	—
Total	9	8.5	6	6.0	7	6.3

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(1)

Although a well may be classified as productive upon completion, future changes in oil and natural gas prices, operating costs and production may result in the well becoming uneconomical, particularly extension or exploratory wells where there is no production history.

We had no exploratory or extension wells drilled for the year ended December 31, 2022 or 2021.

We own interests in developed and undeveloped oil and natural gas acreage in the locations set forth in the table below. These ownership interests generally take the form of working interests in oil and natural gas leases that have varying provisions. The following table presents a summary of our acreage interests as of December 31, 2022:

Developed Acreage

Undeveloped Acreage

Total Acreage

State

Gross

Net

Gross

Net

Gross

Net

Texas

32,782

30,679

10,632

9,696

43,414

40,375

Generally, our oil and natural gas leases remain in force as long as production in paying quantities is maintained. Leases on our undeveloped oil and natural gas acreage are either categorized as “held by production” or perpetuated by continuous development clauses contained in our leases or tolling agreements. Of our 9,696 net undeveloped acres at December 31, 2022, approximately 6,004 acres are subject to continuous development clauses and 3,692 acres are “held by production.” We continually review our acreage subject to these clauses or agreements when determining our drilling program.

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Production Volumes, Sales Prices, and Average Costs

The following table summarizes our oil, natural gas and natural gas liquids production volumes, average sales price per unit and average costs per unit:


	Years Ended December 31,
	2022		2021		2020
Production:
Crude oil - MBbls		2,837		3,196		3,446
Natural gas - MMcf		9,337		9,447		8,769
Natural gas liquids - MBbls		1,242		1,157		1,262
Total MBoe ⁽¹⁾		5,635		5,928		6,170
Average daily production - Boe ⁽¹⁾		15,438		16,241		16,858

Average price per unit (excluding impact of settled derivatives):
Crude oil price - Bbl	$	94.36	$	66.81	$	36.56
Natural gas price - Mcf		4.95		3.73		0.66
Natural gas liquids price - Bbl		35.02		30.59		11.86
Barrel of oil equivalent price - Boe ⁽¹⁾		63.43		47.93		23.79

Average price per unit (including impact of settled derivatives)⁽²⁾:
Crude oil price - Bbl	$	53.54	$	43.79	$	48.87
Natural gas price - Mcf		3.40		3.27		0.94
Natural gas liquids price - Bbl		35.02		30.59		11.86
Barrel of oil equivalent price - Boe ⁽¹⁾		40.31		34.79		31.07

Average cost per Boe:
Production:
Lease operating	$	8.54	$	7.42	$	6.82
Workover and other		1.19		0.54		0.60
Taxes other than income		3.28		2.08		1.63
Gathering and other		11.38		10.19		9.08
Total average cost		24.39		20.23		18.13

(1)	Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or 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)	Cash paid on, or cash received from, settled derivative contracts are reflected as “Net gain (loss) on derivative contracts” in the consolidated statements of operations, consistent with our decision not to elect hedge accounting.

Competitive Conditions in the Business

The oil and natural gas industry is highly competitive and we compete with a substantial number of other companies that have greater financial and other resources. Many of these companies explore for, produce and market oil and natural gas, as well as carry on refining operations and market the resultant products on a worldwide basis. The primary areas in which we encounter substantial competition are in locating and acquiring desirable leasehold acreage for our drilling and development operations, locating and acquiring attractive producing oil and natural gas properties, obtaining sufficient availability of drilling and completion equipment and services, obtaining purchasers, transporters and take-away capacity for the oil and natural gas we produce and hiring and retaining key employees. There is also competition between oil and natural gas producers and other industries producing energy and fuel. Furthermore, competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the government of the United States and the states in which our properties are located. It is not possible to predict the nature

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of any such legislation or regulation which may ultimately be adopted or its effects upon our future operations. Such laws and regulations may substantially increase the costs of exploring for, developing or producing oil and natural gas and may prevent or delay the commencement or continuation of a given operation.

Other Business Matters

Markets and Major Customers

The purchasers of our oil and natural gas production consist primarily of independent marketers, major oil and natural gas companies and gas pipeline companies. Historically, we have not experienced any significant losses from uncollectible accounts. In 2022, three individual purchasers of our productions, Western Refining Company L.P., Sunoco Inc. and Targa Resources Inc., each accounted for more than 10% of total sales, collectively representing 82% of our total sales for the year. In 2021, three individual purchasers of our production, Western Refining Company L.P., Sunoco Inc. and Salt Creek Midstream LLC, each accounted for more than 10% of total sales, collectively representing 73% of our total sales for the year.

Seasonality of Business

Weather conditions affect the demand for, and prices of, oil and natural gas and can also delay drilling activities, disrupting our overall business plans. Demand for crude oil can often be higher in the summer months during the peak travel season. Demand for natural gas is typically higher during the winter, resulting in higher natural gas prices for our natural gas production during our first and fourth fiscal quarters. Due to these seasonal fluctuations, our results of operations for individual quarterly periods may not be indicative of the results that we may realize on an annual basis.

Operational Risks

Oil and natural gas exploration and development involves a high degree of risk, which even a combination of experience, knowledge and careful evaluation may not be able to be overcome. There is no assurance that we will discover or acquire additional oil and natural gas in commercial quantities. Oil and natural gas operations also involve the risk that well blowouts, fires, equipment failure, human error and other events may cause accidental releases of toxic or hazardous materials, such as hydrogen sulfide, petroleum liquids, or drilling fluids into the environment, or cause significant injury to persons or property. In such event, substantial liabilities to third parties or governmental entities may be incurred, the satisfaction of which could substantially reduce available cash and possibly result in loss of oil and natural gas properties. Such hazards may also cause damage to or destruction of wells, producing formations, production facilities and pipeline or other processing facilities.

As is common in the oil and natural gas industry, we will not insure fully against all risks associated with our business either because such insurance is not available or because we believe the premium costs are prohibitive. A loss not fully covered by insurance could have a material effect on our operating results, financial position or cash flows. For further discussion on risks see Item 1A. Risk Factors.

Regulations

All of the jurisdictions in which we own or operate producing oil and natural gas properties have statutory provisions regulating the exploration for and production of oil and natural gas, including provisions related to permits for the drilling of wells, bonding requirements to drill or operate wells, the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, sourcing and disposal of water used in the drilling and completion process, and the plugging and abandonment of wells. Our operations are also subject to various conservation laws and regulations. These laws and regulations govern the size of drilling and spacing units, the density of wells that may be drilled in oil and natural gas properties and the unitization or pooling of oil and natural gas properties. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells, generally prohibit the venting or flaring of natural gas, and impose requirements regarding the ratability of production. On some occasions, local authorities have imposed moratoria or other restrictions on exploration and production

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activities pending investigations and studies addressing potential local impacts of these activities before allowing oil and natural gas exploration and production to proceed.

The effect of these regulations is to limit the amount of oil and natural gas that we can produce from our wells and to limit the number of wells or the locations at which we can drill, although we can apply for exceptions to such regulations. Failure to comply with applicable laws and regulations can result in substantial penalties. The regulatory burden on the industry increases the cost of doing business and affects profitability. Moreover, each state generally imposes a production or severance tax with respect to the production and sale of oil, natural gas and natural gas liquids within its jurisdiction.

Environmental Regulations

Our operations are subject to stringent federal, state and local laws regulating the discharge of materials into the environment or otherwise relating to health and safety or the protection of the environment. Numerous governmental agencies, such as the United States Environmental Protection Agency, commonly referred to as the EPA, issue regulations to implement and enforce these laws, which often require difficult and costly compliance measures. Among other things, environmental regulatory programs typically govern the permitting, construction and operation of a facility. Many factors, including public perception, can materially impact the ability to secure an environmental construction or operation permit. Failure to comply with environmental laws and regulations may result in the assessment of substantial administrative, civil and criminal penalties, as well as the issuance of injunctions limiting or prohibiting our activities. In addition, laws and regulations relating to protection of the environment may, in certain circumstances, impose strict liability for environmental contamination, which could result in liability for environmental damages and cleanup costs without regard to negligence or fault on our part.

Beyond existing requirements, new programs and changes in existing programs may address various aspects of our business, including naturally occurring radioactive materials, oil and natural gas exploration and production, air emissions, waste management, and underground injection of waste material. Environmental laws and regulations have been subject to frequent changes over the years, and the imposition of more stringent requirements could have a material adverse effect on our financial condition and results of operations. The following is a summary of the more significant existing environmental, health and safety laws and regulations to which our business operations are subject and for which compliance in the future may have a material adverse impact on our capital expenditures, earnings and competitive position.

Hazardous Substances and Wastes

The federal Comprehensive Environmental Response, Compensation and Liability Act, referred to as CERCLA or the Superfund law, and comparable state laws impose liability, without regard to fault, on certain classes of persons that are considered to be responsible for the release of a hazardous substance into the environment. These persons may include the current or former owner or operator of the site where the release occurred and companies that disposed or arranged for the disposal of hazardous substances that have been released at the site. Under CERCLA, these persons may be subject to joint and several liability for the costs of investigating and cleaning up hazardous substances released into the environment, for damages to natural resources and for the costs of some health studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances or other pollutants released into the environment.

Under the federal Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, referred to as RCRA, most wastes generated by the exploration and production of oil and natural gas are not regulated as hazardous waste. Periodically, however, there are proposals to reclassify oil and gas wastes as hazardous wastes or to subject them to enhanced solid waste regulation. If such proposals were to be enacted, they could have a significant impact on our operating costs and on those of all the industry in general.

In the ordinary course of our operations, moreover, we do handle materials that may be subject to extensive existing RCRA regulations or that may be classified as hazardous substances under CERCLA. From time to time, releases of

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those materials have occurred at locations we own or at which we have operations. Under CERCLA, RCRA and analogous state laws, we have been and may be required to remove or remediate such materials.

Water Discharges

Our operations also may be subject to the federal Clean Water Act and analogous state statutes. Those laws regulate discharges of wastewater, oil, and other pollutants to surface water bodies, such as lakes, rivers, wetlands, and streams. Failure to obtain permits for such discharges could result in civil and criminal penalties, orders to cease such discharges, and costs to remediate and pay natural resources damages. These laws also require the preparation and implementation of spill prevention, control, and countermeasure plans in connection with on-site storage of significant quantities of oil. In the event of a discharge of oil into U.S. waters, we could be liable under the Oil Pollution Act for cleanup costs, damages and economic losses.

Our oil and natural gas production also generates salt water, which is disposed of by underground injection. The federal Safe Drinking Water Act (SDWA), the Underground Injection Control (UIC) regulations promulgated under the SDWA, and related state programs regulate the drilling and operation of salt water disposal wells. The EPA directly administers the UIC program in some states, and in others it is delegated to the state. Permits must be obtained before drilling salt water disposal wells, and casing integrity monitoring must be conducted periodically to ensure the casing is not leaking salt water to groundwater. Contamination of groundwater by oil and natural gas drilling, production, and related operations may result in fines, penalties, and remediation costs, among other sanctions and liabilities under the SDWA and state laws. In addition, third party claims may be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury.

Hydraulic Fracturing

Our completion operations are subject to regulations that may become more stringent in either the short- or long-term. In particular, the well completion technique known as hydraulic fracturing, which is used to stimulate production of oil and natural gas, has come under increased scrutiny by the environmental community, and many local, state and federal regulators. Hydraulic fracturing involves the injection of water, sand and additives under pressure, usually down casing that is cemented in the wellbore, into prospective rock formations at depths to stimulate oil and natural gas production. We engage third parties to provide hydraulic fracturing or other well stimulation services to us in connection with substantially all of the wells for which we are the operator.

Working at the direction of Congress, the EPA issued a study in 2016 finding that hydraulic fracturing could potentially harm drinking water resources under adverse circumstances such as injection directly into groundwater or into production wells lacking mechanical integrity. The EPA also promulgated pre-treatment standards under the Clean Water Act for wastewater discharges from shale hydraulic fracturing operations to municipal sewage treatment plants. Environmental groups have encouraged the EPA to supplement those requirements. Various members of Congress likewise have from time to time introduced bills that would result in more stringent control or outright bans of the hydraulic fracturing process.

In addition, the Department of the Interior promulgated regulations concerning the use of hydraulic fracturing on lands under its jurisdiction, which includes lands on which we conduct or plan to conduct operations. While the Trump Administration rescinded those rules, that decision is being challenged in court. Regardless of how the federal issues are eventually resolved, states have been imposing new restrictions or bans on hydraulic fracturing. Even local jurisdictions, such as Denton, Texas and several cities in Colorado, have adopted, or tried to adopt, regulations restricting hydraulic fracturing. Additional hydraulic fracturing requirements at the federal, state or local level may limit our ability to operate or increase our operating costs.

Air Emissions

The federal Clean Air Act and comparable state laws regulate emissions of various air pollutants through permitting programs and the imposition of other requirements. In addition, the EPA has developed and may continue to develop stringent regulations governing emissions of toxic air pollutants at specified sources, including oil and natural gas

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production. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the federal Clean Air Act and associated state laws and regulations. Our operations, or the operations of service companies engaged by us, may in certain circumstances and locations be subject to permits and restrictions under these statutes for emissions of air pollutants.

In 2012 and 2016, the EPA issued air regulations for the oil and natural gas industry that address emissions from certain new sources of volatile organic compounds, sulfur dioxide, air toxics, and methane. The rules included the first federal air standards for natural gas and oil wells that are hydraulically fractured, or refractured, as well as requirements for other processes and equipment, including storage tanks. Although the EPA later made technical amendments to reduce the regulatory burden of the 2012 and 2016 rules, compliance has imposed additional requirements and costs on our operations.

In October 2015, the EPA announced that it was lowering the primary national ambient air quality standard for ozone from 75 parts per billion to 70 parts per billion, but is reconsidering whether an even stricter standard is warranted. Implementation of the 2015 standard has been ongoing and has resulted in expansion of ozone nonattainment areas across the United States, including areas in which we operate. Oil and natural gas operations in ozone nonattainment areas could be subject to increased regulatory burdens in the form of more stringent emission controls, emission offset requirements, and increased permitting delays and costs.

Climate Change

Studies over recent years have indicated that emissions of certain gases may be contributing to warming of the Earth’s atmosphere. In response, governments increasingly have been adopting domestic and international climate change regulations that require reporting and reductions of the emission of such greenhouse gases. Methane, a primary component of natural gas, and carbon dioxide, a byproduct of burning oil, natural gas and refined petroleum products, are considered greenhouse gases. Internationally, the United Nations Framework Convention on Climate Change, the Kyoto Protocol and the Paris Agreement address greenhouse gas emissions, and several countries, including those comprising the European Union, have established greenhouse gas regulatory systems. In the United States, at the state level, many states, either individually or through multi-state regional initiatives, have been implementing legal measures to reduce emissions of greenhouse gases, primarily through emission inventories, emissions targets, product bans, greenhouse gas cap and trade programs or incentives for renewable energy generation, while others have considered adopting such greenhouse gas programs.

At the federal level, the Obama Administration took a variety of steps to address climate change. For example, the EPA issued regulations requiring us and other companies to annually report certain greenhouse gas emissions from oil and natural gas facilities. Beyond its measuring and reporting rules, the EPA issued an “Endangerment Finding” under section 202(a) of the Clean Air Act, concluding greenhouse gas pollution threatens the public health and welfare of current and future generations. The finding served as the first step in issuing regulations that require permits for and reductions in greenhouse gas emissions for certain facilities.

In addition, the Obama Administration developed a Strategy to Reduce Methane Emissions that was intended to result by 2025 in a 40-45% decrease in methane emissions from the oil and gas industry as compared to 2012 levels. Consistent with that strategy, the EPA issued air rules for oil and gas production sources, and the federal Bureau of Land Management (BLM) promulgated standards (later vacated) for reducing venting and flaring on public lands.

The Trump Administration tried to roll back many of the Obama-era climate change policies and rules. But shortly after his inauguration, President Biden accepted the Paris Agreement on behalf of the United States, declared climate considerations an essential part of the United States’ foreign policy, limited new oil and gas leases on federal lands, and directed federal agencies to incorporate climate change considerations in their operations. New federal programs relating to climate change appear to be likely through at least 2024. For example, EPA has proposed to update, strengthen and revise the greenhouse gas and volatile organic compound emission standards for the oil and natural gas industries, while BLM has proposed new rules to reduce venting, flaring and leaks from oil and gas production on public lands. Aside from new controls, the 2022 Inflation Reduction Act creates incentives designed to increase use of electric cars and fuels other than oil and natural gas.

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Any laws or regulations that may be adopted to restrict or reduce emissions of greenhouse gases could require us to incur additional operating costs, such as costs to purchase and operate emissions control systems or other compliance costs, and reduce demand for our products.

The National Environmental Policy Act

Oil and natural gas exploration and production activities may be subject to the National Environmental Policy Act, or NEPA. NEPA requires federal agencies, including the Department of the Interior, to evaluate major agency actions that have the potential to significantly impact the environment. In the course of such evaluations, an agency will prepare an Environmental Assessment that assesses the potential direct, indirect and cumulative impacts of a proposed project and, if necessary, will prepare a more detailed Environmental Impact Statement that may be made available for public review and comment. All of our current exploration and production activities, as well as proposed exploration and development plans, on federal lands require governmental permits that are subject to the requirements of NEPA. This process has the potential to delay the development of oil and natural gas projects.

Threatened and endangered species, migratory birds, and other natural resources

Various state and federal statutes prohibit certain actions that adversely affect endangered or threatened species and their habitat, migratory birds, wetlands, and other natural resources. These statutes include the Endangered Species Act, the Migratory Bird Treaty Act and the Clean Water Act. The United States Fish and Wildlife Service may designate critical habitat areas that it believes are necessary for survival of threatened or endangered species. A critical habitat designation could result in further material restrictions on federal land use or on private land use and could delay or prohibit land access or development. Where takings of or harm to species or damages to wetlands, habitat, or other natural resources occur or may occur, government entities or at times private parties may act to prevent or restrict oil and gas exploration activities or seek damages for any injury, whether resulting from drilling or construction or releases of oil, wastes, hazardous substances or other regulated materials, and in some cases, criminal penalties may result.

Occupational Safety and Health Act

We are subject to the requirements of the federal Occupational Safety and Health Act and comparable state statutes that regulate the protection of the health and safety of workers. In addition, the Occupational Safety and Health Administration’s hazard communication standard requires that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees.

Human Capital

Employees

At Battalion, our success is delivered through our highly capable and diverse workforce. Our team is comprised of individuals with extensive technical, industry and other professional experience. By recruiting, hiring and retaining an experienced and diverse team, we are able to leverage years of experience, new ideas and problem solving in a collaborative environment. As of December 31, 2022, we had 63 full-time employees. We also engage the services of independent contractors and consultants along with certain professional service firms to support our work in specific areas. We have no collective bargaining agreements with our employees. We believe that we have good relations with our employees.

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Driving and Supporting a Safety First Culture

The safety of our employees, contractors and the communities in which we operate is one of our most critical responsibilities. We believe that driving a safety first culture requires daily prioritization and includes a multi-faceted approach to provide our employees with the tools, support, education and incentives to operate safely:

●

All employees, contractors and consultants performing work in the field participate in ongoing environmental, health and safety engagements including training, routine meetings, and individual coaching;

●

Work stop authority – all of our employees and contractors have a responsibility to intercede and stop observed high hazard activities or conditions without proper controls;

●

Policies and procedures implemented to support a safe working environment; and

●

Environmental and safety metrics measuring performance linked to compensation.

Our employees and contractors are educated on the risks inherent in our operations and are equipped with tools to help them operate safely.

Compensation and Benefits

We have designed our compensation program to attract and retain talented employees with the requisite knowledge and experience. We offer market-competitive compensation programs, as well as strong health and welfare benefits along with a competitive 401(k) program. We have designed paid time off policies to allow our employees time off for family and other priorities. We have operational and financial metrics tied to our short-term incentives that align with our business strategy and the interests of our stockholders.

Diversity and Inclusion

We believe all employees should be treated fairly and valued in our organization. Diversity of thoughts and experiences allows us to identify the best solutions within our company. All Battalion employees must act in accordance with our Employee Handbook, which is inclusive of our Code of Conduct. The Employee Handbook covers various topics including, among others, policies prohibiting harassment, discrimination and retaliation and policies covering workplace anti-violence, cybersecurity, confidential information and conduct. On an annual basis, employees are required to acknowledge and agree to abide by these policies.

COVID-19 Response

In response to the COVID-19 pandemic, we implemented changes to ensure the health and safety of our employees and the communities where we operate. We complied with the guidelines published by the Centers for Disease Control or mandated by local authorities. We implemented work from home arrangements for our staff employees and additional safety measures for those continuing critical on-site work in the field including social distancing, masks, testing, self-reporting and procedures for those testing positive.

Principal Office

As of December 31, 2022, we leased corporate office space in Houston, Texas at 3505 West Sam Houston Parkway North.

Access to Company Reports

We file periodic reports, proxy statements and other information with the SEC in accordance with the requirements of the Securities Exchange Act of 1934, as amended. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Forms 3, 4 and 5 filed on behalf of directors and officers, and any amendments to such reports, available free of charge through our corporate website at www.battalionoil.com as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC. In addition, our insider trading policy,

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regulation FD policy, corporate governance guidelines, code of conduct, code of ethics, audit committee charter, compensation committee charter, nominating and corporate governance committee charter and reserves committee charter are available on our website under the heading “Investors—Corporate Governance”. Within the time period required by the SEC and the NYSE, as applicable, we will post on our website any modifications to the code of conduct and the code of ethics for our chief executive officer and senior financial officers and any waivers applicable to senior officers as defined in the applicable code, as required by the Sarbanes-Oxley Act of 2002. In addition, our reports, proxy and information statements, and our other filings are also available to the public over the internet at the SEC’s website at www.sec.gov. Unless specifically incorporated by reference in this Annual Report on Form 10-K, information that you may find on our website is not part of this report.

ITEM 1A. RISK FACTORS

Financial and Liquidity Risk Factors

Oil and natural gas prices are volatile, and low prices could have a material adverse impact on our business.

Our revenues, profitability, future growth and the carrying value of our properties depend substantially on prevailing oil and natural gas prices. Prices also affect the amount of cash flow we have available for capital expenditures and our ability to borrow and raise additional capital. Lower prices may also reduce the amount of oil and natural gas that we can economically produce and have an adverse effect on the value of our properties.

Oil and natural gas prices are volatile. Among the factors that affect volatility are:

●

domestic and foreign supplies of oil and natural gas;

●

the ability of members of the Organization of Petroleum Exporting Countries and other oil exporting countries, including Russia, to agree upon and maintain production quotas;

●

social unrest and political instability, particularly in major oil and natural gas producing regions outside the United States, such as the Middle East, and armed conflict or terrorist attacks;

●

the level of consumer demand for oil and natural gas, including demand growth in developing countries, such as China and India;

●

labor unrest in oil and natural gas producing regions;

●

weather conditions, including hurricanes and other natural occurrences that affect the supply and/or demand for oil and natural gas;

●

the price and availability of alternative fuels and energy sources;

●

the price and availability of foreign imports and domestic exports; and

●

worldwide and regional economic and political conditions impacting the global supply and demand for oil and natural gas, which may be driven by many factors, including health epidemics (such as the global COVID-19 coronavirus outbreak).

These external factors and the volatile nature of the energy markets make it difficult to estimate future prices of oil and natural gas.

We may have difficulty financing our planned capital expenditures which could adversely affect our growth.

Our business requires substantial capital expenditures primarily to fund our drilling program. We may also continue to selectively increase our acreage position, which would require capital in addition to the capital necessary to drill on our existing acreage. It is possible that we will acquire acreage in other areas that we believe are prospective for oil and natural gas production and expend capital to develop such acreage. We expect to use proceeds from potential future capital markets transactions, if necessary, and which may be difficult or limited to access, to fund capital expenditures that are in excess of our operating cash flow and cash on hand.

Additionally, certain segments of the investor community have negative sentiment towards investing in our industry, with some investors and investment advisors adopting policies negatively impacting investment in the oil and gas sector

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based on social and environmental considerations. Commercial and investment banks have also come under pressure to stop financing oil and gas production and related infrastructure projects. Such developments, including environmental activism and initiatives aimed at limiting climate change and reducing air pollution, could potentially result in a reduction of available capital funding for development projects, thus impacting future financial results.

If we are unable to raise sufficient capital to fund our capital expenditures, we may be required to curtail our drilling, development, land acquisitions and other activities, which could result in a decrease in our production of oil and natural gas, forfeiture of leasehold interests if we are unable or unwilling to renew them, and the sale of some of our assets on an unfavorable basis, each of which could have a material adverse effect on our results and future operations.

Failure to comply with the covenants in our Amended Term Loan Agreement may limit our ability to borrow, result in an event of default and cause amounts outstanding under our Amended Term Loan Agreement to become immediately due and payable.

On November 24, 2021, the Company and its wholly owned subsidiary, Halcón Holdings, LLC (Borrower) entered into an Amended and Restated Senior Secured Credit Agreement (Term Loan Agreement) with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders. On November 14, 2022, the Company entered into a further Amended Credit Agreement (the “Amended Term Loan Agreement”) with its lenders which modified certain provisions of its original Term Loan Agreement. Our Amended Term Loan Agreement limits our borrowings.

As of December 31, 2022, we had approximately $235.0 million of indebtedness outstanding and approximately $1.4 million of letters of credit outstanding under the Amended Term Loan Agreement. As of December 31, 2022, we have no additional borrowing capacity under the Amended Term Loan. Additionally, our Amended Term Loan Agreement contains certain covenants (namely our Current Ratio covenant) as well as a mandatory repayment schedule requiring us to make scheduled amortization payments in the aggregate amount of $35.0 million in 2023 and $120.0 million in the aggregate from the fiscal quarter ending March 31, 2023 through the fiscal quarter ending September 30, 2025.

In November 2022, anticipated non-compliance with our Current Ratio covenant required us to amend our Term Loan Agreement which reduced our Current Ratio requirement through March 31, 2023. Additionally, in order to provide sufficient liquidity in 2023 to address upcoming debt maturities and covenant compliance while funding our operating and capital programs, we obtained approximately $24.4 million of additional equity funding from certain of our existing equity shareholders in March 2023. For a further discussion of these actions, refer to Item 7, Management’s Discussion and Analysis, “Capital Resources and Liquidity” and Item 9B. Other Information.

Our Amended Term Loan Agreement contains the following financial covenants (as defined), including the maintenance of the following ratios:

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

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

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

As of December 31, 2022, the Company was in compliance with its financial covenants.

As described above and in other historical periods, we have periodically sought amendments to the covenants under our revolving credit agreements, including the financial covenants, where we have anticipated difficulty in maintaining compliance. In the event we have difficulty in the future meeting the covenants under our Amended Term Loan Agreement, we would be required to seek additional relief, and there is no assurance that it would be granted. Failure to

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comply with the covenants in our Amended Term Loan Agreement may limit our ability to borrow, result in an event of default and cause amounts outstanding under our Amended Term Loan Agreement to become immediately due and payable.

Unless we replace our reserves, our reserves and production will decline, which would adversely affect our financial condition, results of operations and cash flows.

Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Decline rates are typically greatest early in the productive life of a well. Estimates of the decline rate of an oil or natural gas well are inherently imprecise, and are less precise with respect to new or emerging oil and natural gas formations with limited production histories than for more developed formations with established production histories. Our production levels and the reserves that we currently expect to recover from our wells will change if production from our existing wells declines in a different manner than we have estimated and can change under other circumstances. Our future oil and natural gas reserves and production and, therefore, our cash flows and results of operations are highly dependent upon our success in efficiently developing and exploiting our current properties and economically finding or acquiring additional recoverable reserves. We may not be able to develop, find or acquire additional reserves to replace our current and future production at acceptable costs. If we are unable to replace our current and future production, our cash flows and the value of our reserves may decrease, adversely affecting our business, financial condition, results of operations and cash flows.

Historically, we have had substantial indebtedness and we may incur substantially more debt in the future. Higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business.

We have approximately $235 million principal amount of debt, including current portions, as of December 31, 2022. As a result of our indebtedness, we will need to use a portion of our cash flow to pay interest, and outstanding principal beginning in the fiscal quarter ending March 31, 2023, which will reduce the amount of cash flow we will have available to finance our operations and other business activities and could limit our flexibility in planning for or reacting to changes or adverse developments in our business or economic downturns impacting the industry in which we operate. Indebtedness under our Amended Term Loan Agreement is at a variable interest rate, and so a rise in interest rates will generate greater interest expense to the extent we do not have hedging arrangements that are effective in offsetting interest rate fluctuations. A rise in interest rates could impact on our borrowing costs and could have an adverse effect on our cash flows. In conjunction with the amendment of our Term Loan Agreement in November 2022, we (i) converted our benchmark interest rate from LIBOR to a Secured Overnight Financing Rate (SOFR) plus 0.15% and (ii) increased the applicable margin on borrowings by 0.50%. Borrowings under the Amended Term Loan Agreement will now bear interest at a rate per annum equal to the SOFR plus 7.65%.

We may incur substantially more debt in the future. Our ability to meet our debt obligations and other expenses will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors, many of which we are unable to control. If our cash flow is not sufficient to service our debt, we may be required to refinance debt, sell assets or sell additional shares of common or preferred stock on terms that we may not find attractive if it may be done at all. Further, our failure to comply with the financial and other restrictive covenants relating to our indebtedness could result in a default under that indebtedness, which could adversely affect our business, financial condition and results of operations.

Estimates of proved oil and natural gas reserves involve assumptions and any material inaccuracies in these assumptions will materially affect the quantities and the value of our reserves.

This Annual Report on Form 10-K contains estimates of our proved oil and natural gas reserves. The process of estimating oil and natural gas reserves in accordance with SEC requirements is complex, involving significant estimates and assumptions in the evaluation of available geological, geophysical, engineering and economic data. Accordingly, these estimates are inherently imprecise. Actual future production, oil and natural gas prices, revenues, taxes, capital expenditures, operating expenses and quantities of recoverable oil and natural gas reserves most likely will vary from those estimated. Any significant variance could materially affect the estimated quantities and the value of our reserves.

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In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development, prevailing oil and natural gas prices and other factors, many of which are beyond our control.

The estimates of our reserves as of December 31, 2022 are based upon various assumptions about future production levels, prices and costs that may not prove to be correct over time. In particular, in accordance with SEC requirements, estimates of oil and gas reserves, future net revenue from proved reserves and the present value of our oil and gas properties are based on the assumption that future oil and gas prices remain the same as the 12-month first-day-of-the-month average oil and gas prices for the year ended December 31, 2022. Average prices for oil and natural gas for the 12-month period were as follows: WTI crude oil spot price of $94.14 per Bbl, adjusted by lease or field for quality, transportation fees, and market differentials and a Henry Hub natural gas spot price of $6.36 per MMBtu, adjusted by lease or field for energy content, transportation fees, and market differentials. Any significant variance in the actual future prices from these assumptions could materially affect the estimated quantity and value of our reserves set forth in this report.

In addition, at December 31, 2022, approximately 50% of our estimated proved reserves were classified as proved undeveloped. Recovery of proved undeveloped reserves requires significant capital expenditures and successful drilling operations. Estimated proved reserves as of December 31, 2022 assume that we will make future capital expenditures of approximately $633.3 million in the aggregate primarily from 2023 through 2027, which are necessary to develop and realize the value of proved reserves on our properties. The estimates of these oil and natural gas reserves and the costs associated with development of these reserves have been prepared in accordance with SEC regulations; however, actual capital expenditures will likely vary from estimated capital expenditures, development may not occur as scheduled and actual results may not be as estimated.

We are subject to various contractual limitations that affect the discretion of our management in operating our business.

Our Amended Term Loan Agreement contains various provisions that may limit our management’s discretion in certain respects. In particular, the Amended Term Loan Agreement limits our and our subsidiaries’ ability to, among other things:

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pay dividends on, redeem or repurchase shares of our common stock and any other capital stock we may issue;

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make loans to others;

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make investments;

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incur additional indebtedness;

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create certain liens;

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sell assets;

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enter into agreements that restrict dividends or other payments from our restricted subsidiaries to us;

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consolidate, merge or transfer all or substantially all of our assets and those of our restricted subsidiaries taken as a whole;

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engage in transactions with affiliates;

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increase our exposure to commodity price fluctuations;

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create unrestricted subsidiaries; and

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enter into sale and leaseback transactions.

Compliance with these and other limitations may limit our ability to operate and finance our business and engage in certain transactions in the manner we might otherwise. In addition, if we fail to comply with the limitations under our Amended Term Loan Agreement, our creditors, to the extent the agreement so provides, may accelerate the related indebtedness as well as any other indebtedness to which a cross-acceleration or cross-default provision applies. In addition, lenders may be able to terminate any commitments they had made to make further funds available to us.

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Federal legislation and rulemaking could have an adverse impact on our ability to use derivative instruments to reduce the effects of commodity prices, interest rates and other risks associated with our business.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act establishes, among other provisions, federal oversight and regulation of the over-the-counter derivatives market and entities that participate in that market. The Dodd-Frank Act also establishes margin requirements and certain transaction clearing and trade execution requirements. The Dodd-Frank Act may require us to comply with margin requirements in our derivative activities, although the application of those provisions to us is uncertain at this time. The counterparties to our derivative instruments may also spin off some of their derivatives activities to separate entities, which may not be as creditworthy as the current counterparties.

The Dodd-Frank Act and any new regulations could significantly increase the cost of some commodity derivative contracts (including through requirements to post collateral, which could adversely affect our available liquidity), materially alter the terms of some commodity derivative contracts, limit our ability to trade some derivatives to hedge risks, reduce the availability of some derivatives to protect against risks we encounter, and reduce our ability to monetize or restructure our existing commodity derivative contracts. If we reduce our use of derivatives as a consequence, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.

We cannot be certain that the insurance coverage maintained by us will be adequate to cover all losses that may be sustained in connection with all oil and natural gas activities.

We maintain general and excess liability policies, which we consider to be reasonable and consistent with industry standards. These policies generally cover:

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personal injury;

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bodily injury;

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third party property damage;

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medical expenses;

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legal defense costs;

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pollution in some cases;

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well blowouts in some cases; and

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workers compensation.

As is common in the oil and natural gas industry, we will not insure fully against all risks associated with our business either because such insurance is not available or because we believe the premium costs are prohibitive. A loss not fully covered by insurance could have a material effect on our financial position, results of operations and cash flows.

Our ability to use net operating loss carryforwards and realized built in losses to offset future taxable income for U.S. federal income tax purposes is subject to limitation.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses (NOLs), and realized built in losses (RBILS), to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5% stockholders, applying certain look-through rules) increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally three years).

We experienced ownership changes in December 2018 and October 2019 and we may experience additional ownership changes in the future. Limitations imposed on our ability to use NOLs and RBILS to offset future taxable income may cause U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitations were not

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in effect and could cause such NOLs and RBILS to expire unused, in each case reducing or eliminating the benefit of such NOLs and RBILS. Similar rules and limitations may apply for state income tax purposes.

We may be required to take non-cash asset write-downs.

We may be required under full cost accounting rules to write-down the carrying value of oil and natural gas properties if oil and natural gas prices decline or if there are substantial downward adjustments to our estimated proved reserves, increases in our estimates of development costs or deterioration in our exploration results. We utilize the full cost method of accounting for oil and natural gas exploration and development activities. Under full cost accounting, we are required by SEC regulations to perform a ceiling test each quarter. The ceiling test is an impairment test and generally establishes a maximum, or “ceiling,” of the book value of oil and natural gas properties that is equal to the expected after tax present value (discounted at 10%) of the future net cash flows from proved reserves, including the effect of cash flow hedges when hedge accounting is applied, calculated using the unweighted arithmetic average of the first day of each month for the 12-month period ending at the balance sheet date. If the net book value of oil and natural gas properties (reduced by any related net deferred income tax liability and asset retirement obligation) exceeds the ceiling limitation, SEC regulations require us to impair or “write-down” the book value of our oil and natural gas properties.

Costs associated with unevaluated properties, which were approximately $62.6 million at December 31, 2022, are not initially subject to the ceiling test limitation. Rather, we assess all items classified as unevaluated property on a quarterly basis for possible impairment or reduction in value based upon our intentions with respect to drilling on such properties, the remaining lease term, geological and geophysical evaluations, drilling results, the assignment of proved reserves, and the economic viability of development if proved reserves are assigned. These factors are significantly influenced by our expectations regarding future commodity prices, development costs, and access to capital at acceptable cost. 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 ceiling test limitation. Accordingly, a significant change in these factors, many of which are beyond our control, may shift a significant amount of cost from unevaluated properties into the full cost pool that is subject to depletion and the ceiling test limitation.

Hedging transactions may limit our potential gains and increase our potential losses.

In order to manage our exposure to price risks in the marketing of our oil, natural gas, and natural gas liquids production and comply with the requirements of our Amended Term Loan Agreement, we have entered into oil and natural gas hedging arrangements with respect to a portion of our anticipated production and we may enter into additional hedging transactions in the future. While intended to reduce the effects of volatile commodity prices, such 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. In addition, such transactions may expose us to the risk of loss in certain circumstances, including instances in which:

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our production is less than expected;

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there is a widening of price differentials between delivery points for our production; or

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the counterparties to our hedging agreements fail to perform under the contracts.

Operational Risk Factors

We are substantially dependent upon our drilling success on our Delaware Basin properties.

We are a pure-play, single-basin operator in the Delaware Basin in West Texas. As a consequence of this geographical concentration, we may have greater exposure to the impact of regional supply and demand factors, delays or interruptions in production from governmental regulation, processing or transportation capacity constraints, market limitations, water shortages, or other conditions adversely impacting our ability to produce or market our production. Such events could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

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Our exploration and development drilling efforts and the operation of our wells may not be profitable or achieve our targeted rates of return.

Exploration, development, drilling and production activities are subject to many risks, including the risk that commercially productive reservoirs will not be discovered. We invest in property, including undeveloped leasehold acreage, which we believe will result in projects that will add value over time. However, we cannot guarantee that our leasehold acreage will be profitably developed, that new wells drilled by us will be productive or that we will recover all or any portion of our investment in such leasehold acreage or wells. Drilling for oil and natural gas may involve unprofitable efforts, not only from dry wells but also from wells that are productive but do not produce sufficient net reserves to return a profit after deducting operating and other costs. In addition, wells that are profitable may not achieve our targeted rate of return. Our ability to achieve our target results is dependent upon current and future market prices for our oil and natural gas, costs associated with producing oil and natural gas and our ability to add reserves at an acceptable cost. The costs of drilling and completing a well are often uncertain, and are affected by many factors, including:

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unexpected drilling conditions;

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pressure or irregularities in formations;

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equipment failures or accidents and shortages or delays in the availability of drilling and completion equipment and services;

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adverse weather conditions; and

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compliance with governmental requirements.

If we are unable to accurately predict and control the costs of drilling and completing a well, we may be forced to limit, delay or cancel drilling operations.

Increasing attention to environmental, social and corporate governance (ESG) matters may impact our business.

Companies conducting oil and natural gas activities, like many firms in other industries, are facing increased scrutiny from stakeholders related to their ESG policies and practices. Stakeholder expectations and standards around ESG are evolving and companies that do not adapt or comply with those expectations and standards, regardless of whether there is a legal requirement to do so, may be adversely impacted. Increased attention to ESG matters may impact our business by increasing costs, reducing demand for oil and natural gas, reducing profits, increasing regulations and litigation, or impeding our access to capital and may negatively impact our stock price.

In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their ESG approaches. Currently, there are no universal standards for scores or ratings; however, the importance of sustainability evaluations is becoming more broadly accepted and utilized by investors and stockholders. Unfavorable ratings or assessment of our ESG practices may lead to negative investor sentiment toward us, which could have a negative impact on our stock price and our access to capital.

We could experience periods of higher costs for various reasons, including due to higher commodity prices, increased drilling activity in the Delaware Basin and trade disputes or inflation that affect the costs of steel and other raw materials that we and our vendors rely upon, which could adversely affect our ability to execute our exploration and development plans on a timely basis and within budget.

Our industry is cyclical. When oil, natural gas and natural gas liquids prices increase, shortages of drilling rigs, equipment, supplies, water or qualified personnel may result. During these periods, the costs and delivery times of rigs, equipment and supplies are substantially greater. In addition, the demand for, and wage rates of, qualified drilling rig crews rise as the number of active rigs in service increases. Increasing levels of exploration and production, particularly in the Delaware Basin, likewise may increase demand for oilfield services and equipment, and the costs of these services and equipment may increase, while the quality of these services and equipment may suffer. Cost increases may also result from a variety of factors beyond our control, such as increases in the cost of electricity, steel and other materials that we and our vendors rely upon and increases in the cost of services to process, treat and transport our production. Any escalation or expansion of tariffs could result in higher costs and affect a greater range of materials we rely upon in

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our business. The unavailability or high cost of drilling rigs, pressure pumping equipment, tubulars and other supplies, and of qualified personnel can materially and adversely affect our operations and profitability. In order to secure drilling rigs and pressure pumping equipment and related services, we may enter into contracts that extend over several months or years. If demand for drilling rigs and pressure pumping equipment subside during the period covered by these contracts, the price we are required to pay may be significantly more than the market rate for similar services.

We may not be able to drill wells on a substantial portion of our acreage.

We may not be able to drill on a substantial portion of our acreage for various reasons. We may not generate enough cash flow from operations or be able to raise sufficient capital to do so. Commodities pricing may also make drilling some acreage uneconomic. Our actual drilling activities and future drilling budget will depend on drilling results, oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, lease expirations, gathering system and pipeline transportation constraints, regulatory approvals and other factors. In addition, any drilling activities we conduct may not be successful or result in additional proved reserves, which could have a material adverse effect on our future business, financial condition and results of operations.

Certain of our undeveloped leasehold acreage could expire if we are unable to meet continuous development clauses or similar provisions in our leases requiring development of our undeveloped acreage and/or maintaining production on units containing the acreage.

As of December 31, 2022, we owned leasehold interests in approximately 40,400 net acres in the Delaware Basin in West Texas of which approximately 9,700 net acres are undeveloped. Generally, our oil and natural gas leases remain in force as long as production in paying quantities is maintained. Currently, our leases on undeveloped oil and natural gas properties are either categorized as “held by production” or perpetuated by continuous development clauses contained in our leases or tolling agreements. We continually review our leases on acreage subject to these clauses or agreements when planning for our future drilling programs. If our leases on acreage subject to these provisions are not maintained by production in paying quantities or continuous development, our leases could expire and we would lose our right to develop the related properties.

Our drilling plans are subject to change based upon various factors, many of which are beyond our control, including drilling results, oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, gathering system and pipeline transportation constraints, and regulatory approvals. Further, while not material, some of our acreage is located in sections where we do not hold the majority of the acreage and therefore it is likely that we will not be named operator of these sections. As a non-operating leaseholder we have less control over the timing of drilling and are therefore subject to additional risk of expirations.

Our oil and natural gas activities are subject to various risks that are beyond our control.

Our operations are subject to many risks and hazards incident to exploring and drilling for, producing, transporting, marketing and selling oil and natural gas. Although we take precautionary measures, many of these risks and hazards are beyond our control and unavoidable under the circumstances. Many of these risks or hazards could materially and adversely affect our revenues and expenses, the ability of certain of our wells to produce oil and natural gas in commercial quantities, the rate of production and the economics of the development of, and our investment in, the prospects in which we have or will acquire an interest. Such risks and hazards include:

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human error, accidents and other events beyond our control that may cause personal injuries or death to persons and destruction or damage to equipment and facilities;

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blowouts, fires, adverse weather events, pollution and equipment failures that may result in damage to or destruction of wells, producing formations, production facilities and equipment;

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accidental leaks of natural gas, including gas with high levels of hydrogen sulfide (H2S), and other hydrocarbons or toxic or hazardous materials in the environment as a result of human error or the malfunction of equipment or facilities, which can result in personal injury and loss of life, pollution, damage to equipment and suspension of operations;

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well-on-well interference that may reduce recoveries;

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unavailability of materials and equipment;

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engineering and construction delays;

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unanticipated transportation costs and delays;

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unfavorable weather conditions;

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hazards resulting from unusual or unexpected geological or environmental conditions;

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changes in laws and regulations, including laws and regulations applicable to oil and natural gas activities or markets for the oil and natural gas produced;

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fluctuations in supply and demand for oil and natural gas causing variations of the prices we receive for our oil and natural gas production; and

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the availability of alternative fuels and the price at which they become available.

Some of these risks may be exacerbated by other risks that we face. For instance, certain of our wells produce high levels of H2S, a highly toxic, naturally-occurring gas frequently associated with oil and natural gas production. Safely handling H2S gas requires highly skilled operations and field personnel as well as specialized infrastructure, treating facilities, disposal facilities, and/or third party sour gas takeaway. If we are unable to attract and retain qualified and highly skilled personnel our ability to effectively manage this and other risks may be adversely impacted. Additionally, if we are unable to successfully operate our specialized treating facilities or secure adequate sour gas takeaway capacity from third parties when and if necessary, our ability to effectively manage the H2S levels we see in our natural gas production may be adversely impacted. As a result, our production, revenues, operating costs and liabilities and expenses may be materially and adversely affected and may differ materially from those anticipated by us.

Our ability to sell our production and/or receive market prices for our production may be adversely affected by transportation capacity constraints and interruptions.

If the amount of natural gas, condensate or oil being produced by us and others exceeds the capacity of the various transportation pipelines and gathering systems available in our operating areas, it may be necessary for new transportation pipelines and gathering systems to be built. Or, in the case of oil and condensate, it will be necessary for us to rely more heavily on trucks or trains to transport our production, which is more expensive and less efficient than transportation via pipeline. The construction of new pipelines and gathering systems is capital intensive and construction may be postponed, interrupted or cancelled in response to changing economic conditions, the availability and cost of capital, public opposition, regulatory restrictions and judicial challenges. In addition, capital constraints could limit our ability to build gathering systems to transport our production to transportation pipelines. In such event, costs to transport our production may increase materially or we might have to shut-in our wells awaiting a pipeline connection or capacity and/or sell our production at much lower prices than market or than we currently expect, which would adversely affect our results of operations.

A portion of our production may also be interrupted, or shut-in, from time to time for numerous other reasons, including as a result of weather conditions (which may worsen due to climate changes), accidents, loss of pipeline or gathering system access, field labor issues or strikes, or we might voluntarily curtail production in response to market conditions. If a substantial amount of our production is interrupted at the same time, it could adversely affect our cash flow.

Our strategy involves drilling in shale formations, using horizontal drilling and modern completion techniques. The results of our drilling program using these techniques may be subject to more uncertainties than conventional drilling programs. These uncertainties could result in an inability to meet our expectations for reserves and production.

The drilling of long horizontal laterals and the use of modern completion techniques with multi-stage fracture stimulation in shale formations involves certain risks and complexities that do not exist in conventional wells. Such risks include, but are not limited to, landing the horizontal wellbore in the desired drilling zone, maintaining the desired drilling zone while drilling horizontally through the wellbore formation, running casing through the full span of the wellbore, and being able to run tools and other necessary equipment consistently throughout the horizontal wellbore. Additionally, horizontal drilling and completion techniques may result in faster production decline rates relative to

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conventional drilling methods. The ultimate success of our drilling and completion strategies and techniques will be better evaluated over time as more wells are drilled and production profiles are better established.

If our drilling results are less than anticipated, our investment in these areas may not be as attractive as we anticipate and could result in material write-downs of unevaluated properties and future declines in the value of our undeveloped acreage.

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

We generally obtain title opinions on significant properties that we drill or acquire. However, there is no assurance that we will not suffer a monetary loss from title defects or title failure. Additionally, undeveloped acreage has greater risk of title defects than developed acreage. Generally, under the terms of the operating agreements affecting our properties, any monetary loss is to be borne by all parties to any such agreement in proportion to their interests in such property. If there are any title defects or defects in assignment of leasehold rights in properties in which we hold an interest, we will suffer a financial loss.

We depend substantially on the continued presence of key personnel for critical management decisions and industry contacts.

Our success depends upon the continued contributions of our executive officers and key employees, particularly with respect to providing the critical management decisions and contacts necessary to manage and maintain growth within a highly competitive industry. Competition for qualified personnel can be intense, particularly in the oil and natural gas industry, and there are a limited number of people with the requisite knowledge and experience. Under these conditions, we could be unable to attract and retain these personnel. The loss of the services of any of our executive officers or other key employees for any reason could have a material adverse effect on our business, operating results, financial condition and cash flows.

Investment in Securities Risk Factors

There may be circumstances in which the interests of our significant stockholders could be in conflict with the interests of our other stockholders.

Funds advised by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC held approximately 37.4%, 24.2% and 14.4%, respectively, of our common stock as of March 27, 2023. Circumstances may arise in which these stockholders may have an interest in pursuing or preventing acquisitions, divestitures, or the issuance of additional equity securities or debt, that, in their judgment, could enhance their investment in us or another company in which they invest. Such transactions might adversely affect us or other holders of our common stock. In addition, our significant concentration of share ownership may adversely affect the trading price of our common shares because investors may perceive disadvantages in owning shares in companies with significant stockholders.

Future sales of our common stock in the public market or the issuance of securities senior to our common stock, or the perception that these sales may occur, could adversely affect the trading price of our common stock and our ability to raise funds in stock offerings.

A large percentage of our shares of common stock are held by a relatively small number of investors. Sales by us or our stockholders of a substantial number of shares of our common stock in the public markets, or even the perception that these sales might occur, could cause the market price of our common stock to decline or could impair our ability to raise capital through a future sale of, or pay for acquisitions using, our equity securities.

We are currently authorized to issue 100.0 million shares of common stock and 1.0 million shares of preferred stock, with such designations, rights, preferences, privileges and restrictions as determined by the Board. As of March 27, 2023, we had approximately 16.5 million shares of common stock outstanding and options and restricted stock units to purchase or receive an aggregate of 1.1 million shares of our common stock. As of March 27, 2023, we have also

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reserved an additional 0.3 million shares for future issuance to our directors, officers and employees under our 2020 Long-Term Incentive Plan. The potential issuance of such additional shares of common stock may create downward pressure on the trading price of our common stock. Additionally, on March 28, 2023, we sold an aggregate of 25,000 shares of Series A Convertible Preferred Stock (the “preferred stock”) that is convertible into shares of our common stock, as further described in Item 9B. Other Information.

We may issue common stock or other equity securities senior to our common stock in the future for a number of reasons, including to finance acquisitions, to adjust our leverage ratio, and to satisfy our obligations upon the exercise of warrants and options, or for other reasons. We cannot predict the effect, if any, that future sales or issuances of shares of our common stock or other equity securities, or the availability of shares of common stock or such other equity securities for future sale or issuance, will have on the trading price of our common stock.

We may choose to delist our securities from NYSE American and deregister our common stock under the Exchange Act, which could negatively affect the liquidity and trading prices of our common stock and would result in less disclosure about the Company.

As further discussed in Item 7. Management’s Discussion and Analysis, “Capital Resources and Liquidity,” we are exploring strategic transactions and looking at opportunities to significantly reduce expenses in the near term to bolster liquidity. Given the cost and resource demands of being a public company, we may decide to “go dark,” or discontinue our obligation to make periodic filings with the SEC, by delisting our securities with NYSE American and deregistering our securities with the SEC. While no decision has been made, should we ultimately make the decision to go dark, there would be a substantial decrease in disclosure by us of our operations and prospects, and a potential decrease in the liquidity in our common stock even though stockholders may still continue to trade our common stock on an over-the-counter (OTC) market. As a result of going dark, investors may find it more difficult to dispose of or obtain accurate quotations as to the market value of our common stock, and the ability of our stockholders to sell our common stock in the secondary market may be materially limited.

Regulatory Risk Factors

We are subject to complex federal, state, local and other laws and regulations that frequently are amended to impose more stringent requirements that could adversely affect the cost, manner or feasibility of doing business.

Companies that explore for, develop, produce, sell and transport oil and natural gas in the United States are subject to extensive federal, state and local laws and regulations, including complex tax and environmental, health and safety laws and corresponding regulations, and are required to obtain various permits and approvals from federal, state and local agencies. If these permits are not issued or unfavorable restrictions or conditions are imposed on our activities, we may not be able to conduct our operations as planned. We also may be required to make large expenditures to comply with governmental regulations. Matters subject to regulation include:

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water discharge and disposal permits for drilling operations;

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drilling bonds;

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drilling permits;

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reports concerning operations;

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air quality, air emissions, noise levels and related permits;

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spacing of wells;

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rights-of-way and easements;

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unitization and pooling of properties;

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pipeline construction;

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gathering, transportation and marketing of oil and natural gas;

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taxation; and

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waste transport and disposal permits and requirements.

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Failure to comply with applicable laws may result in the suspension or termination of operations and subject us to liabilities, including administrative, civil and criminal penalties. Compliance costs can be significant. Moreover, the laws governing our operations or the enforcement thereof could change in ways that substantially increase our costs of doing business. For example, negative public perception regarding us and/or our industry may lead to increased regulatory scrutiny, which may, in turn, lead to new state and federal safety and environmental laws, regulations, guidelines and enforcement interpretations. Any such liabilities, penalties, suspensions, terminations or regulatory changes could materially and adversely affect our business, financial condition and results of operations.

Under environmental, health and safety laws and regulations, we also could be held liable for personal injuries, property damage (including site clean-up and restoration costs) and other damages including the assessment of natural resource damages. Such laws may impose strict as well as joint and several liability for environmental contamination, which could subject us to liability for the conduct of others or for our own actions that were in compliance with all applicable laws at the time such actions were taken. Environmental and other governmental laws and regulations also increase the costs to plan, design, drill, install, operate and abandon oil and natural gas wells. Moreover, public interest in environmental protection has increased in recent years, and environmental organizations have opposed, with some success, certain drilling and pipeline projects. Part of the regulatory environment in which we operate includes, in some cases, federal requirements for performing or preparing environmental assessments, environmental impact studies and/or plans of development before commencing exploration and production activities. In addition, our activities are subject to regulation relating to conservation practices and protection of correlative rights. Such regulations affect our operations and limit the quantity of oil and natural gas we may produce and sell. Delays in obtaining regulatory approvals or necessary permits, the failure to obtain a permit or the receipt of a permit with excessive conditions or costs could have a material adverse effect on our ability to explore on, develop or produce our properties. Additionally, the oil and natural gas regulatory environment could change in ways that might substantially increase the financial and managerial costs to comply with the requirements of these laws and regulations and, consequently, adversely affect our profitability. By way of example, in 2015 the EPA lowered the primary national ambient air quality standard for ozone from 75 parts per billion to 70 parts per billion and is reconsidering whether an even stricter standard is warranted. Implementation eventually could result in more stringent emissions controls and additional permitting obligations for our operations.

Federal, state and local legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.

We engage third parties to provide hydraulic fracturing or other well stimulation services to us in connection with many of the wells for which we are the operator. Federal, state and local governments have been adopting or considering restrictions on or prohibitions of fracturing in areas where we currently conduct operations, or may in the future, plan to conduct operations. Consequently, we could be subject to additional levels of regulation, operational delays or increased operating costs and could have additional regulatory burdens imposed upon us that could make it more difficult to perform hydraulic fracturing and increase our costs of compliance and doing business.

From time to time, for example, legislation has been proposed in Congress to require more stringent federal control or outright bans of hydraulic fracturing. Further, the EPA issued a study in 2016 finding that hydraulic fracturing could potentially harm drinking water resources under adverse circumstances such as injection directly into groundwater or into production wells lacking mechanical integrity. Other governmental reviews have also been conducted that focus on environmental aspects of hydraulic fracturing. Such activities eventually could result in additional regulatory control.

Certain states, including Texas where we conduct our operations, likewise are considering or have adopted more stringent requirements for various aspects of hydraulic fracturing operations, such as permitting, disclosure, air emissions, well construction, seismic monitoring, waste disposal and water use. In addition to state laws, local land use restrictions, such as city ordinances, may restrict or prohibit drilling in general or hydraulic fracturing in particular. Such efforts have extended to bans on hydraulic fracturing.

The proliferation of regulations may limit our ability to operate. If the use of hydraulic fracturing is limited, prohibited or subjected to further regulation, these requirements could delay or effectively prevent the extraction of oil and natural gas from formations which would not be economically viable without the use of hydraulic fracturing. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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Regulation related to global warming and climate change could have an adverse effect on our operations and demand for oil and natural gas.

Studies over recent years have indicated that emissions of certain gases may be contributing to warming of the Earth’s atmosphere. In response, governments increasingly have been adopting domestic and international climate change regulations that require reporting and reductions of the emission of such greenhouse gases. Methane, a primary component of natural gas, and carbon dioxide, a byproduct of burning oil, natural gas and refined petroleum products, are considered greenhouse gases. Internationally, the United Nations Framework Convention on Climate Change, the Kyoto Protocol and the Paris Agreement address greenhouse gas emissions, and international negotiations over climate change and greenhouse gases are continuing. Meanwhile, several countries, including those comprising the European Union, have established greenhouse gas regulatory systems.

In the United States, many states, either individually or through multi-state regional initiatives, have been implementing legal measures to reduce emissions of greenhouse gases, primarily through emission inventories, emission targets, product bans, greenhouse gas cap and trade programs or incentives for renewable energy generation, while others have considered adopting such greenhouse gas programs.

At the federal level, the Obama Administration addressed climate change through a variety of administrative actions. The EPA thus issued greenhouse gas monitoring and reporting regulations that cover oil and natural gas facilities, among other industries. Beyond measuring and reporting, the EPA issued an “Endangerment Finding” under section 202(a) of the Clean Air Act, concluding certain greenhouse gas pollution threatens the public health and welfare of current and future generations. The finding served as the first step to issuing regulations that require permits for and reductions in greenhouse gas emissions for certain facilities. In March 2014, moreover, then President Obama released a Strategy to Reduce Methane Emissions that included consideration of both voluntary programs and targeted regulations for the oil and gas sector. Consistent with that strategy, the EPA issued final rules in 2016 for new and modified oil and gas production sources (including hydraulically fractured oil wells, natural gas well sites, natural gas processing plants, natural gas gathering and boosting stations and natural gas transmission sources) to reduce emissions of methane as well as volatile organic compound and toxic pollutants. In addition, the BLM promulgated standards for reducing venting and flaring on public lands (which were eventually vacated).

The Trump Administration tried to roll back many of the Obama-era climate change policies and rules. But shortly after his inauguration, President Biden accepted the Paris Agreement on behalf of the United States, declared climate considerations an essential part of the United States’ foreign policy, limited new oil and gas leases on federal lands, and directed federal agencies to incorporate climate change considerations in their operation. New federal programs relating to climate change appear to be likely through at least 2024. For example, EPA has proposed to update, strengthen and revise the greenhouse gas and volatile organic compound emission standards for the oil and natural gas industries, while BLM has proposed new rules to reduce venting, flaring and leaks from oil and gas production on public lands. Aside from new controls, the 2022 Inflation Reduction Act creates incentives meant to promote use of electric cars and fuels other than oil and natural gas.

In the courts, several decisions have been issued that may increase the risk of claims being filed by governments and private parties against companies that cause or contribute to significant greenhouse gas emissions. Such cases may seek emissions reductions, challenge air emissions or other permits or request damages for alleged climate change impacts to the environment, people, and property.

Any new initiatives that may be adopted to reduce emissions of greenhouse gases could require us to incur additional operating costs, such as costs to purchase and operate emissions controls, to obtain emission allowances or to pay emission taxes, and reduce demand for our products.

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Our operations substantially depend on the availability of water. Restrictions on our ability to obtain, dispose of or recycle water may impact our ability to execute our drilling and development plans in a timely or cost-effective manner.

Water is an essential component of our drilling and hydraulic fracturing processes. If we are unable to obtain water to use in our operations from local sources, we may be unable to economically produce oil, natural gas liquids and natural gas, which could have an adverse effect on our business, financial condition and results of operations. Wastewaters from our operations typically are disposed of via underground injection. Some studies have linked earthquakes in certain areas to underground injection, which is leading to greater public scrutiny and regulation of disposal wells. Any new environmental initiatives or regulations that restrict injection of fluids, including, but not limited to, produced water, drilling fluids and other wastes associated with the exploration, development or production of oil and gas, or that limit the withdrawal, storage or use of surface water or ground water necessary for hydraulic fracturing of our wells, could increase our operating costs and cause delays, interruptions or cessation of our operations, the extent of which cannot be predicted, and all of which would have an adverse effect on our business, financial condition, results of operations and cash flows.

COVID-19 Risk Factors

Events beyond our control, including a global or domestic health crisis, may result in unexpected adverse operating and financial results.

In 2020, in response to the novel coronavirus (COVID-19) pandemic governments around the world, including U.S. federal and state governments, imposed restrictions intended to limit the extent and spread of the virus, including travel restrictions, quarantines and business closures. The COVID-19 outbreak and governmental restrictions significantly impacted economic activity and markets and dramatically reduced demand for oil and natural gas, adversely impacting the prices we receive for our production, resulting in us temporarily shutting in producing wells. During 2021, widespread availability of COVID-19 vaccines in the United States and elsewhere combined with accommodative governmental monetary and fiscal policies and other factors, led to a rebound in demand for oil and natural gas and increases in oil and natural gas prices. However, there remains the potential for demand for oil and natural gas to be adversely impacted by the economic effects of the COVID-19 pandemic, including as a consequence of the circulation of more infectious “variants” of the disease, vaccine hesitancy, waning vaccine effectiveness or other factors. As a consequence, we are unable to predict the impact of these factors which may negatively impact our business in numerous ways, including, but not limited to, the following:

●

reducing our revenues if the outbreak results in a substantial or prolonged decrease in demand for oil and natural gas due to an economic downturn or recession;

●

disrupting our operations if our employees or contractors are unable to work due to illness or if our field operations are suspended or temporarily shut-down or restricted due to measures designed to contain the outbreak;

●

disrupting the operations of our midstream service providers, on whom we rely for the gathering, processing and transportation of our production, due to measures designed to contain the outbreak, and/or the difficult economic environment may lead to capital spending constraints, bankruptcy, the closing of facilities or inability to maintain infrastructure, which may adversely affect our ability to market our production, increase our costs, lower the prices we receive, or result in the shut-in of our producing wells or a delay or discontinuation of our development plans; and

●

the disruption and instability in the financial markets and the uncertainty in the general business environment may affect our ability to access capital, monetize assets and successfully execute our plans.

The COVID-19 pandemic may also have the effect of heightening many of the other risks set forth below. Any of these factors could have a material adverse effect on our business, operations, financial results and liquidity. In 2020, oil and natural gas prices declined to historically low levels and we reduced our planned capital expenditures, delayed our drilling and completion plans and temporarily shut-in some of our producing wells, among other responses. We are unable to predict the ultimate adverse impact of the COVID-19 on our business, which will continue to depend on numerous evolving factors and future developments, including the length of time that the pandemic continues, its effect

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on the demand for oil and natural gas and the response of the overall economy and the financial markets after governmental restrictions are eased.

A financial downturn could negatively affect our business, results of operations, financial condition and liquidity.

Actual or anticipated declines in domestic or foreign economic growth rates, regional or worldwide increases in tariffs or other trade restrictions, turmoil affecting the U.S. or global financial system and markets and a severe economic contraction either regionally or worldwide, resulting from efforts to contain the COVID-19 coronavirus or other factors, could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price we receive for our oil and natural gas production. 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 and cash flows.

Cybersecurity Risk Factors

We depend on computer, telecommunications and information technology systems to conduct our business, and failures, disruptions, cyber-attacks or other breaches in data security could significantly disrupt our business operations, create liability and increase our costs.

The oil and natural gas industry in general has become increasingly dependent upon technology to conduct day-to-day operations, including certain exploration, development and production activities. We have agreements with third parties for hardware, software, telecommunications and other information technology services necessary to our business and have developed proprietary software systems, management techniques and other information technologies incorporating software licensed from third parties. We use these systems and data to, among other things, estimate quantities of oil, natural gas liquids and natural gas reserves, process and record financial data and communicate with our employees and third parties. Failures in these systems due to hardware or software malfunctions, computer viruses, natural disasters, fire, human error or other causes could significantly affect our ability to conduct our business. In particular, cyber-security attacks on systems are increasing in frequency and sophistication and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data. Although we utilize various procedures and controls to monitor and protect against these threats and to mitigate our exposure to them, there can be no assurance that these procedures and controls will be sufficient to prevent security threats from materializing and any interruptions to our arrangements with third parties, to our computing and communications infrastructure or our information systems could significantly disrupt our business operations. Further, the loss or corruption of sensitive information could have a material adverse effect on our reputation, financial position, results of operations or cash flows. In addition, as cyber-attacks continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any vulnerability to cyber-attacks. We generally do not maintain insurance coverage for the costs associated with cyber-security events.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

A description of our properties is included in Item 1. Business and is incorporated herein by reference.

We believe that we have satisfactory title to the properties owned and used in our business, subject to liens for taxes not yet payable, liens incident to minor encumbrances, liens for credit arrangements and easements and restrictions that do not materially detract from the value of these properties, our interests in these properties, or the use of these

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properties in our business. We believe that our properties are adequate and suitable for us to conduct business in the future.

ITEM 3. LEGAL PROCEEDINGS

A description of our legal proceedings is included in Item 8. Consolidated Financial Statements and Supplementary Data—Note 9, “Commitments and Contingencies,” and is incorporated herein by reference.

Under rules promulgated by the SEC, administrative or judicial proceedings arising under any federal, state or local provisions that have been enacted or adopted regulating the discharge of materials into the environment or primarily for the purpose of protecting the environment are disclosed if the governmental authority is party to such proceeding and the proceeding involves potential monetary sanctions of $300,000 or more. We are not party to any such proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

On February 20, 2020, our common stock commenced trading on the NYSE American exchange under the symbol “BATL.” Approximately 50 registered stockholders of record as of March 27, 2023 held our common stock. In most instances, a registered stockholder holds shares in street name for one or more customers who beneficially own the shares.

We intend to retain earnings for use in the operation and expansion of our business and therefore do not anticipate declaring cash dividends on our common stock in the foreseeable future. Any future determination to pay dividends on common stock will be at the discretion of the board of directors and will be dependent upon then existing conditions, including our prospects, and such other factors, as the board of directors deems relevant. We are also restricted from paying cash dividends on common stock under our Amended Term Loan Agreement.

Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

None.

ITEM 6. RESERVED

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ITEM 7. 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 and our current financial condition. Our consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K contain additional information that should be referred to when reviewing this material.

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

Overview

We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States. During 2017, we acquired certain properties in the Delaware Basin and divested our assets located in the Williston Basin in North Dakota and in the El Halcón area of East Texas. As a result, our properties and drilling activities are currently focused in the Delaware Basin, where we have an extensive drilling inventory that we believe offers attractive 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, weather, transportation take-away capacity constraints, inventory storage levels, basis differentials and other factors. Accordingly, finding and developing oil and natural gas reserves at economical costs is 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 Amended Term Loan Agreement and extend, on a rolling basis, for the next 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

Preferred Stock Equity Issuance. On March 28, 2023, we sold, in a private placement, an aggregate of 25,000 shares of Series A Convertible Preferred Stock (the “preferred stock”) to certain funds managed by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC, who represent our largest three existing shareholders. We received $24,375,000 in proceeds, net of $625,000 in original issue discount. The issuance of preferred stock was approved by our board of directors upon recommendation by a special committee of disinterested directors that was established to evaluate the proposed terms of the preferred stock. Holders will have no voting rights with respect to the shares of preferred stock. The preferred stock will receive annual dividends, paid either in cash at a fixed rate of 14.5% annually or accrued (“PIK accrual”) at a fixed rate of 16.0% annually at the option of the Company. Currently, the Company’s Amended Term Loan Agreement prohibits the payment of cash dividends. PIK dividends will be cumulative, compound and accrue quarterly in arrears and will be added to the Liquidation Preference.

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($1,000 per share, or $25.0 million, increased for any PIK accruals) determined according to the redemption date. Additionally, in the event of a change of control, holders have the right to receive, (i) at any time on or prior to 150 days following the closing date, and at the election of the Company, a cash payment equal to the Liquidation Preference or equity consideration equal to the 107.5% of the Liquidation Preference, or (ii) at any time after 150 days following the closing date, a cash payment equal to between 100-120% of the Liquidation Preference determined by the redemption date or conversion into common stock. Until (i) a termination of or certain amendments to the Amended Term Loan Agreement or (ii) one year past the maturity date of the Amended Term Loan Agreement, an election of the cash payment option by holders in a change of control scenario is not permitted. For additional information, see Item 9B. Other Information.

H2S Treating Joint Venture. In May 2022, we entered into a joint venture agreement with Caracara Services, LLC (“Caracara”) to develop a strategic acid gas treatment and carbon sequestration facility (the “Facility”) in Winkler County, Texas. The joint venture, operating as Brazos Amine Treater, LLC (“BAT”), has also entered into a Gas Treating Agreement (“GTA”) with us for gas production from our Monument Draw area. In exchange for contributing to the joint venture a wellbore with an approved permit for the injection of acid gas and surface land, we retained a 5% equity interest in BAT, an unconsolidated subsidiary. Caracara provided all necessary capital for the construction of the Facility, which is expected to have an initial capacity of approximately 30 MMcf per day, and a design capacity to treat up to 10% combined concentrations for H2S and CO2. We expect the AGI facility will be mechanically complete in early April 2023 and expect the facility to be in service in the second quarter of 2023.

Under the GTA, we will pay a treating rate that varies based on volumes delivered to the Facility for a term that will last 20 years from the in-service date of the Facility and have a minimum volume commitment of 20 MMcf per day, with certain rollover rights and start-up flexibility, for an initial term of five years from the in service date of the Facility, which can be extended up to seven years under certain conditions. Once in service, the GTA has a tiered-rate structure which is expected to drive a greater than 50 percent reduction in treating fees. Our current estimates of facility in-service dates and future treating fee reductions are subject to various operational and other risk factors, some of which are beyond our control, which could impact the timing and extent of these estimates.

Capital Resources and Liquidity

Overview. 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. As of December 31, 2022, we had $32.7 million of cash and cash equivalents, and no additional borrowing capacity under the Amended Term Loan. On March 28, 2023, we received approximately $24.4 million in additional cash proceeds upon the issuance of 25,000 shares of preferred stock as described above.

Our Amended Term Loan Agreement contains certain restrictive covenants (namely our Current Ratio covenant) as well as a mandatory repayment schedule ($5 million due March 31, 2023 and $10 million due at the end of each succeeding quarter in 2023 and in the aggregate, $120.0 million due from the fiscal quarter ending March 31, 2023 through the fiscal quarter ending September 30, 2025). In November 2022, we were required to seek an amendment to our Term Loan to alleviate Current Ratio covenant compliance requirements through the first quarter of 2023 as a result of reduced commodity prices, higher interest rates, and the high capital costs experienced in our 2022 drilling program, which are by nature difficult to predict and subject to factors outside the Company’s control.

In December of 2022 and January of 2023, commodity prices, cost conditions and interest rates continued to deteriorate, which further constrained our liquidity. As a result, we projected near-term future covenant (Current Ratio) breaches beginning with the first quarter of 2023 coupled with inadequate liquidity resources available to fully fund all of our collective upcoming obligations, including debt repayments and interest, capital expenditures and operating costs. In the absence of obtaining additional liquidity from other sources prior to March 2023, we obtained $24.4 million of additional preferred equity funding as noted above.

We believe our forecasted cash flows from operations, cash on hand (including $24.4 million from our March 2023 preferred stock issuance) and our hedging program provide us with sufficient liquidity to address our near-term debt

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maturities of approximately $45.0 million through the first quarter of 2024, maintain compliance with our debt covenants, address concerns around future covenant compliance, and meet our drilling requirements under our leases. However, without additional future capital funding, our liquidity may continue to be constrained and will not provide for growth in our drilling program or maintenance or growth in production volumes.

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. The Company has been, and continues to, explore strategic transactions to address these concerns, while also looking at opportunities to significantly reduce expenses in the near term. In this regard, the Company has considered whether it is advisable to continue to bear the ongoing costs of the listing of its common stock on the NYSE American and of being a reporting Company under the Securities Exchange Act of 1934. The Company believes that it currently qualifies to suspend these obligations should it elect to do so. While such a determination has not yet been made, the Company expects that the cost savings, particularly over the longer term, would be significant. Accordingly, the Company will continue to consider the matter while it simultaneously pursues strategic and financial alternatives that may render it unnecessary. We will continue to pursue additional liquidity sources which could include entering into other financing arrangements (e.g. future equity raises), a sale of a portion of our non-core assets, pursuing strategic merger opportunities or joint ventures, further reducing our discretionary capital program, or pursuing other general and administrative or other cost reduction opportunities including aligning our workforce headcount with planned drilling activity. 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.

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 U.S. or global financial system and markets and a severe economic contraction either regionally or worldwide, resulting from international conflicts, efforts to contain the COVID-19 pandemic 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 covenants in our Amended 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 Amended Term Loan Agreement.

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Capital Expenditures. During 2022, we spent approximately $126.6 million in capital expenditures, including drilling, completion, support infrastructure and other capital costs. In 2022, we ran one operated rig in the Delaware Basin. We drilled, completed, and brought online 9 gross (8.5 net) operated wells during the year. We had one drilled well awaiting completion as of December 31, 2022.

Debt Obligations. On November 24, 2021, we and our wholly owned subsidiary, Halcón Holdings, LLC (Borrower), entered into a Term Loan Agreement with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders. The Term Loan Agreement amended and restated in its entirety our previous revolving credit agreement entered into in 2019.

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

●

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

●

Interest Rate. We converted our benchmark interest rate from LIBOR to a Secured Overnight Financing Rate (SOFR) plus 0.15% and increased the applicable margin on borrowings by 0.50%, such that borrowings under the Amended Term Loan Agreement will now bear interest at a rate per annum equal to the SOFR benchmark rate plus 7.65%.

●

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


Period (after amendment date)			Premium
Months 0 - 12			Make-whole amount equal to 12 months of interest plus 2.00%
Months 13 - 24			2.00%
Thereafter			0.00%

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

We may be required to make mandatory prepayments of the loans under the Amended Term Loan Agreement in connection with the incurrence of non-permitted debt, certain asset sales, and with cash on hand in excess of certain maximum levels beginning in 2023. For each fiscal quarter after January 1, 2023, we are required to make mandatory prepayments when the Consolidated Cash Balance, as defined in the Amended Term Loan Agreement, exceeds $20.0 million. Until December 31, 2024, the forecasted approved plan of development (APOD) capital expenditures for the succeeding fiscal quarter are excluded for purposes of determining the Consolidated Cash Balance.

We are required to make scheduled amortization payments in the aggregate amount of $120.0 million from the fiscal quarter ending March 31, 2023 through the fiscal quarter ending September 30, 2025. Amounts outstanding under the Amended Term Loan Agreement are guaranteed by certain of the Borrower’s direct and indirect subsidiaries and secured

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

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

●

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

●

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

●

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

The Amended Term Loan Agreement also contains an APOD for our Monument Draw acreage through the drilling and completion of certain wells. The Term Loan Agreement contains a proved developed producing production test and an APOD economic test which we must maintain compliance with; otherwise, subject to any available remedies or waivers, we are required to immediately cease making expenditures in respect of the approved plan of development other than any expenditures deemed necessary by us in respect of no more than six additional approved plan of development wells.

The Amended Term Loan Agreement also contains certain events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy.

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 Amended 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, as evidenced most recently by the amendment of our Term Loan Agreement in November 2022 which reduced the Current Ratio covenant as of September 30, 2022 and each successive quarter through the quarter ended March 31, 2023, 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 Amended Term Loan Agreement.

The results presented in this Form 10-K are not necessarily indicative of future operating results. For further information regarding these risks and uncertainties on us, see “Risk Factors” in Item 1A of this Annual Report on Form 10-K.

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Cash Flow. Net increase (decrease) in cash, cash equivalents and restricted cash is summarized as follows (in thousands):


	Years Ended December 31,
	2022		2021
Cash flows provided by (used in) operating activities	$	78,801	$	68,572
Cash flows provided by (used in) investing activities		(126,130)		(51,913)
Cash flows provided by (used in) financing activities		31,786		27,405
Net increase (decrease) in cash, cash equivalents and restricted cash	$	(15,543)	$	44,064

Operating Activities. Net cash flows provided by operating activities for the years ended December 31, 2022 and 2021 were $78.8 million and $68.6 million, respectively. Items impacting operating cash flows were (i) higher total operating revenues resulting from an approximate $15.50 per Boe increase in average realized prices (excluding the impact of hedging arrangements) for the year ended December 31, 2022 compared to the year ended December 31, 2021 partially offset by realized losses from derivative contracts, (ii) increased operating and interest costs in 2022, and (iii) changes in working capital.

Investing Activities. Net cash flows used in investing activities for the years ended December 31, 2022 and 2021 were approximately $126.1 million and $51.9 million, respectively.

During the year ended December 31, 2022, we spent $125.5 million on oil and natural gas capital expenditures, of which $108.3 million related to drilling and completion costs and $13.7 million related to the development of our treating equipment and gathering support infrastructure.

During the year ended December 31, 2021, we spent $52.6 million on oil and natural gas capital expenditures, of which $42.9 million related to drilling and completion costs and $6.8 million related to the development of our treating equipment and gathering support infrastructure.

Financing Activities. Net cash flows provided by financing activities for the years ended December 31, 2022 and 2021 were approximately $31.8 million and $27.4 million, respectively. During the year ended December 31, 2022, we borrowed the remaining $35.0 million available under the Amended Term Loan Agreement and paid approximately $2.9 million in deferred financing costs, including $2.4 million upon entering into the Amended Term Loan Agreement with its lenders in November 2022.

During the year ended December 31, 2021, we borrowed $200.0 million under the Term Loan Agreement and paid in cash $14.2 million in debt issuance costs associated with the loan. A portion of the funds received from the Term Loan Agreement were used to refinance all amounts owed under the Senior Credit Agreement.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect our reported results of operations and the amount of reported assets, liabilities and proved oil and natural gas reserves. Some accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. Actual results may differ from the estimates and assumptions used in the preparation of our consolidated financial statements. Described below are the significant policies we apply in preparing our consolidated financial statements, some of which are subject to alternative treatments under accounting principles generally accepted in the United States. We also describe the significant estimates and assumptions we make in applying these policies. We discussed the development, selection and disclosure of each of these with our audit committee. See Item 8. Consolidated Financial Statements and Supplementary Data—Note 1, “Summary of Significant Events and Accounting Policies,” for a discussion of additional accounting policies and estimates made by management.

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Oil and Natural Gas Activities

Accounting for oil and natural gas activities is subject to unique rules. Two generally accepted methods of accounting for oil and natural gas activities are available - successful efforts and full cost. The most significant differences between these two methods are the treatment of unsuccessful exploration costs and the manner in which the carrying value of oil and natural gas properties are amortized and evaluated for impairment. The successful efforts method requires unsuccessful exploration costs to be expensed as they are incurred upon a determination that the well is uneconomical while the full cost method provides for the capitalization of these costs. Both methods generally provide for the periodic amortization of capitalized costs based on proved reserve quantities. Impairment of oil and natural gas properties under the successful efforts method is based on an evaluation of the carrying value of individual oil and natural gas properties against their estimated fair value, while impairment under the full cost method requires an evaluation of the carrying value of oil and natural gas properties included in a cost center against the net present value of future cash flows from the related proved reserves, using the unweighted arithmetic average of the first day of the month for each of the 12-month prices for oil and natural gas within the period, holding prices and costs constant and applying a 10% discount rate.

Full Cost Method

We use the full cost method of accounting for our oil and natural gas activities. Under this method, all costs incurred in the acquisition, exploration and development of oil and natural gas properties are capitalized into a cost center (the amortization base or full cost pool). Such amounts include the cost of drilling and equipping productive wells, treating equipment and gathering support facilities costs, dry hole costs, lease acquisition costs and delay rentals. All general and administrative costs unrelated to drilling activities are expensed as incurred. The capitalized costs of our evaluated oil and natural gas properties, plus an estimate of our future development and abandonment costs, are amortized on a unit-of-production method based on our estimate of total proved reserves. Our financial position and results of operations could have been significantly different had we used the successful efforts method of accounting for our oil and natural gas activities.

Proved Oil and Natural Gas Reserves

Estimates of our proved reserves included in this report are prepared in accordance with accounting principles generally accepted in the United States and SEC guidelines. Our engineering estimates of proved oil and natural gas reserves directly impact financial accounting estimates, including depletion, depreciation and accretion expense and the full cost ceiling test limitation. Proved oil and natural gas reserves are the estimated quantities of oil and natural gas reserves that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under defined economic and operating conditions. The process of estimating quantities of proved reserves is very complex, requiring significant subjective decisions in the evaluation of all geological, engineering and economic data for each reservoir. The accuracy of a reserve estimate is a function of (i) the quality and quantity of available data; (ii) the interpretation of that data; (iii) the accuracy of various mandated economic assumptions; and (iv) the judgment of the persons preparing the estimate. The data for a given reservoir may change substantially over time as a result of numerous factors, including additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. Changes in oil and natural gas prices, operating costs and expected performance from a given reservoir also will result in revisions to the amount of our estimated proved reserves.

Our estimated proved reserves for the years ended December 31, 2022, 2021 and 2020 were prepared by Netherland, Sewell, an independent oil and natural gas reservoir engineering consulting firm. For more information regarding reserve estimation, including historical reserve revisions, refer to Item 8. Consolidated Financial Statements and Supplementary Data—“Supplemental Oil and Gas Information (Unaudited).”

Depletion Expense

Our rate of recording depletion expense is primarily dependent upon our estimate of proved reserves, which is utilized in our unit-of-production method calculation. If the estimates of proved reserves were to be reduced, the rate at

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which we record depletion expense would increase, reducing net income. Such a reduction in reserves may result from calculated lower market prices, which may make it non-economic to drill for and produce higher cost reserves. At December 31, 2022, a five percent positive revision to proved reserves would decrease the depletion rate by approximately $0.50 per Boe and a five percent negative revision to proved reserves would increase the depletion rate by approximately $0.54 per Boe.

Full Cost Ceiling Test Limitation

Under the full cost method, we are subject to quarterly calculations of a ceiling or limitation on the amount of our oil and natural gas properties that can be capitalized on our balance sheet. If the net capitalized costs of our oil and natural gas properties exceed the cost center ceiling, we are subject to a ceiling test write-down to the extent of such excess. If required, it would reduce earnings and impact stockholders’ equity in the period of occurrence and could result in lower amortization expense in future periods. The present value of our estimated proved reserves (discounted at 10%) is a major component of the ceiling calculation and represents the component that requires the most subjective judgments. However, the associated prices of oil and natural gas reserves that are included in the discounted present value of the reserves do not require judgment. The ceiling calculation dictates that we use the unweighted arithmetic average price of oil and natural gas as of the first day of each month for the 12-month period ending at the balance sheet date. If average oil and natural gas prices decline, it is possible that write-downs of our oil and natural gas properties could occur in the future. In addition to commodity prices, our production rates, levels of proved reserves, future development costs, transfers of unevaluated properties to our full cost pool, capital spending and other factors will determine our actual ceiling test calculation and impairment analyses in future periods.

Using the first-day-of-the-month average for the 12-months ended December 31, 2022 of the WTI crude oil spot price of $94.14 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for the 12-months ended December 31, 2022 of the Henry Hub natural gas price of $6.36 per MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials, our ceiling test calculation would not have generated an impairment at December 31, 2022, holding all other inputs and factors constant. Additionally, a 10% reduction in respective commodity prices at December 31, 2022, while all other factors remained constant, would not have generated an impairment.

Future Development Costs

Future development costs include costs incurred to obtain access to proved reserves such as drilling costs and the installation of production equipment. Future abandonment costs include costs to dismantle and relocate or dispose of our production facilities, gathering systems and related structures and restoration costs. We develop estimates of these costs for each of our properties based upon their geographic location, type of production facility, well depth, currently available procedures and ongoing consultations with construction and engineering consultants. Because these costs typically extend many years into the future, estimating these future costs is difficult and requires management to make judgments that are subject to future revisions based upon numerous factors, including changing technology and the political and regulatory environment. We review our assumptions and estimates of future development and future abandonment costs on an annual basis. At December 31, 2022, a five percent increase in future development and abandonment costs would increase the depletion rate by approximately $0.34 per Boe and a five percent decrease in future development and abandonment costs would decrease the depletion rate by $0.35 per Boe.

Accounting for Derivative Instruments and Hedging Activities

We account for our derivative activities under the provisions of ASC 815, Derivatives and Hedging (ASC 815). ASC 815 establishes accounting and reporting that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at fair value. From time to time, in accordance with our policy, we may hedge a portion of our forecasted oil and natural gas production. We elected to not designate any of our positions for hedge accounting. Accordingly, we record the net change in the mark-to-market valuation of these positions, as well as payments and receipts on settled contracts, in “Net gain (loss) on derivative contracts” on the consolidated statements of operations.

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Income Taxes

Our provision for taxes includes both state and federal taxes. We account for income taxes using the asset and liability method wherein deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. We classify all deferred tax assets and liabilities, along with any related valuation allowance, as noncurrent on the consolidated balance sheets.

In assessing the need for a valuation allowance on our deferred tax assets, we consider possible sources of taxable income that may be available to realize the benefit of deferred tax assets, including projected future taxable income, the reversal of existing temporary differences, taxable income in carryback years and available tax planning strategies. We consider all available evidence (both positive and negative) in determining whether a valuation allowance is required. Based upon the evaluation of available evidence, a valuation allowance of $425.0 million has been applied against our deferred tax asset balance as of December 31, 2022.

ASC 740, Income Taxes (ASC 740) creates a single model to address accounting for the uncertainty in income tax positions and prescribes a minimum recognition threshold a tax position must meet before recognition in the financial statements. We apply significant judgment in evaluating our tax positions and estimating our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The actual outcome of these future tax consequences could differ significantly from these estimates, which could impact our financial position, results of operations and cash flows. The evaluation of a tax position in accordance with ASC 740 is a two-step process. The first step is a recognition process to determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more likely than not recognition threshold, it is presumed that the position will be examined by the appropriate taxing authority with full knowledge of all relevant information. The second step is a measurement process whereby a tax position that meets the more likely than not recognition threshold is calculated to determine the amount of benefit/expense to recognize in the financial statements. The tax position is measured at the largest amount of benefit/expense that is more likely than not of being realized upon ultimate settlement.

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Results of Operations

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

We reported net income (loss) of $17.7 million and ($28.3) million for the year ended December 31, 2022 and 2021, respectively. The table included below sets forth financial information for the periods presented.


	Years Ended
	December 31,
In thousands (except per unit and per Boe amounts)	2022		2021
Operating revenues:
Oil	$	267,690	$	213,512
Natural gas		46,210		35,248
Natural gas liquids		43,501		35,394
Other		1,663		1,051
Total operating revenues		359,064		285,205
Operating expenses:
Production:
Lease operating		48,095		43,977
Workover and other		6,683		3,224
Taxes other than income		18,483		12,312
Gathering and other		64,117		60,396
General and administrative:
General and administrative		15,425		14,504
Stock-based compensation		2,210		2,010
Depletion, depreciation and accretion:
Depletion – Full cost		51,020		44,613
Depreciation – Other		367		318
Accretion expense		528		477
Other income (expenses):
Net gain (loss) on derivative contracts		(110,006)		(125,619)
Interest expense and other		(23,591)		(8,018)
Gain (loss) on extinguishment of debt		—		1,946
Net income (loss)	$	18,539	$	(28,317)

Production:
Crude oil – MBbls		2,837		3,196
Natural gas – MMcf		9,337		9,447
Natural gas liquids – MBbls		1,242		1,157
Total MBoe⁽¹⁾		5,635		5,928
Average daily production – Boe⁽¹⁾		15,438		16,241

Average price per unit ⁽²⁾:
Crude oil price - Bbl	$	94.36	$	66.81
Natural gas price - Mcf		4.95		3.73
Natural gas liquids price - Bbl		35.02		30.59
Total per Boe⁽¹⁾		63.43		47.93

Average cost per Boe:
Production:
Lease operating	$	8.54	$	7.42
Workover and other		1.19		0.54
Taxes other than income		3.28		2.08
Gathering and other		11.38		10.19
Restructuring		—		—
General and administrative:
General and administrative		2.74		2.45
Stock-based compensation		0.39		0.34
Depletion		9.05		7.53

(1)	Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or 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 natural gas liquids revenues were $357.4 million and $284.2 million for the years ended December 31, 2022 and 2021, respectively. The increase in revenue is primarily attributable to an approximately $91.8 million increase in average realized prices partially offset by approximately $18.6 million attributable to slightly lower production volumes in 2022 compared to 2021. Average realized prices (excluding the effects of hedging arrangements) increased approximately $15.50 per Boe for the year ended December 31, 2022 when compared with the same period in 2021. 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.

Production for the years ended December 31, 2022 and 2021 averaged 15,438 Boe/d and 16,241 Boe/d, respectively. While production is lower in 2022 compared with 2021 in total due largely to the timing of capital expenditures spent to bring new wells online and natural production declines on our existing producing wells, our production has increased from 14,767 Boe/d in the first quarter of 2022 to 15,696 Boe/d and 15,438 Boe/d for the quarter and year ended December 31, 2022, respectively. We have put online 9 gross (8.5 net) operated wells in 2022. Also impacting 2021 production volumes was temporarily shut-in production due to inclement weather which decreased average daily production by approximately 300 Boe/d for the year ended December 31, 2021.

Lease Operating Expenses. Lease operating expenses were $48.1 million and $44.0 million for the years ended December 31, 2022 and 2021, respectively. On a per unit basis, lease operating expenses were $8.54 per Boe and $7.42 per Boe for the years ended December 31, 2022 and 2021, respectively. The increase in lease operating expenses in 2022 results primarily from an inflationary market increase in maintenance, power, and chemical costs.

Workover and Other Expenses. Workover and other expenses were $6.7 million and $3.2 million for the year ended December 31, 2022 and 2021, respectively. On a per unit basis, workover and other expenses were $1.19 per Boe and $0.54 per Boe for the year ended December 31, 2022 and 2021, respectively. The increased workover and other expenses in 2022 relate to more significant workover projects undertaken in the current year as well as inflationary market increases in service and material costs in 2022.

Taxes Other than Income. Taxes other than income were $18.5 million and $12.3 million for the years ended December 31, 2022 and 2021, respectively. Most production taxes are based on production volumes and realized prices at the wellhead. As revenues or volumes from oil and natural gas sales increase or decrease, production taxes on these sales also increase or decrease. On a per unit basis, taxes other than income were $3.28 per Boe and $2.08 per Boe for the years ended December 31, 2022 and 2021, respectively.

Gathering and Other Expenses. Gathering and other expenses were $64.1 million ($11.38 per Boe) and $60.4 million ($10.19 per Boe) for the year ended December 31, 2022 and 2021, respectively. 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, either through our own hydrogen sulfide treating plant or through third parties. For the year ended December 31, 2022, overall natural gas production volumes were relatively flat compared to 2021; however, increased production of sour natural gas in our Monument Draw area in 2022 requiring H2S treatment contributed to higher gathering and other expenses compared to 2021.

General and Administrative Expense. General and administrative expense was $16.2 million and $14.5 million for the years ended December 31, 2022 and 2021, respectively. The increase in general and administrative expense for 2022 is primarily associated with an increase in professional fees partially offset by a decrease in corporate office lease expense. On a per unit basis, general and administrative expense were $2.88 per Boe and $2.45 per Boe for the years ended December 31, 2022 and 2021, respectively.

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 $51.0 million and $44.6 million for the years ended December 31, 2022 and 2021, respectively. On a per unit basis, depletion expense was $9.05 per Boe and $7.53 per Boe for the years ended December 31, 2022 and 2021, respectively. The increase in our depletion rate for the year ended December 31, 2022

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compared to 2021 is primarily due to increased future development costs associated with proved reserve additions relative to the change in proved reserves when comparing 2022 to 2021.

Net gain (loss) on derivative contracts. We enter into derivative commodity instruments to economically hedge our exposure to price fluctuations on our anticipated oil and natural gas production. Consistent with prior years, we have elected not to designate any positions as cash flow hedges for accounting purposes. Accordingly, we recorded the net change in the mark-to-market value of these derivative contracts in the consolidated statements of operations. We recorded a net derivative loss of $110.0 million ($20.3 million net gain on unsettled contracts and $130.3 million net loss on settled contracts) for the year ended December 31, 2022. We recorded a net derivative loss of $125.6 million ($47.7 million net loss on unsettled contracts and $77.9 million net loss on settled contracts) for the year ended December 31, 2021. At December 31, 2022, we had a $21.6 million derivative asset, $16.2 million of which was classified as current, and we had a $62.9 million derivative liability, $29.3 million of which was classified as current.

Interest Expense and Other. Interest expense and other was $23.6 million and $8.0 million for the years ended December 31, 2022 and 2021, respectively. Interest expense and other increased in the current year due primarily to increased interest rates, higher debt balances in 2022, and amortization/accretion of financing related costs associated with our Term Loan Agreement entered into in November 2021 and further amended in November 2022. Our weighted average interest rate for the year ended December 31, 2022, was approximately 9.1%. For the first quarter of 2023, we anticipate our interest rate will be 12.23% on outstanding borrowings.

Gain (Loss) on Extinguishment of Debt. During the year ended December 31, 2021, we recorded a gain on the extinguishment of the forgiven portion of the Paycheck Protection Program (PPP) Loan and related accrued interest of $2.1 million. We applied for forgiveness of the amount due on the PPP Loan based on the use of the loan proceeds on eligible expenses in accordance with the terms of the CARES Act. Effective August 13, 2021, the principal amount of our PPP Loan was reduced from $2.2 million to $0.2 million by the Small Business Administration. During the first quarter of 2022, the $0.2 million principal amount of the PPP loan was repaid in full.

Recently Issued Accounting Pronouncements

We discuss recently adopted and issued accounting standards in Item 8. Consolidated Financial Statements and Supplementary Data—Note 1, “Summary of Significant Events and Accounting Policies.”

ITEM 7A. 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 significantly, our ability to finance our capital budget and operations may be adversely impacted. We expect energy prices to remain volatile and unpredictable, therefore we have designed a risk management policy which provides for the use of derivative instruments to provide partial protection against declines in oil and natural gas prices by reducing the risk of price volatility and the affect it could have on our operations. The types of derivative instruments that we typically utilize include fixed-price swaps, costless collars, basis swaps and WTI NYMEX rolls. The total volumes that we hedge through the use of our derivative instruments varies from period to period, however, our requirement under our Amended Term Loan Agreement, is to hedge approximately 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, when derivative contracts are available at terms and prices acceptable to us. Our hedge policies and objectives may change significantly as our operational profile and contractual obligations change but remain consistent with the requirements in effect under our Amended Term Loan Agreement. We do not enter into derivative contracts for speculative trading purposes.

We are exposed to market risk on our open derivative contracts related to potential non-performance by our counterparties. It is our policy to enter into derivative contracts only with counterparties that are creditworthy institutions deemed by management as competitive market makers. As of December 31, 2022, we did not post collateral under any of our derivative contracts as they are secured under our Amended Term Loan Agreement.

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We account for our derivative activities under the provisions of ASC 815, Derivatives and Hedging, (ASC 815). ASC 815 establishes accounting and reporting that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at fair value. See Item 8. Consolidated Financial Statements and Supplementary Data—Note 7, “Derivative and Hedging Activities,” for more details.

Fair Market Value of Financial Instruments

The estimated fair values for financial instruments under ASC 825, Financial Instruments, (ASC 825) are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. See Item 8. Consolidated Financial Statements and Supplementary Data—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 SOFR (and previously, LIBOR) based and may result in reductions of earnings or cash flows due to increases in the interest rates we pay on these obligations.

At December 31, 2022, the principal amount of our debt was $235.0 million, of which substantially all 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 December 31, 2022, the weighted average interest rate on our variable rate debt was 12.23% per year. If the balance of our variable interest rate debt at December 31, 2022 were to remain constant, a 10% change in market interest rates would impact our cash flows by approximately $2.9 million per year.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


		Page
Management’s report on internal control over financial reporting		50
Report of independent registered public accounting firm (PCAOB ID No. 34)		51
Consolidated statements of operations		54
Consolidated balance sheets		55
Consolidated statements of stockholders’ equity		56
Consolidated statements of cash flows		57
Notes to the consolidated financial statements		58
Supplemental oil and gas information (unaudited)		81

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Battalion Oil Corporation (the Company), including the Company’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control system was designed to provide reasonable assurance to the Company’s Management and Board of Directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on this evaluation, Management concluded that Battalion Oil Corporation’s internal control over financial reporting was effective as of December 31, 2022.

This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding the effectiveness of the Company’s internal control over financial reporting. Management’s report was not subject to attestation by its independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit smaller reporting companies to provide only Management’s report in this Annual Report on Form 10-K.

/s/ RICHARD H. LITTLE		/s/ KRISTEN MCWATTERS
Richard H. Little		Kristen McWatters
Chief Executive Officer		Executive Vice President,
		Chief Financial Officer and Treasurer
Houston, Texas
March 30, 2023

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Battalion Oil Corporation and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity, and cash flows, for each of the years ended December 31, 2022 and 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years ended December 31, 2022 and 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Proved Oil and Natural Gas Property and Depletion — Oil and Natural Gas Reserve Quantities — Refer to Note 1 and 4 to the financial statements

Critical Audit Matter Description

The Company uses the full cost method of accounting for its investment in oil and natural gas properties. The Company’s proved oil and natural gas properties are depleted using the units of production method and are evaluated for impairment by the full cost ceiling impairment test utilizing the Company’s oil and natural gas reserves in accordance with accounting principles generally accepted in the United States and SEC guidelines. The development of the Company’s oil and natural gas reserve quantities and the related net present value of future cash flows from the related proved reserves requires management to make significant estimates and assumptions related to the intent and ability to complete undeveloped proved reserves within a five-year development period, as prescribed by SEC guidelines, and the future development costs associated with these reserves. The Company engages an independent reservoir engineering firm, management’s specialist, to estimate oil and natural gas quantities using these assumptions and engineering data. Changes in these assumptions or engineering data could have a significant impact on the amount of depletion and impairment recorded for the Company’s proved oil and natural gas properties. The gross proved oil and natural gas properties balance was $713.6 million with an accumulated depletion balance of $390.8 million as of December 31, 2022. Depletion expense was $51.0 million for the year ended December 31, 2022.

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

How the Critical Audit Matter Was Addressed in the Audit

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

●

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

-

Historical conversions of proved undeveloped oil and natural gas reserves into proved developed oil and natural gas reserves.

-

Internal communications to management and the Board of Directors.

-

Approval for expenditures.

-

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

-

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

●

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

-

Historical development of similar wells, including location of the well.

-

Internal data and internal communications to management and the Board of Directors.

-

Approval for expenditures.

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●

We evaluated the reasonableness of management’s estimated reserve quantities by performing the following:

-

Evaluating the experience, qualifications and objectivity of management’s specialist, an independent reservoir engineering firm.

-

Performing analytical procedures on the reserve quantities developed by management’s specialist.


/s/ DELOITTE & TOUCHE LLP

Houston, Texas
March 30, 2023

We have served as the Company’s auditor since 2012.

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BATTALION OIL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


	Years Ended December 31,
	2022		2021
Operating revenues:
Oil, natural gas and natural gas liquids sales:
Oil	$	267,690	$	213,512
Natural gas		46,210		35,248
Natural gas liquids		43,501		35,394
Total oil, natural gas and natural gas liquids sales		357,401		284,154
Other		1,663		1,051
Total operating revenues		359,064		285,205

Operating expenses:
Production:
Lease operating		48,095		43,977
Workover and other		6,683		3,224
Taxes other than income		18,483		12,312
Gathering and other		64,117		60,396
General and administrative		17,635		16,514
Depletion, depreciation and accretion		51,915		45,408
Total operating expenses		206,928		181,831
Income (loss) from operations		152,136		103,374

Other income (expenses):
Net gain (loss) on derivative contracts		(110,006)		(125,619)
Interest expense and other		(23,591)		(8,018)
Gain (loss) on extinguishment of debt		—		1,946
Total other income (expenses)		(133,597)		(131,691)
Income (loss) before income taxes		18,539		(28,317)
Income tax benefit (provision)		—		—
Net income (loss)	$	18,539	$	(28,317)

Net income (loss) per share of common stock:
Basic	$	1.14	$	(1.74)
Diluted	$	1.12	$	(1.74)
Weighted average common shares outstanding:
Basic		16,331		16,261
Diluted		16,510		16,261

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

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BATTALION OIL CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	December 31, 2022		December 31, 2021
Current assets:
Cash and cash equivalents	$	32,726	$	46,864
Accounts receivable, net		37,974		36,806
Assets from derivative contracts		16,244		1,383
Restricted cash		90		1,495
Prepaids and other		1,131		1,366
Total current assets		88,165		87,914
Oil and natural gas properties (full cost method):
Evaluated		713,585		569,886
Unevaluated		62,621		64,305
Gross oil and natural gas properties		776,206		634,191
Less - accumulated depletion		(390,796)		(339,776)
Net oil and natural gas properties		385,410		294,415
Other operating property and equipment:
Other operating property and equipment		4,434		3,467
Less - accumulated depreciation		(1,209)		(1,035)
Net other operating property and equipment		3,225		2,432
Other noncurrent assets:
Assets from derivative contracts		5,379		2,515
Operating lease right of use assets		352		721
Other assets		2,827		2,270
Total assets	$	485,358	$	390,267

Current liabilities:
Accounts payable and accrued liabilities	$	100,095	$	62,826
Liabilities from derivative contracts		29,286		58,322
Current portion of long-term debt		35,067		85
Operating lease liabilities		352		369
Asset retirement obligations		225		—
Total current liabilities		165,025		121,602
Long-term debt, net		182,676		181,565
Other noncurrent liabilities:
Liabilities from derivative contracts		33,649		7,144
Asset retirement obligations		15,244		11,896
Operating lease liabilities		—		352
Other		4,136		4,003
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock: 100,000,000 shares of $0.0001 par value authorized;
16,344,815 and 16,273,913 shares issued and outstanding as of
December 31, 2022 and 2021, respectively		2		2
Additional paid-in capital		334,571		332,187
Retained earnings (accumulated deficit)		(249,945)		(268,484)
Total stockholders' equity		84,628		63,705
Total liabilities and stockholders' equity	$	485,358	$	390,267

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

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BATTALION OIL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)


						Retained
				Additional		Earnings
	Common Stock			Paid-In		(Accumulated		Stockholders'
	Shares	Amount		Capital		Deficit)		Equity
Balances at December 31, 2020	16,204	$	2	$	330,123	$	(240,167)	$	89,958
Net income (loss)	—		—		—		(28,317)		(28,317)
Long-term incentive plan vestings	96		—		—		—		—
Tax withholding on vesting of restricted stock units	(26)		—		(290)		—		(290)
Stock-based compensation	—		—		2,354		—		2,354
Balances at December 31, 2021	16,274		2		332,187		(268,484)		63,705
Net income (loss)	—		—		—		18,539		18,539
Long-term incentive plan vestings	98		—		—		—		—
Tax withholding on vesting of restricted stock units	(28)		—		(493)		—		(493)
Stock-based compensation and other	1		—		2,877		—		2,877
Balances at December 31, 2022	16,345	$	2	$	334,571	$	(249,945)	$	84,628

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

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BATTALION OIL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Years Ended December 31,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	18,539	$	(28,317)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depletion, depreciation and accretion		51,915		45,408
Stock-based compensation, net		2,210		2,010
Unrealized loss (gain) on derivative contracts		(20,256)		47,721
Amortization/accretion of financing related costs		5,448		379
Reorganization items, net		(744)		—
Loss (gain) on extinguishment of debt		—		(1,946)
Accrued settlements on derivative contracts		4,302		7,030
Change in fair value of embedded derivative liability		(1,819)		—
Other expense (income)		(77)		(567)
Change in assets and liabilities:
Accounts receivable		594		(4,647)
Prepaids and other		234		636
Accounts payable and accrued liabilities		18,455		865
Net cash provided by (used in) operating activities		78,801		68,572

Cash flows from investing activities:
Oil and natural gas capital expenditures		(125,465)		(52,557)
Proceeds received from sales of oil and natural gas assets		332		947
Other operating property and equipment capital expenditures		(1,160)		(371)
Other		163		68
Net cash provided by (used in) investing activities		(126,130)		(51,913)

Cash flows from financing activities:
Proceeds from borrowings		35,200		374,000
Repayments of borrowings		(95)		(332,085)
Payment of deferred financing costs		(2,887)		(14,220)
Other		(432)		(290)
Net cash provided by (used in) financing activities		31,786		27,405

Net increase (decrease) in cash, cash equivalents and restricted cash		(15,543)		44,064

Cash, cash equivalents and restricted cash at beginning of period		48,359		4,295
Cash, cash equivalents and restricted cash at end of period	$	32,816	$	48,359

Supplemental cash flow information:
Cash paid (received) for interest	$	19,933	$	8,485
Cash paid (refunded) for income taxes		—		—
Cash paid for reorganization items		744		—

Disclosure of non-cash investing and financing activities:
Asset retirement obligations	$	3,692	$	836
Accrued capital expenditures		14,883		(3,733)

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

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT EVENTS AND ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

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

Battalion is an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States. The consolidated financial statements include the accounts of all majority-owned, controlled subsidiaries. The Company operates in one reportable segment which focuses on oil and natural gas acquisition, production, exploration and development. Allocation of capital is made across the Company’s entire portfolio without regard to operating area. All intercompany accounts and transactions have been eliminated. The Company has evaluated events and transactions through the date of issuance of this report in conjunction with the preparation of these consolidated financial statements.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Estimates and assumptions that, in the opinion of management of the Company, are significant include oil and natural gas revenue accruals, capital and operating expense accruals, oil and natural gas reserves, depletion relating to oil and natural gas properties, asset retirement obligations, and fair value estimates. The Company bases its estimates and judgments on historical experience and on various other assumptions and information believed to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be predicted with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results may differ from the estimates and assumptions used in the preparation of the Company’s consolidated financial statement and the results presented in this Form 10-K are not necessarily indicative of future operating results.

Risk and Uncertainties

Supply chain issues. In periods of increasing commodity prices, we continue to be at risk to supply chain issues, including, but not limited to, labor shortages, pipe restrictions and potential delays in obtaining frac and/or drilling related equipment that could impact our business. During these periods, the costs and delivery times of rigs, equipment and supplies may also be substantially greater. The unavailability or high cost of drilling rigs and/or frac crews, pressure pumping equipment, tubulars and other supplies, and of qualified personnel can materially and adversely affect our operations and profitability.

Commodity Prices. Despite lower commodity prices in 2020, widespread availability of COVID-19 vaccines during 2021 combined with accommodative governmental monetary and fiscal policies and other factors, led to a rebound in demand for oil and natural gas and increases in oil and natural gas prices. Further in 2022, the effects of Russian sanctions amidst the conflict with Ukraine have pushed oil and gas prices higher. However, there remains the potential for demand for oil and natural gas to be adversely impacted by the economic effects of rising interest rates, tightening monetary policies, or other factors. As a consequence, the Company is unable to predict whether oil and natural gas prices will remain at current levels or will be adversely impacted by these or other factors.

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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


	December 31, 2022		December 31, 2021

Cash and cash equivalents	$	32,726	$	46,864
Restricted cash		90		1,495
Total cash, cash equivalents and restricted cash	$	32,816	$	48,359

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

Accounts Receivable and Allowance for Doubtful Accounts

The Company’s accounts receivable are primarily receivables from joint interest owners and oil and natural gas purchasers. Accounts receivable are recorded at the amount due, less an allowance for doubtful accounts, when applicable. Payment of our accounts receivable is typically received within 30-60 days. The Company’s historical credit losses have been de minimis and are expected to remain so in the future assuming no substantial changes to the business or creditworthiness of the Company’s counterparties.

Oil and Natural Gas Properties

The Company uses the full cost method of accounting for its investment in oil and natural gas properties as prescribed by the United States Securities and Exchange Commission (SEC). Accordingly, all costs incurred in the acquisition, exploration and development of proved and unproved oil and natural gas properties, including the costs of abandoned properties, treating equipment and gathering support facilities, dry holes, geophysical costs, and annual lease rentals are capitalized. All general and administrative corporate costs unrelated to drilling activities are expensed as incurred. Sales or other dispositions of oil and natural gas properties are accounted for as adjustments to capitalized costs, with no gain or loss recorded unless the ratio of cost to estimated proved reserves would significantly change. Depletion of evaluated oil and natural gas properties is computed on the units of production method based on estimated proved reserves. The net capitalized costs of evaluated oil and natural gas properties are subject to a full cost ceiling limitation in which the costs are not allowed to exceed their related estimated future net revenues discounted at 10%, net of tax considerations. 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.

Costs associated with unevaluated properties are excluded from the full cost pool until the Company has made a determination as to the existence of proved reserves. The Company reviews its unevaluated properties at the end of each quarter to determine whether the costs incurred should be transferred to the full cost pool and thereby subject to amortization. Investments in unevaluated oil and natural gas properties and exploration and development projects for which depletion expense is not currently recognized, and for which exploration or development activities are in progress, qualify for interest capitalization. The Company determines capitalized interest, when applicable, by multiplying the Company’s weighted-average borrowing cost on debt by the average amount of qualifying costs incurred that were

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

excluded from the full cost pool; however, the amount of capitalized interest cannot exceed the amount of gross interest expense incurred in any given period. The Company’s accounting policy on the capitalization of interest establishes thresholds for the determination of a development project for the purpose of interest capitalization.

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.

Other Operating Property and Equipment

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

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

Concentrations of Credit Risk

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

The Company’s accounts receivable are primarily receivables from joint interest owners and oil and natural gas purchasers. The purchasers of the Company’s oil and natural gas production consist primarily of independent marketers, major oil and natural gas companies and gas pipeline companies. Historically, the Company has not experienced any significant losses from uncollectible accounts from its oil and natural gas purchasers. In 2022, three individual purchasers of the Company’s production, Western Refining Company L.P., Sunoco Inc. and Targa Resources Inc., each accounted for more than 10% of total sales, collectively representing 82% of its total sales for the year. In 2021, three individual purchasers of the Company’s production, Western Refining Company L.P., Sunoco Inc. and Salt Creek Midstream LLC, each accounted for more than 10% of total sales, collectively representing 73% of its total sales for the year.

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company operates a substantial portion of its oil and natural gas properties. As the operator of a property, the Company makes full payments for costs associated with the property and seeks reimbursement from the other working interest owners in the property for their share of those costs. The Company’s joint interest partners consist primarily of independent oil and natural gas producers. Joint operating agreements govern the operations of an oil or natural gas well and, in most instances, provide for offsetting of amounts payable or receivable between the Company and its joint interest owners. If the oil and natural gas exploration and production industry in general was adversely affected, the ability of the Company’s joint interest partners to reimburse the Company could be adversely affected.

The Company’s exposure to credit risk under its derivative contracts is varied among major financial institutions with investment grade credit ratings, where it has master netting agreements which provide for offsetting of amounts payable or receivable between the Company and the counterparty. To manage counterparty risk associated with derivative contracts, the Company selects and monitors counterparties based on an assessment of their financial strength and/or credit ratings. At December 31, 2022, the Company’s derivative counterparties include two major financial institutions, both of which are secured lenders under the Amended Term Loan Agreement.

Risk Management Activities

The Company follows ASC 815, Derivatives and Hedging (ASC 815). From time to time, in accordance with the Company’s policy, it may hedge a portion of its forecasted oil and natural gas production. The Company recognized all derivative instruments as either assets or liabilities in the consolidated balance sheets at fair value. The Company has elected to not designate any of its positions for hedge accounting. Accordingly, the Company records the net change in the mark-to-market valuation of these positions, as well as payments and receipts on settled contracts, in “Net gain (loss) on derivative contracts” on the consolidated statements of operations.

Income Taxes

The Company accounts for income taxes using the asset and liability method wherein deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company classifies all deferred tax assets and liabilities, along with any related valuation allowance, as noncurrent on the consolidated balance sheets.

The evaluation of a tax position in accordance with ASC 740 is a two-step process. The first step is a recognition process to determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more likely than not recognition threshold, it is presumed that the position will be examined by the appropriate taxing authority with full knowledge of all relevant information. The second step is a measurement process whereby a tax position that meets the more likely than not recognition threshold is calculated to determine the amount of benefit/expense to recognize in the consolidated financial statements. The tax position is measured at the largest amount of benefit/expense that is more likely than not of being realized upon ultimate settlement.

Asset Retirement Obligations

The Company records asset retirement obligations to reflect the Company’s legal obligations related to future plugging and abandonment of its oil and natural gas wells, treating equipment and gathering support facilities. The Company estimates the expected cash flows associated with the obligation and discounts the amounts using a credit-adjusted, risk-free interest rate. At least annually, the Company reassesses the obligation to determine whether a change

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

in the estimated obligation is necessary. The Company evaluates whether there are indicators that suggest the estimated cash flows underlying the obligation have materially changed. Should these indicators suggest the estimated obligation may have materially changed on an interim basis (quarterly), the Company will accordingly update its assessment. Additional retirement obligations increase the liability associated with new oil and natural gas wells, treating equipment and gathering support facilities as these obligations are incurred.

The Company records the asset retirement obligation (ARO) liability on the consolidated balance sheets and capitalizes the cost in “Oil and natural gas properties” during the period in which the obligation is incurred. The Company records the accretion of its ARO liabilities in “Depletion, depreciation and accretion” expense in the consolidated statements of operations. The additional capitalized costs are depreciated on a unit-of-production basis.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) (ASU 2020-04), in response to the risk of cessation of the London Interbank Offered Rate (LIBOR). This amendment provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging arrangements, and other transactions that reference LIBOR. On December 21, 2022, the FASB issued ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” This ASU defers the sunset date from December 31, 2022, to December 31, 2024. As of the date of this filing, neither ASU 2020-04 nor ASU No. 2022-06 had a material impact on the Company’s operating results, financial position or disclosures.

2. LEASES

The Company leases equipment and office space pursuant to operating leases. We determine if an arrangement is or contains a lease at inception and combine lease and nonlease components, when fixed, for all lease contracts. Nonlease components include common area maintenance charges on office leases and, when applicable, services associated with equipment leases. Operating leases with a lease term greater than 12 months where the Company is the lessee are included in “Operating lease right of use assets” and “Operating lease liabilities” on the consolidated balance sheets and recorded based on the present value of the future minimum lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date to determine the present value of lease payments. The Company does not recognize right of use assets and lease liabilities for short-term leases that have a lease term of 12 months or less, but rather recognizes the lease payments associated with its short-term leases when incurred.

Payments due under the lease contracts include fixed payments plus, in some instances, variable payments. Variable lease payments, if applicable, associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments, when applicable, are presented as "Gathering and other” or "General and administrative” in the consolidated statements of operations in the same line item as the expense arising from the fixed lease payments on the operating leases.

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The “Operating lease right of use assets” outstanding on the consolidated balance sheets as of December 31, 2022 and 2021 both have initial lease terms of 2.3 years. The table below summarizes the Company’s leases for the periods indicated (in thousands, except years and discount rate):


	Years Ended December 31,
	2022			2021
Lease cost
Operating lease costs	$	391		$	444
Short-term lease costs		7,972			3,152
Variable lease costs		—			375
Total lease costs	$	8,363		$	3,971

Other information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	391		$	537
Right-of-use assets obtained in exchange for new operating lease liabilities		—			841
Weighted-average remaining lease term - operating leases		0.9	years		1.9	years
Weighted-average discount rate - operating leases		4.29	%		4.29	%

Future minimum lease payments associated with the Company’s non-cancellable operating leases for office space and equipment as of December 31, 2022, are presented in the table below (in thousands):


	December 31, 2022
2023	$	359
Total operating lease payments		359
Less: discount to present value		(7)
Total operating lease liabilities		352
Less: current operating lease liabilities		352
Noncurrent operating lease liabilities	$	—

3. OPERATING REVENUES

Substantially all of the Company’s oil, natural gas, and NGL revenues are derived from the Delaware Basin in Pecos, Reeves, Ward and Winkler Counties, Texas. Revenue is presented disaggregated in the statement of operations by major product, and depicts how the nature, timing, and uncertainty of revenue and cash flows are affected by economic factors in the Company’s single basin operations.

Revenue is recognized when the following five steps are completed: (1) identify the contract with the customer, (2) identify the performance obligation (promise) in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, (5) recognize revenue when the reporting organization satisfies a performance obligation. Revenues from the sale of crude oil, natural gas and natural gas liquids are recognized, at a point in time, when a performance obligation is satisfied by the transfer of control of each unit (e.g. barrel of oil, Mcf of gas) of commodity to the customer. Revenue is measured based on contract consideration allocated to each unit of commodity and excludes amounts collected on behalf of third parties. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue.

Since the Company’s performance obligations have been satisfied and an unconditional right to consideration exists as of the balance sheet date, the Company recognized amounts due from contracts with customers of $34.0 million and $35.1 million as of December 31, 2022 and 2021, respectively, as “Accounts receivable, net” on the consolidated balance sheets. The Company utilizes the practical expedient exempting the disclosure of the transaction price of

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

We record revenue in the month our production is delivered to the purchaser. However, to the extent settlement statements and/or payments are not available, we are required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. We record any differences, which historically have not been significant, between the actual amounts ultimately received and the original estimates in the period they become finalized.

Oil Sales

The Company recognizes revenue when control of the crude oil transfers at the delivery point at the net price received. Generally, this occurs when the Company (i) sells its crude oil production at the wellhead where control of the crude oil transfers to the customer at an index price, averaged over the daily settlement prices for a production month, and adjusted for pricing differentials and other deduction or (ii) when delivered to the customer at a contractual delivery point at which the customer takes custody, title and risk of loss of the product. The Company receives a specified index price from the customer, averaged over the daily settlement prices for a production month, and net of applicable market-related adjustments. Settlement statements for the Company’s crude oil production are typically received within the month following the date of production and therefore the amount of production delivered to the customer and the price that will be received for that production are known at the time the revenue is recorded.

Natural Gas and NGL Sales

The Company evaluates its natural gas gathering and processing arrangements in place with midstream companies to determine when control of the natural gas is transferred. Under contracts where it is determined that control of the natural gas transfers at the wellhead, any fees incurred to gather or process the unprocessed natural gas are treated as a reduction of the sales price of unprocessed natural gas, and therefore revenues from such transactions are presented on a net basis. Under contracts where it is determined that control of the natural gas transfers at the tailgate of the midstream entity’s processing plant, revenues are presented on a gross basis for amounts expected to be received from the midstream company or third party purchasers through the gathering and treating process and presented as “Natural gas” or “Natural gas liquids” and any fees incurred to gather or process the natural gas are presented separately as “Gathering and other” on the consolidated statements of operations.

Under certain contracts, the Company may elect to take its residue gas and/or natural gas liquids in-kind at the tailgate of the midstream entity’s processing plant. The Company then sells the products to a customer at contractual delivery points at prices based on an index. In these instances, revenues are presented on a gross basis and any fees incurred to gather, process or transport the commodities are presented separately as “Gathering and other” on the consolidated statements of operations.

The majority of the Company’s natural gas and natural gas liquids prices are based on daily average pricing for the month. Settlement statements for the Company’s natural gas and natural gas liquids production are typically received 30 days after the date of production and therefore the Company estimates the amount of production delivered to the customer and the price that will be received for that production. Historically, differences between the Company’s estimates and the actual revenue received have not been material.

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4. OIL AND NATURAL GAS PROPERTIES

Oil and natural gas properties as of December 31, 2022 and 2021 consisted of the following (in thousands):


	December 31, 2022		December 31, 2021

Subject to depletion	$	713,585	$	569,886
Not subject to depletion:
Other capital costs:
Incurred in 2022		1,427		—
Incurred in 2021		1,427		1,427
Incurred in 2020		983		983
Incurred in 2019⁽¹⁾		58,784		61,895
Total not subject to depletion		62,621		64,305
Gross oil and natural gas properties		776,206		634,191
Less accumulated depletion		(390,796)		(339,776)
Net oil and natural gas properties	$	385,410	$	294,415

(1)	In 2019, with the adoption of fresh-start accounting, the Company’s unevaluated properties were recorded at fair value.

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. 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 $51.0 million and $44.6 million for the year ended December 31, 2022 and 2021, respectively. Depletion expense is recorded in “Depletion, depreciation and accretion” in the Company’s consolidated statements of operations.

The net capitalized costs of evaluated oil and natural gas properties are subject to a full cost ceiling limitation in which the costs are not allowed to exceed their related estimated future net revenues discounted at 10%, net of tax considerations. 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.

The ceiling test value of the Company’s reserves was calculated based on the following prices:


	West Texas Intermediate (per barrel) ⁽¹⁾		Henry Hub (per MMBtu) ⁽¹⁾
December 31, 2022	$	94.14	$	6.36
December 31, 2021		66.55	$	3.60

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

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company's net book value of oil and natural gas properties for both 2022 and 2021 did not exceed the ceiling amount. Changes in commodity prices, production rates, levels of reserves, future development costs, transfers of unevaluated properties to the full cost pool, capital spending, and other factors will determine the Company’s ceiling test calculation and impairment analyses in future periods.

5. DEBT

As of December 31, 2022 and 2021, the Company’s debt consisted of the following (in thousands):


	December 31, 2022		December 31, 2021
Term loan credit facility	$	235,000	$	200,000
Other		190		85
Total debt (Face Value)		235,190		200,085
Less:
Current Portion of Long-Term Debt⁽¹⁾		(35,067)		(85)
Other⁽²⁾		(17,447)		(18,435)
Long-Term Debt, net	$	182,676	$	181,565

(1)	As of December 31, 2022, amount primarily reflects amortization payments of $35.0 million under the Amended Term Loan Agreement due within one year. As of December 31, 2021, amount represents the balance owed under the Paycheck Protection Program Loan.

(2)

Amounts primarily reflect unamortized debt issuance costs of approximately $13.0 million and $14.2 million at December 31, 2022 and December 31, 2021, respectively, but also include amounts associated with an embedded derivative separately presented and further described in Note 6. Fair Value Measurements. For the years ended December 31, 2022 and 2021, we recorded approximately $5.4 million and $0.4 million, respectively, in interest expense reflecting the amortization/accretion of these amounts.

Term Loan Credit Facility

On November 24, 2021, the Company and its wholly owned subsidiary, Halcón Holdings, LLC (Borrower) entered into an Amended and Restated Senior Secured Credit Agreement (Term Loan Agreement) with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders. The Term Loan Agreement amended and restated in its entirety the senior secured revolving credit agreement, as amended, (the Senior Credit Agreement) entered into in 2019.

●

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

●


Period (after amendment date)			Premium
Months 0 - 12			Make-whole amount equal to 12 months of interest plus 2.00%
Months 13 - 24			2.00%
Thereafter			0.00%

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

As of December 31, 2022, we had $235.0 million of indebtedness outstanding and approximately $1.4 million of letters of credit outstanding under the Amended Term Loan Agreement. An additional $3.6 million is available for the issuance of letters of credit. We have a variable interest rate on our borrowings based on SOFR subsequent to the November 2022 amendment (LIBOR prior to the amendment) plus an applicable margin of 7.5%. The weighted average interest rate on our borrowings for the year ended December 31, 2022 was approximately 9.1%. The maturity date of the Amended Term Loan Agreement is November 24, 2025.

The Company may be required to make mandatory prepayments of the loans under the Amended Term Loan Agreement in connection with the incurrence of non-permitted debt, certain asset sales, or with excess cash on hand in excess of certain maximum levels beginning in 2023. For each fiscal quarter after January 1, 2023, the Company shall make mandatory prepayments when the Consolidated Cash Balance, as defined in the Amended Term Loan Agreement, exceeds $20.0 million. Until December 31, 2024, the forecasted approved plan of development (APOD) capital expenditures for the succeeding fiscal quarter are excluded for purposes of determining the Consolidated Cash Balance.

The Company is required to make scheduled amortization payments in the aggregate amount of $120.0 million from the fiscal quarter ending March 31, 2023 through the fiscal quarter ending September 30, 2025. Amounts outstanding under the Amended Term Loan Agreement are guaranteed by certain of the Borrower’s direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of the Borrower and such direct and indirect subsidiaries, and of the equity interests of the Borrower held by the Company. As part of the Amended Term Loan Agreement there are certain restrictions on the transfer of assets, including cash, to Battalion from the guarantor subsidiaries.

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

●

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

●

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

●

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

The Amended Term Loan Agreement also contains an APOD for the Company’s Monument Draw acreage through the drilling and completion of certain wells. The Amended Term Loan Agreement contains a proved developed producing production test and an APOD economic test which the Company must maintain compliance with; otherwise, subject to any available remedies or waivers, the Company is required to immediately cease making expenditures in respect of the APOD other than any expenditures deemed necessary by the Company in respect of no more than six additional APOD wells.

In conjunction with the Term Loan Agreement, the Company agreed to pay a premium to the lenders upon a future change of control event in which a majority of the board of directors or the Chief Executive Officer or the Chief Financial Officer positions do not remain held by the same persons as before the change of control event (Change of Control Call Option). The premium is reduced over time through the payment of interest and certain fees. The Company determined that the Change of Control Call Option was an embedded derivative, concluded the embedded derivative was not clearly and closely related to the host debt instrument, and recorded the fair value separately on the consolidated balance sheet within “Other noncurrent liabilities.” The Change of Control Call Option will be subsequently remeasured at fair value each reporting period with fair value changes recorded in “Interest expense and other” on the consolidated statements of operations. Refer to Note 6, “Fair Value Measurements,” for a discussion of the valuation approach used, the significant inputs to the valuation, and for a reconciliation of the change in fair value of the Change of Control Call Option.

Debt Maturities

Aggregate maturities required on debt at December 31, 2022 due in future years are as follows (in thousands):


2023	$	35,067
2024		50,067
2025		150,056
Total	$	235,190

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 consolidated balance sheets, but also the impact of the Company’s nonperformance risk on its own liabilities. Fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). 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.

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There were no transfers between fair value hierarchy levels for any period presented. The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities associated with commodity-based derivative contracts that were accounted for at fair value as of December 31, 2022 and 2021 (in thousands):



	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets
Assets from commodity-based derivative contracts	$	—	$	21,623	$	—	$	21,623

Liabilities
Liabilities from commodity-based derivative contracts	$	—	$	62,935	$	—	$	62,935


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Assets from commodity-based derivative contracts	$	—	$	3,898	$	—	$	3,898

Liabilities
Liabilities from commodity-based derivative contracts	$	—	$	65,466	$	—	$	65,466

Derivative contracts listed above as Level 2 include fixed-price swaps, collars, puts, calls, basis swaps and WTI NYMEX rolls that are carried at fair value. The Company records the net change in the fair value of these positions in “Net gain (loss) on derivative contracts” in the Company’s consolidated statements of operations. The 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 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 recorded the fair value of the Change of Control Call Option separately on the consolidated balance sheets in “Other noncurrent liabilities.” The fair value of the Change of Control Call Option is subsequently remeasured each reporting period with fair values changes recorded in “Interest expense and other’ on the consolidated statement of operations. The valuation of the Change of Control Call Option includes significant inputs such as the timing and probability of discrete potential exit scenarios, forward interest rate curves, and discount rates based on implied and market yields. The following table sets forth a reconciliation of the changes in fair value of the Change of Control Call Option classified as Level 3 in the fair value hierarchy (in thousands):


	Change of Control
	Call Option
Balance at December 31, 2021	$	4,003
Change in fair value		133
Balance at December 31, 2022	$	4,136

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Estimated fair value amounts have been determined at discrete points in time based on relevant market information. The estimated fair value of cash and cash equivalents, 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 Amended Term Loan Agreement approximate carrying value because the interest rates approximate current market rates.

The Company follows the provisions of ASC 820, Fair Value Measurement for nonfinancial assets and liabilities measured at fair value on a non-recurring basis. These provisions apply to the Company’s initial recognition of asset retirement obligations for which fair value is used. The asset retirement obligation estimates are derived from historical costs and management’s expectation of future cost environments; and therefore, the Company has designated these liabilities as Level 3. See Note 8, “Asset Retirement Obligations,” for a reconciliation of the beginning and ending balances of the liability for the Company’s asset retirement obligations.

7. DERIVATIVE AND HEDGING ACTIVITIES

The Company is exposed to certain risks relating to its ongoing business operations, such as commodity price risk and interest rate risk. In accordance with the Company’s policy and the requirements under the Term Loan Agreement, it generally hedges a substantial, but varying, portion of anticipated oil and natural gas production for future periods. Derivatives are carried at fair value on the consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the consolidated statements of operations for the period in which the change occurs. The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, the Company records the net change in the mark-to-market valuation of these derivative contracts, as well as all payments and receipts on settled derivative contracts, in “Net gain (loss) on derivative contracts” on the consolidated statements of operations. The Company’s hedge policies and objectives may change significantly as its operational profile changes. The Company does not enter into derivative contracts for speculative trading purposes.

It is the Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial or commodity hedging institutions deemed by management as competent and competitive market makers. As of December 31, 2022, the Company did not post collateral under any of its derivative contracts as they are secured under the Company’s Amended Term Loan Agreement.

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.

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the location and fair value amounts of all derivative contracts in the consolidated balance sheets as of December 31, 2022 and 2021 (in thousands):


	Years Ended December 31,					Years Ended December 31,
Balance sheet location	2022		2021		Balance sheet location	2022		2021
Current assets	$	16,244	$	1,383	Current liabilities	$	(29,286)	$	(58,322)
Other noncurrent assets		5,379		2,515	Other noncurrent liabilities		(33,649)		(7,144)
	$	21,623	$	3,898		$	(62,935)	$	(65,466)

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


	Location of gain or (loss)
	on derivative contracts on	Years Ended December 31,
Type	Statement of Operations	2022		2021
Commodity contracts:
Unrealized gain (loss)	Other income (expenses)	$	20,256	$	(47,721)
Realized gain (loss)	Other income (expenses)		(130,262)		(77,898)
Total net gain (loss)		$	(110,006)	$	(125,619)

At December 31, 2022, the Company had the following open crude oil and natural gas derivative contracts:


Instrument		2023		2024		2025		2026
Crude oil:
Fixed-price swap:
Total volumes (Bbls)		2,430,183		1,812,285		1,172,171		711,741
Weighted average price	$	69.17	$	63.75	$	60.88	$	64.19
Basis swap:
Total volumes (Bbls)		2,586,562		1,810,056		1,172,171		711,741
Weighted average price	$	0.40	$	0.27	$	0.16	$	0.09
WTI NYMEX roll:
Total volumes (Bbls)		2,490,458		1,733,719		1,172,171		711,741
Weighted average price	$	0.58	$	0.30	$	0.13	$	0.18
Natural gas:
Fixed-price swap:
Total volumes (MMBtu)		5,236,373		4,271,034		3,451,713		1,829,816
Weighted average price	$	3.75	$	3.54	$	3.33	$	4.03
Two-way collar:
Total volumes (MMBtu)		2,545,828		2,167,139		1,052,153		895,562
Weighted average price (call)	$	6.19	$	5.17	$	5.05	$	4.86
Weighted average price (put)	$	4.50	$	3.74	$	3.72	$	4.03
Basis swap:
Total volumes (MMBtu)		7,565,173		6,438,122		4,477,126		2,725,378
Weighted average price	$	(0.83)	$	(0.85)	$	(0.64)	$	(0.75)

The Company presents the fair value of its derivative contracts at the gross amounts in the consolidated balance sheets. The following table shows the potential effects of master netting arrangements on the fair value of the Company’s derivative contracts at December 31, 2022 and 2021 (in thousands):


	Derivative Assets				Derivative Liabilities
	Years Ended December 31,				Years Ended December 31,
Offsetting of Derivative Assets and Liabilities	2022		2021		2022		2021

Gross Amounts - Consolidated Balance Sheet	$	21,623	$	3,898	$	(62,935)	$	(65,466)
Amounts Not Offset - Consolidated Balance Sheet		(20,997)		(3,898)		20,997		3,898
Net amount	$	626	$	—	$	(41,938)	$	(61,568)

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 asset retirement obligation (ARO) on oil and natural gas properties when it can reasonably estimate the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon costs. The Company records asset retirement obligations to reflect the Company’s legal obligations related to future plugging and abandonment of its oil and natural gas wells, treating equipment and gathering support facilities.

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


	For the Year Ended December 31,
	2022		2021
Asset retirement obligations at beginning of the period	$	11,896	$	10,583
Accretion expense		528		477
Liabilities incurred		151		111
Liabilities settled/divested		(647)		—
Revisions to estimate		3,541		725
Asset retirement obligations at end of period		15,469		11,896
Less: current asset retirement obligations		(225)		—
Long-term asset retirement obligations at the end of the period	$	15,244	$	11,896

9. COMMITMENTS AND CONTINGENCIES

Commitments

As of December 31, 2022, the Company has an active drilling rig commitment of approximately $2.7 million that will be incurred in 2023. Termination of the active drilling rig commitment would require an early termination penalty of $1.1 million, which would be in lieu of paying the active drilling rig commitment of $2.7 million.

In May 2022, we also entered into a joint venture agreement to develop a strategic acid gas treatment and carbon sequestration facility and entered into a gas treating agreement. Once the facility is in service, we have a minimum volume commitment of 20,000 Mcf per day under the gas treating agreement, with certain rollover rights and start-up flexibility, for an initial term of five years from the in-service date of the facility. Under the gas treating agreement, we will pay a treating rate that begins at $1.65/Mcf and varies based on volumes delivered to the facility. At an initial treated volume of 12,000 Mcf/d, our commitment would be approximately $7.3 million for the first 12 months of the agreement. For additional information on this joint venture, see Note 13, Additional Financial Information.

The Company has entered into various long-term gathering, transportation and sales contracts with respect to its oil and natural gas production from the Delaware Basin in West Texas. As of December 31, 2022, the Company had in place two long-term crude oil contracts and 12 long-term natural gas contracts in this area and the sales prices under these contracts are based on posted market rates. Under the terms of these contracts, the Company has committed a substantial portion of its production from this area for periods ranging from one to twenty years from the date of first production.

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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 consolidated operating results, financial position or cash flows.

Surface owners of properties in Louisiana, where the Company formerly operated, often file lawsuits or assert claims against oil and gas companies claiming that operators and working interest owners are liable for environmental damages arising from operations conducted on the leased properties. 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

Common Stock

On October 8, 2019, upon emergence from chapter 11 bankruptcy, Battalion Oil Corporation filed an amended and restated certificate of incorporation with the Delaware Secretary of State to provide for, among other things, (i) the total number of shares of all classes of capital stock that Battalion Oil Corporation has the authority to issue is 101,000,000 of which 100,000,000 shares are common stock, par value $0.0001 per share and 1,000,000 shares are preferred stock, par value $0.0001 per share and (ii) a restriction on Battalion Oil Corporation from issuing any non-voting equity securities in violation of Section 1123(a)(6) of chapter 11 of title 11 of the United States Code. In addition, pursuant to the Company’s certificate of incorporation, effective at the 2021 annual meeting of stockholders, the board ceased to be divided into two classes, and the provision for the right of removal of any directors designated as a Group II director by an increased voting threshold from a majority to 85% of the shares then entitled to vote at an election of directors shares expired.

Incentive Plans

The Company’s board of directors adopted the 2020 Long-Term Incentive Plan (the Plan), as amended in 2021, in which an aggregate of approximately 1.8 million shares of the Company’s common stock were available for grant pursuant to awards under the Plan. As of December 31, 2022, a maximum of 0.2 million shares of the Company’s common stock remained reserved for issuance under the Plan. For the years ended December 31, 2022 and 2021, the Company recognized $2.2 million and $2.0 million, respectively, related to stock-based compensation awards granted to employees and directors, primarily related to restricted stock unit grants. Stock-based compensation is recorded as a component of “General and administrative” on the consolidated statements of operations.

Restricted Stock Units

From time to time, the Company grants shares of restricted stock units (RSUs) under the Plan to employees of the Company. Under the Plan, employee RSUs will vest and convert to shares typically in equal amounts over a three or four year vesting period from the date of the grant, depending on award, or when the performance or market conditions described below occur. At December 31, 2022 and 2021, the Company had $2.6 million and $2.2 million, respectively of unrecognized compensation expense related to non-vested RSU awards to be recognized over a weighted average period of 1 year and 1.8 years, respectively.

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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


	Number of Shares	Weighted Average Grant Date Fair Value Per Share		Aggregate Intrinsic Value⁽¹⁾(In thousands)
Unvested outstanding shares at December 31, 2020	874,134	$	9.48	$	3,287
Granted	12,000		8.00
Vested	(95,994)		11.51
Forfeited	(14,625)		11.89
Unvested outstanding shares at December 31, 2021	775,515	$	9.16	$	2,914
Granted	225,700		13.75
Vested	(98,121)		11.40
Forfeited	(13,700)		12.20
Unvested outstanding shares at December 31, 2022	889,394	$	10.03	$	3,993

(1)

The intrinsic value of restricted stock was calculated as the closing market price on December 31, 2022 and 2021 of the underlying stock multiplied by the number of restricted shares that would be issuable. The total fair value of shares vested was $1.7 million for the year ended December 31, 2022.

The discussion below outlines the vesting conditions and fair values for each type of the Company’s approximately 0.9 million unvested outstanding RSU under the Plan issued to employees of the Company as of December 31, 2022.

●

Time-Based RSU. 0.4 million RSUs will vest over a three or four year vesting period from the date of the grant, depending on award. The aggregate grant date fair value of these RSUs was $5.2 million.

●

Performance-Based RSU. 0.2 million RSUs will vest in full only upon achievement of certain business combination goals, as defined in the awards agreements. The aggregate grant date fair value of these RSUs was $1.8 million. As of December 31, 2022, no expense had been recognized for these awards as a business combination, as defined in the award agreements, had neither been consummated nor was considered probable.

●

Market-Based (e.g. TSR) RSU. 0.3 million RSUs will vest in full or in part or may terminate based on the Company’s total shareholder return (TSR) relative to the total shareholder return of certain of its peer companies as defined in the awards agreements over the performance period ending on February 20, 2024. The aggregate grant date fair value of these RSUs was $1.9 million.

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


	Year Ended
	December 31, 2020
Weighted average value per performance based RSUs granted during the period	$	6.13
Assumptions:
Stock price volatility⁽¹⁾		51.79	%
Risk free rate of return		1.22	%
Expected term		3.9	years

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

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Stock Options

From time to time, the Company has granted stock options under the Plan covering shares of common stock to employees of the Company. The Company has not granted stock options since 2020. Stock options, if exercised, are settled through the payment of the exercise price in exchange for new shares of stock underlying the option. Awards granted under the Plan typically vest over a four-year period at a rate of one-fourth on the annual anniversary date of the grant and expire seven years from the date of grant.

At December 31, 2022, the Company had 478,152 options outstanding (3 equal tranches of 159,384 options at exercise prices of $18.91, $28.23, and $37.83 per share) with a weighted average exercise price of $28.32/share. As of December 31, 2022 and 2021 no options were either exercisable nor had intrinsic value due to service performance conditions and/or based on the exercise price of the option exceeding the closing market price. The weighted average remaining contractual life at December 31, 2022 was approximately 4.2 years. Approximately $0.2 million of unrecognized compensation expense remains related to non-vested stock-options to be recognized over a weighted-average period of 0.7 years.

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


	Year Ended
	December 31, 2020
Weighted average value per option granted during the period	$	3.36
Assumptions:
Stock price volatility⁽¹⁾		61.87	%
Risk free rate of return		1.21	%
Expected term		4.75	years

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

Warrants

On October 8, 2019, pursuant to the Company’s plan of reorganization, approximately 6.9 million Series A, Series B and Series C warrants were issued to pre-emergence holders of the predecessor Company’s common stock with corresponding initial exercise prices ranging from $40.17 to $60.45 per share, on a pro rata basis. Each series of Warrants issued under the Warrant Agreement had a three-year term, which expired on October 8, 2022.

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11. INCOME TAXES

Income tax benefit (provision) for the indicated periods is comprised of the following (in thousands):


	Years Ended December 31,
	2022		2021
Current:
Federal	$	—	$	—
State		—		—
		—		—
Deferred:
Federal		—		—
State		—		—
		—		—
Total income tax benefit (provision)	$	—	$	—

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


	Years Ended December 31,
	2022		2021
Expected tax benefit (provision)	$	(3,893)	$	5,947
Change in valuation allowance and related items		6,689		57,845
Attribute reduction		(2,704)		(64,024)
Permanent adjustments		(5)		404
Employee retention credit		—		(153)
Non-deductible compensation		(56)		—
Other		(31)		(19)
Total income tax benefit (provision)	$	—	$	—

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The components of net deferred income tax assets (liabilities) recognized are as follows (in thousands):


	December 31, 2022		December 31, 2021
Deferred noncurrent income tax assets:
Net operating loss carry-forwards	$	151,905	$	135,454
Built in loss adjustment Section 382		693		693
Capital loss carryforward		114,725		114,725
Stock-based compensation expense		2,334		1,870
Asset retirement obligations		2,558		2,447
Book-tax differences in property basis		129,427		148,008
Unrealized hedging transactions		8,676		12,929
Disallowed interest Section 163(j)		14,905		15,230
Embedded derivative liability		459		841
Operating lease liability		74		151
Other		874		382
Gross deferred noncurrent income tax assets		426,630		432,730
Valuation allowance		(425,005)		(431,694)
Deferred noncurrent income tax assets	$	1,625	$	1,036

Deferred noncurrent income tax liabilities:
Basis difference in debt	$	(885)	$	(885)
Investment in unconsolidated subsidiary		(580)
Amortization of debt issuance costs		(86)
Lease right of use		(74)		(151)
Deferred noncurrent income tax liabilities	$	(1,625)	$	(1,036)
Net noncurrent deferred income tax assets (liabilities)	$	—	$	—

The amount of U.S. consolidated Net Operating Losses (NOLs) available as of December 31, 2022 after attribute reduction is estimated to be approximately $1.2 billion, but the amount after attribute reduction and the Section 382 limitation is $723.3 million. Of this amount, $92.6 million is subject to the 20 year carryforward period and will expire in 2037. The remaining $630.7 million may be carried forward indefinitely but is in part subject to a Section 382 limitation.

The Company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company considers all available evidence (both positive and negative) in determining whether a valuation allowance is required. The Company evaluated possible sources of taxable income that may be available to realize the benefit of deferred tax assets, including projected future taxable income, the reversal of existing temporary differences, taxable income in carryback years and available tax planning strategies in making this assessment. As a result of the Company’s analysis, it was concluded that as of December 31, 2022, a valuation allowance should continue to be applied against the Company’s net deferred tax asset. The Company recorded a valuation allowance as of December 31, 2022 of $425.0 million, a decrease of $6.7 million from December 31, 2021. The Company will continue to monitor facts and circumstances in the reassessment of the likelihood that operating loss carryforwards, credits and other deferred tax assets will be utilized.

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of income tax positions taken or expected to be taken in an income tax return. For those benefits to be recognized, an income tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company has no unrecognized tax benefits for the year ended December 31, 2022 and 2021. Accordingly, there is no amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate and there is no amount of interest or penalties currently recognized in the consolidated statements of operations in “Interest expense and other” or

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

consolidated balance sheets as of December 31, 2022 and 2021. In addition, the Company does not believe that there are any positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months.

Tax audits may be ongoing at any point in time. Tax liabilities are recorded based on estimates of additional taxes which may be due upon the conclusion of these audits. Estimates of these tax liabilities are made based upon prior experience and are updated for changes in facts and circumstances. However, due to the uncertain and complex application of tax regulations, it is possible that the ultimate resolution of audits may result in liabilities which could be materially different from these estimates.

Generally, the Company’s income tax years 2019 through 2022 remain open for federal purposes and are subject to examination by Federal tax authorities. The Company's income tax returns are also subject to audit by the tax authorities in Louisiana, Mississippi, North Dakota, Oklahoma, Texas, Pennsylvania, Ohio and certain other state taxing jurisdictions where the Company has, or previously had, operations. In certain jurisdictions the Company operates through more than one legal entity, each of which may have different open years subject to examination. The open years for state purposes can vary from the normal three year statue expiration period for federal purposes.

On August 16, 2022, the Inflation Reduction Act of 2022 (IRA) was enacted into law. The IRA contains significant U.S. federal income tax law changes, including the addition of a corporate alternative minimum tax imposed at a rate of fifteen percent (15%) on our global adjusted financial statement income effective as of January 1, 2023. Based on current guidance, we do not expect the IRA to have a material adverse impact on our business, results of operations or financial position. During 2020, the CARES Act and the Consolidated Appropriations Act of 2021 (the CAA) were signed into law. Both the CARES Act and CAA did not have a material impact to the Company’s consolidated financial statements and related disclosures.

12. EARNINGS PER SHARE

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


	Years Ended December 31,
	2022		2021
Basic:
Net income (loss)	$	18,539	$	(28,317)
Weighted average basic number of common shares outstanding		16,331		16,261
Basic net income (loss) per share of common share	$	1.14	$	(1.74)

Diluted:
Net income (loss)	$	18,539	$	(28,317)
Weighted average basic number of common shares outstanding		16,331		16,261
Common stock equivalent shares representing shares issuable upon:
Exercise of Warrants & Stock Options		Anti-dilutive		Anti-dilutive
Vesting of restricted stock units		179		Anti-dilutive
Weighted average diluted number of common shares outstanding		16,510		16,261
Diluted net income (loss) per share of common stock	$	1.12	$	(1.74)

For the year ended December 31, 2022, common stock equivalents, including warrants, stock options and certain restricted stock units, totaling 5.8 million weighted-average shares were anti-dilutive and not included in the computation of diluted earnings per share of common stock. For the year ended December 31, 2021, common stock equivalents, including warrants, stock options and restricted stock units, totaling 7.7 million shares were not included in the computation of diluted earnings per share of common stock because the effect would have been anti-dilutive due to

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

the Company’s net loss in the period. Additionally, we also have approximately 0.5 million restricted stock units that vest only upon achievement of certain business combination goals or based on the Company’s total shareholder return (TSR) as further described in Note 10, Stockholder’s Equity. On October 8, 2022 approximately 6.9 million warrants expired which previously gave the holder the right to purchase one share of common stock for each warrant.

13. ADDITIONAL FINANCIAL STATEMENT INFORMATION

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


	December 31, 2022		December 31, 2021
Accounts receivable, net:
Oil, natural gas and natural gas liquids revenues	$	33,980	$	34,110
Joint interest accounts		3,201		2,503
Other		793		193
	$	37,974	$	36,806
Prepaids and other:
Prepaids	$	715	$	975
Funds in escrow		341		390
Other		75		1
	$	1,131	$	1,366
Other assets (Non-current):
Investment in unconsolidated affiliate⁽¹⁾	$	1,561	$	—
Oil, natural gas and natural gas liquids revenues		—		1,010
Funds in escrow		527		1,227
Other		739		33
	$	2,827	$	2,270
Accounts payable and accrued liabilities:
Trade payables	$	42,919	$	25,315
Accrued oil and natural gas capital costs		19,911		4,881
Revenues and royalties payable		26,759		22,763
Accrued interest expense		160		42
Accrued employee compensation		2,300		3,735
Accrued lease operating expenses		8,005		6,090
Other		41		—
	$	100,095	$	62,826

(1)

In May 2022, we entered into a joint venture with Caracara Services, LLC (“Caracara”) to develop an acid gas treatment facility to remove hydrogen sulfide and carbon dioxide from our produced natural gas. Caracara will provide all necessary capital for the construction of the treatment facility. We contributed certain full cost pool assets to this related party joint venture in a non-cash exchange for a retained 5% equity interest in BAT, an unconsolidated subsidiary. For accounting purposes, since we do not control the key activities (e.g. operating and maintaining the facility) which most significantly impact economic performance nor do we have the obligation to absorb losses or the right to receive benefits that could potentially be significant, we are not the primary beneficiary of BAT. Accordingly, we account for our investment in BAT (a related party) using the equity method of accounting based on our ability to exercise significant influence, but not control, over the key activities of the joint venture. For more information related to this joint venture, see Note 9, Commitments and Contingencies.

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BATTALION OIL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. SUBSEQUENT EVENTS

Preferred Stock Equity Issuance. On March 28, 2023, we sold, in a private placement, an aggregate of 25,000 shares of Series A Convertible Preferred Stock (the “preferred stock”) to certain funds managed by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC, our largest three existing shareholders that represent 50 percent of our board of directors. We received $24,375,000 in proceeds, net of $625,000 in original issue discount. The issuance of preferred stock was approved by our board of directors upon recommendation by a special committee of disinterested directors that was established to evaluate the proposed terms of the preferred stock. Holders will have no voting rights with respect to the shares of preferred stock. The preferred stock will receive annual dividends, paid either in cash at a fixed rate of 14.5% annually or accrued (“PIK accrual”) at a fixed rate of 16.0% annually at the option of the Company. Currently, the Company’s Amended Term Loan Agreement prohibits the payment of cash dividends. PIK dividends will be cumulative, compound and accrue quarterly in arrears and will be added to the Liquidation Preference.

Shares of preferred stock will be convertible, subject to conversion ratios and prices stipulated in the agreement, at any time by the holders and by Battalion after meeting certain other agreement requirements. Battalion will also have the right to redeem the preferred stock in cash at an amount equal to between 100-120% of the Liquidation Preference ($1,000 per share, or $25.0 million, increased for any PIK accruals) determined according to the redemption date. Additionally, in the event of a change of control, holders have the right to receive, (i) at any time on or prior to 150 days following the closing date, and at the election of the Company, a cash payment equal to the Liquidation Preference or equity consideration equal to the 107.5% of the Liquidation Preference, or (ii) at any time after 150 days following the closing date, a cash payment equal to between 100-120% of the Liquidation Preference determined by the redemption date or conversion into common stock. Until (i) a termination of or certain amendments to the Amended Term Loan Agreement or (ii) one year past the maturity date of the Amended Term Loan Agreement, an election of the cash payment option by holders in a change of control scenario is not permitted.

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SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)

Oil and Natural Gas Reserves

Users of this information should be aware that the process of estimating quantities of “proved” and “proved developed” oil and natural gas reserves is very complex, requiring significant subjective decisions in the evaluation of all available geological, engineering and economic data for each reservoir. The data for a given reservoir may also change substantially over time as a result of numerous factors including, but not limited to, additional development activity, evolving production history and continual reassessment of the viability of production under varying economic conditions. As a result, revisions to existing reserve estimates may occur from time to time. Although every reasonable effort is made to ensure reserve estimates reported represent the most accurate assessments possible, the subjective decisions and variances in available data for various reservoirs make these estimates generally less precise than other estimates included in the financial statement disclosures.

The reserves information in this Annual Report on Form 10-K represents only estimates. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, estimates of different engineers may vary. In addition, results of drilling, testing and production subsequent to the date of an estimate may lead to revising the original estimate. Accordingly, initial reserve estimates are often different from the quantities of oil and natural gas that are ultimately recovered. The meaningfulness of such estimates depends primarily on the accuracy of the assumptions upon which they were based. Except to the extent the Company acquires additional properties containing proved reserves or conducts successful exploration and development activities or both, the Company’s proved reserves will decline as reserves are produced.

Proved reserves represent estimated quantities of natural gas, crude oil and condensate and natural gas liquids that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions in effect when the estimates were made. Proved developed reserves are proved reserves expected to be recovered through wells and equipment in place and under operating methods used when the estimates were made.

The proved reserves estimates reported herein for the years ended December 31, 2022, 2021 and 2020 have been independently evaluated by Netherland, Sewell, our independent reserve engineering firm. For additional information regarding estimates of proved reserves and other information about our oil and gas reserves, see Item 1. Business and the report of Netherland, Sewell which is included as an Exhibit to this Annual Report on Form 10-K.

The following tables illustrate changes in the Company’s estimated net proved developed and proved undeveloped reserves for the periods indicated. The oil and natural gas liquids prices as of December 31, 2022, 2021 and 2020 are based on the respective 12-month unweighted average of the first of the month prices of the West Texas Intermediate spot price which equates to $94.14 per barrel, $66.55 per barrel and $39.54 per barrel, respectively. The natural gas prices as of December 31, 2022, 2021 and 2020 are based on the respective 12-month unweighted average of the first of the month prices of the Henry Hub spot price which equates to $6.36 per MMBtu, $3.60 per MMBtu and $1.99 per MMBtu, respectively. All prices are adjusted by lease or field for energy content, transportation fees, and market

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differentials. All prices are held constant in accordance with SEC guidelines. All proved reserves are located in the United States.


	Total Proved Reserves
			Natural Gas
		Natural Gas	Liquids	Equivalent
	Oil (MBbls)	(MMcf)	(MBbls)	(MBoe)
Proved reserves, December 31, 2019	39,234	72,261	10,775	62,053
Extensions and discoveries	8,268	12,157	2,090	12,384
Production	(3,446)	(8,769)	(1,262)	(6,170)
Sale of minerals in place	(1,433)	(2,177)	(246)	(2,042)
Revision of previous estimates	(4,407)	5,034	718	(2,850)
Proved reserves, December 31, 2020	38,216	78,506	12,075	63,375
Extensions and discoveries	18,447	26,508	3,655	26,520
Production	(3,196)	(9,447)	(1,157)	(5,928)
Revision of previous estimates	5,265	29,398	1,747	11,913
Proved reserves, December 31, 2021	58,732	124,965	16,320	95,880
Extensions and discoveries	2,339	18,714	1,560	7,018
Production	(2,834)	(9,336)	(1,245)	(5,635)
Sale of minerals in place	(32)	(17)	(4)	(39)
Revision of previous estimates	(8,183)	9,358	1,420	(5,204)
Proved reserves, December 31, 2022	50,022	143,684	18,051	92,020


	Equivalent (Mboe)
	Proved	Proved
	Developed	Undeveloped	Total Proved
	Reserves	Reserves	Reserves
Proved reserves, December 31, 2019	37,935	24,118	62,053
Extensions and discoveries	13	12,371	12,384
Production	(6,170)	—	(6,170)
Sale of minerals in place	(2,042)	—	(2,042)
Transfers	6,513	(6,513)	—
Revision of previous estimates	(17)	(2,833)	(2,850)
Proved reserves, December 31, 2020	36,232	27,143	63,375
Extensions and discoveries	7	26,513	26,520
Production	(5,928)	—	(5,928)
Transfers	2,104	(2,104)	—
Revision of previous estimates	9,995	1,918	11,913
Proved reserves, December 31, 2021	42,410	53,470	95,880
Extensions and discoveries	2	7,016	7,018
Production	(5,635)	—	(5,635)
Sale of minerals in place	(39)	—	(39)
Transfers	8,314	(8,314)	(0)
Revision of previous estimates	1,250	(6,454)	(5,204)
Proved reserves, December 31, 2022	46,302	45,718	92,020


	Proved Developed Reserves
			Natural Gas
		Natural Gas	Liquids	Equivalent
	Oil (MBbls)	(MMcf)	(MBbls)	(MBoe)
December 31, 2022	22,501	81,636	10,195	46,302
December 31, 2021	21,694	71,009	8,881	42,410
December 31, 2020	20,371	51,097	7,345	36,232

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	Proved Undeveloped Reserves
			Natural Gas
		Natural Gas	Liquids	Equivalent
	Oil (MBbls)	(MMcf)	(MBbls)	(MBoe)
December 31, 2022	27,521	62,048	7,856	45,718
December 31, 2021	37,038	53,956	7,439	53,470
December 31, 2020	17,845	27,409	4,730	27,143

Year Ended December 31, 2022

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

At December 31, 2022, the Company’s estimated proved undeveloped (PUD) reserves of 45.7 MMBoe decreased approximately 7.8 MMBoe from December 31, 2021. The transfer of 8.3 MMBoe to proved developed producing reserves and downward revisions of 6.4 MMBoe due primarily to increased capital and operating costs were offset by additions and extensions of 7.0 MMBoe in the Delaware Basin primarily associated with infill drilling activity. All of the Company’s PUD reserves are planned to be developed within five years from the date they were initially recorded. During 2022, approximately $119.8 million in capital expenditures went toward the development of proved undeveloped reserves, which includes drilling, completion and other facility costs.

Year Ended December 31, 2021

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

At December 31, 2021, the Company’s estimated PUD reserves were approximately 53.5 MMBoe, a 26.4 MMBoe net increase from December 31, 2020 as a result of drilling extensions in the Delaware Basin of 26.5 MMBoe and positive revisions of 1.9 MMBoe due to increases in SEC pricing, partially offset by development of 2.1 MMBoe. None of the extensions and discoveries in PUD reserves in 2021 were associated with infill drilling activity.

Year Ended December 31, 2020

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

At December 31, 2020, the Company’s estimated PUD reserves of approximately 27.1 MMBoe, increased by approximately 3.0 MMBoe from December 31, 2021 as a result of result of drilling extensions in the Delaware Basin of 12.4 MMBoe, partially offset by PUD reserve development of 6.5 MMBoe and negative revisions of 2.8 MMBoe due primarily to decreases in SEC pricing. None of the extensions and discoveries in PUD reserves in 2020 were associated with infill drilling activity.

For wells classified as proved developed producing where sufficient production history existed, reserves were based on individual well performance evaluation and production decline curve extrapolation techniques. For undeveloped locations and wells that lacked sufficient production history, reserves were based on analogy to producing wells within the same area exhibiting similar geologic and reservoir characteristics, combined with volumetric methods. The volumetric estimates were based on geologic maps and rock and fluid properties derived from well logs, core data, pressure measurements, and fluid samples. Well spacing was determined from drainage patterns derived from a combination of performance-based recoveries and volumetric estimates for each area or field. PUD locations were limited to areas of uniformly high quality reservoir properties, between existing commercial producers.

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Reliable technologies were used to determine areas where PUD locations are more than one offset location away from a producing well. These technologies include seismic data, wire line openhole log data, core data, log cross-sections, performance data, and statistical analysis. In such areas, these data demonstrated consistent, continuous reservoir characteristics in addition to significant quantities of economic EURs from individual producing wells. The Company relied only on production flow tests and historical production data, along with the reliable geologic data mentioned above to estimate proved reserves. No other alternative methods or technologies were used to estimate proved reserves. Out of total proved undeveloped reserves of 45.7 MMBoe at December 31, 2022, 28.1 MMBoe were associated with 33 gross PUD locations that were more than one offset location from a producing well.

Capitalized Costs Relating to Oil and Natural Gas Producing Activities

The following table illustrates the total amount of capitalized costs relating to oil and natural gas producing activities and the total amount of related accumulated depletion, depreciation and accretion (in thousands):


	December 31, 2022		December 31, 2021		December 31, 2020
Evaluated oil and natural gas properties	$	713,585	$	569,886	$	509,274
Unevaluated oil and natural gas properties		62,621		64,305		75,494
		776,206		634,191		584,768
Accumulated depletion		(390,796)		(339,776)		(295,163)
	$	385,410	$	294,415	$	289,605

Costs Incurred in Oil and Natural Gas Property Acquisition, Exploration and Development Activities

Costs incurred in property acquisition, exploration and development activities were as follows:


	Years Ended December 31,
	2022		2021		2020

Property acquisition costs, proved	$	—	$	—	$	23
Property acquisition costs, unproved		—		—		—
Exploration and extension well costs		7,556		6,125		14,082
Development costs⁽¹⁾		119,814		37,611		43,256
Total costs	$	127,370	$	43,736	$	57,361

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

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

The following Standardized Measure of Discounted Future Net Cash Flows (Standardized Measure) has been developed utilizing ASC 932, Extractive Activities—Oil and Gas (ASC 932) procedures and based on oil and natural gas reserve and production volumes estimated by the Company’s engineering staff. It can be used for some comparisons, but should not be the only method used to evaluate the Company or its performance. Further, the information in the following table may not represent realistic assessments of future cash flows, nor should the Standardized Measure be viewed as representative of the current value of the Company.

The Company believes that the following factors should be taken into account when reviewing the following information:

●

future costs and selling prices will probably differ from those required to be used in these calculations;

●

due to future market conditions and governmental regulations, actual rates of production in future years may vary significantly from the rate of production assumed in the calculations;

●

a 10% discount rate may not be reasonable as a measure of the relative risk inherent in realizing future net oil and natural gas revenues; and

●

future net revenues may be subject to different rates of income taxation.

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At December 31, 2022, 2021 and 2020, as specified by the SEC, the prices for oil and natural gas used in this calculation were the unweighted 12-month average of the first day of the month prices, except for volumes subject to fixed price contracts. Estimates of future income taxes are computed using current statutory income tax rates including consideration for estimated future statutory depletion and tax credits. The resulting net cash flows are reduced to present value amounts by applying a 10% discount factor.

The Standardized Measure is as follows:


	Years Ended December 31,
	2022		2021		2020

	(In thousands)
Future cash inflows	$	6,095,180	$	4,688,646	$	1,660,950
Future production costs		(2,267,504)		(1,947,781)		(911,099)
Future development costs		(669,996)		(540,596)		(315,078)
Future income tax expense		(306,160)		(725)		(1,459)
Future net cash flows before 10% discount		2,851,520		2,199,544		433,314
10% annual discount for estimated timing of cash flows		(1,389,844)		(1,123,889)		(223,918)
Standardized measure of discounted future net cash flows	$	1,461,676	$	1,075,655	$	209,396

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

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


	Years Ended December 31,
	2022		2021		2020

	(In thousands)
Beginning of year	$	1,075,655	$	209,396	$	408,875
Sale of oil and natural gas produced, net of production costs		(220,023)		(164,221)		(34,888)
Sales of minerals in place		(536)		—		(22,387)
Extensions and discoveries		84,296		268,319		17,127
Changes in income taxes, net		(106,443)		119		25
Changes in prices and costs		611,617		472,162		(231,791)
Previously estimated development costs incurred		73,362		28,208		68,135
Net changes in future development costs		(103,349)		1,760		3,867
Revisions of previous quantities		(28,500)		184,284		(30,757)
Accretion of discount		107,577		20,963		40,914
Changes in production rates and other		(31,980)		54,665		(9,724)
End of year	$	1,461,676	$	1,075,655	$	209,396

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Management’s Evaluation of Disclosure Controls and Procedures

In accordance with Rules 13a-15(f) and 15d-15(f), of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013 as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2022 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Management has assessed our internal control over financial reporting as of December 31, 2022. The unqualified report of management thereon is included in Item 8. Consolidated Financial Statements and Supplementary Data of this Annual Report on Form 10-K and is incorporated by reference herein.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during the three months ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

Entry into a Material Definitive Agreement

On March 24, 2023, Battalion Oil Corporation (the “Company”) entered into a purchase agreement (the “Purchase Agreement”) with each of the purchasers set forth on Schedule A thereto (the “Buyers”), pursuant to which the Company agreed to sell to the Buyers, in a private placement, an aggregate of 25,000 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”). The private placement of the Series A Preferred Shares pursuant to the Purchase Agreement was undertaken in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof. A copy of the Purchase Agreement is filed as Exhibit 10.8 to this Annual Report on Form 10-K and is incorporated herein by reference. A description of the material terms of the transaction is set forth below and is qualified in its entirety by reference to the documents filed herewith as Exhibits 3.1.1, 10.3.1, and 10.8 which are incorporated herein by reference.

The aggregate purchase price paid by the Buyers for the Series A Preferred Stock was approximately $24,375,000, with related expenses and fees to be paid out of the proceeds. The Company intends to use the proceeds for general corporate and working capital purposes including scheduled debt principal and interest payments.

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Purchase Agreement

The Purchase Agreement entered into by the Company and the Buyers contains representations, warranties, and covenants of the Company and each of the Buyers, as well as indemnification rights and other obligations of the parties.

The closing of the transaction was conditioned on customary closing conditions, including the accuracy of the representations and warranties in the Purchase Agreement, the compliance by the parties with the covenants in the Purchase Agreement, and no material adverse effect occurred with respect to the Company.

Description of Series A Preferred Stock

The powers, preferences, rights, qualifications, limitations and restrictions applicable to the Series A Preferred Stock to be issued in the transaction are set forth in the Series A Certificate of Designations of the Company (the “Certificate of Designations”), which form is filed as Exhibit 3.1.1 to this Annual Report on Form 10-K. The Certificate of Designations is filed with the Delaware Secretary of State.

The holders of shares of the Series A Preferred Stock generally will have no voting rights, except as required by the General Corporation Law of the State of Delaware, other applicable law, the Certificate of Incorporation (as amended from time to time in accordance with its terms and the General Corporation Law, the “Certificate of Incorporation”), or as otherwise described in the Certificate of Designations, and except that the consent of the holders of at least two-thirds of the outstanding Series A Preferred Stock would be required to: (i) authorize, create, or increase the authorized amount of, or issue any class or series of class or series that ranks senior to the Series A Preferred Stock with respect to dividend rights or rights upon a liquidation, winding-up or dissolution of the Company (collectively, together with any warrants, rights, calls or options exercisable for or convertible into such capital stock, the “Senior Stock”), or reclassify or amend the provisions of any existing class of securities of the Company into shares of Senior Stock; (ii) authorize, create or issue any stock or debt instrument or other obligation that is convertible or exchangeable into shares of its Senior Stock (or that is accompanied by options or warrants to purchase such Senior Stock); (iii) amend, alter or repeal any provision of the Certificate of Incorporation or the Certificate of Designations, in either case, in a manner that materially adversely affects the special rights, preferences, privileges or voting powers of the Series A Preferred Stock; (iv) declare or pay any dividends or other distributions in cash or property with respect to its common stock, par value $0.0001 per share, of the Company (the “Common Stock”) or other class or series of capital stock of the Company, the terms of which do not expressly provide that such class or series ranks senior to or on a parity with the Series A Preferred Stock with respect to dividend rights or rights upon a liquidation, winding-up or dissolution of the Company (collectively, together with any warrants, rights, calls or options exercisable for or convertible into such capital stock, the “Junior Stock”); (v) redeem, repurchase or acquire shares of its Common Stock or other Junior Stock (other than with respect to customary repurchase rights or tax withholding arrangements with respect to equity awards or benefit plans); or (vi) redeem, repurchase, recapitalize or acquire shares of its stock on a parity with any class or series of capital stock of the Company, the terms of which provide that such class or series ranks on a parity with the Series A Preferred Stock with respect to dividend rights or rights upon a liquidation, winding-up or dissolution of the Company (such capital stock, together with any warrants, rights, calls or options exercisable for or convertible into such capital stock, the “Parity Stock”) other than (A) pro rata offers to purchase all, or a pro rata portion, of the Series A Preferred Stock and such Parity Stock (B) as a result of a reclassification of Parity Stock for or into other Parity Stock or Junior Stock, (C) the exchange or conversion of Parity Stock for or into other Parity Stock or Junior Stock or (D) the purchase of fractional interests in shares of Parity Stock pursuant to the conversion or exchange provisions of such Parity Stock or the security being converted or exchanged.

Holders of Series A Preferred Stock shall be entitled to receive dividends at the rate per share of Series A Preferred Stock equal to the Series A Dividend Rate (the “Series A Dividend”). The “Series A Dividend Rate” shall mean fourteen and one-half percent (14.50%) per annum on the then-applicable liquidation preference. If a Series A Dividend is not declared and paid in cash on a Dividend Payment Date, then in full discharge of such Series A Dividend for such Dividend Period, the Liquidation Preference of each outstanding share of Series A Preferred Stock, regardless of its date of issue, shall automatically increase on such Dividend Payment Date by an amount equal to sixteen percent (16.00%) per annum multiplied by the Liquidation Preference in effect immediately after the immediately prior Dividend Payment Date (or the Issuance Date in respect of the first Dividend Period) (such automatic increase, the “Unpaid Dividend

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Accrual”), which, for the avoidance of doubt, will be pro-rated for the period of time elapsed during such Dividend Period. The period from the closing date of the issuance of the shares of Series A Preferred Stock (the “Issuance Date”) to and including June 30, 2023, and each period from but excluding a Dividend Payment Date to and including the following Dividend Payment Date is herein referred to as a “Dividend Period.” “Dividend Payment Date” shall mean March 31, June 30, September 30 and December 31 of each year, commencing on June 30, 2023 and the “Liquidation Preference” shall equal one thousand dollars ($1,000) per share of Series A Preferred Stock, which amount shall be adjusted as the result of any Unpaid Dividend Accrual (or payment thereof), and as otherwise set forth in the Certificate of Designations.

Each Buyer shall have the option from time to time to convert all or a portion of such Buyer’s shares of Series A Preferred Stock into Common Stock at the Conversion Ratio. The “Conversion Ratio” means, for each share of Series A Preferred Stock, the quotient of (i) the liquidation preference as of the date of the conversion and (ii) the then applicable Conversion Price. The “Conversion Price” shall initially be $9.03, which may be adjusted from time to time as set forth herein.

First Amendment to Registration Rights Agreement

In connection with the Purchase Agreement, the Company also entered into the First Amendment to Registration Rights Agreement dated March 28, 2023 by and between the Company and the parties identified thereto (the “Amendment No. 1”) to the Registration Rights Agreement, dated as of October 8, 2019 (the “Registration Rights Agreement”). Under Amendment No. 1, the Company granted the parties certain registration rights with respect to Common Stock issuable upon conversion of the Series A Preferred Stock.

The foregoing summaries of the material terms of the Purchase Agreement, the Certificate of Designations, and the Registration Rights Agreement are not complete and are qualified in their entirety by reference to the full text thereof, copies of which are filed herewith as Exhibit 3.1.1, Exhibit 10.3.1, and Exhibit 10.8, respectively, and incorporated by reference herein.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Pursuant to General Instruction 6 to Form 10-K, we incorporate by reference into this Item the information to be disclosed in our definitive proxy statement for our 2023 Annual Meeting of Stockholders.

The Company's Code of Conduct and Code of Ethics for the Principal Executive Officer and Senior Financial Officers can be found on the Company's website located at www.battalionoil.com. Any stockholder may request a printed copy of such materials by submitting a written request to the Company's Corporate Secretary. If the Company amends the Code of Ethics or grants a waiver, including an implicit waiver, from the Code of Ethics, the Company will disclose the information on its website. The waiver information will remain on the website for at least twelve months after the initial disclosure of such waiver.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information

The following table sets forth certain information as of December 31, 2022 with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.


				Number of Securities
				Remaining Available for
				Future Issuance Under
	Number of Securities		Weighted-Average	Equity Compensation
	to be Issued Upon Exercise		Exercise Price of	Plans (Excluding
	of Outstanding		Outstanding Options and	Securities Reflected in
Plan Category	Options and Rights(A)⁽¹⁾		Rights	Column(A))
Equity compensation plans approved by security holders.	—	$	—	—
Equity compensation plans not approved by security holders⁽²⁾	1,367,546		28.32	243,623
	1,367,546	$	28.32	243,623

(1)	Consists of 889,394 unvested RSUs and outstanding 478,152 stock options.

(2)	The formation of the plan was approved by the Bankruptcy Court upon confirmation of our Plan of Reorganization in 2019 and further approved by our board with an effective date of January 1, 2020.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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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


Date: March 30, 2023	By:	/s/ RICHARD H. LITTLE
		Richard H. Little
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

Title

Date

/s/ RICHARD H. LITTLE

Richard H. Little

Director and Chief Executive Officer

March 30, 2023

/s/ KRISTEN MCWATTERS

Kristen McWatters

Executive Vice President, Chief Financial Officer and Treasurer

March 30, 2023

/s/ JONATHAN BARRETT

Jonathan Barrett

Chairman of the Board

March 30, 2023

/s/ DAVID CHANG

David Chang

Director

March 30, 2023

/s/ GREGORY HINDS

Gregory Hinds

Director

March 30, 2023

/s/ ALLEN LI

Allen Li

Director

March 30, 2023

/s/ WILLIAM ROGERS

William Rogers

Director

March 30, 2023

Exhibit 3.1.1

BATTALION OIL CORPORATION

____________________

CERTIFICATE OF DESIGNATIONS

Pursuant to Section 151 of the General
Corporation Law of the State of Delaware

____________________

SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK

(Par Value $0.0001 Per Share)

Battalion Oil Corporation (the “Corporation”), a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”), hereby certifies that, pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation (the “Board of Directors”) by the Amended and Restated Certificate of Incorporation of the Corporation (as amended from time to time in accordance with its terms and the General Corporation Law, the “Certificate of Incorporation”), which authorizes the Board of Directors to issue shares of the preferred stock of the Corporation (the “Preferred Stock”), in one or more series of Preferred Stock and to fix for each such series such voting powers, full or limited, and such designations, preferences and relative, participating, optional, or other special rights and such qualifications, limitations or restrictions thereof, and in accordance with the provisions of Section 151 of the General Corporation Law, the Board of Directors duly adopted on March 23, 2023 the following resolution:

RESOLVED, that the rights, powers and preferences, and the qualifications, limitations and restrictions, of the Series A Preferred Stock as set forth in this Certificate of Designations are hereby approved and adopted by the Board of Directors and Series A Preferred Stock is hereby authorized out of the Corporation’s authorized preferred stock, par value $0.0001 per share; and the form, terms and provisions of this Certificate of Designations are hereby approved, adopted, ratified and confirmed in all respects as follows:

1.	General.

(a)The shares of such series shall be designated the Series A Redeemable Convertible Preferred Stock (hereinafter referred to as the “Series A Preferred Stock”).

(b)Each share of Series A Preferred Stock shall be identical in all respects with the other shares of Series A Preferred Stock.

(c)The authorized number of shares of Series A Preferred Stock shall initially be twenty-five thousand (25,000), which number may from time to time be increased or decreased by resolution of the Board of Directors as permitted by the General Corporation Law.

(d)For purposes of this Certificate of Designations, “Capital Stock” of any Person means any and all shares, interests, participations or other equivalents however designated of corporate stock or other equity participations, including partnership interests, whether general or

limited, of such Person and any rights (other than debt securities convertible or exchangeable into an equity interest), warrants or options to acquire an equity interest in such Person. The Series A Preferred Stock shall, with respect to dividend rights and rights upon a liquidation, winding-up or dissolution of the Corporation, rank:

(i)senior to the Common Stock, par value $0.0001 per share, of the Corporation (“Common Stock”), and any other class or series of Capital Stock of the Corporation, the terms of which do not expressly provide that such class or series ranks senior to or on a parity with the Series A Preferred Stock with respect to dividend rights or rights upon a liquidation, winding-up or dissolution of the Corporation (collectively, together with any warrants, rights, calls or options exercisable for or convertible into such Capital Stock, the “Junior Stock”);

(ii)on a parity with any class or series of Capital Stock of the Corporation, the terms of which provide that such class or series ranks on a parity with the Series A Preferred Stock with respect to dividend rights or rights upon a liquidation, winding-up or dissolution of the Corporation (such Capital Stock, together with any warrants, rights, calls or options exercisable for or convertible into such Capital Stock, the “Parity Stock”); and

(iii)junior to any class or series of Capital Stock of the Corporation (other than Common Stock), the terms of which expressly provide that such class or series ranks senior to the Series A Preferred Stock with respect to dividend rights or rights upon a liquidation, winding-up or dissolution of the Corporation (collectively, together with any warrants, rights, calls or options exercisable for or convertible into such Capital Stock, the “Senior Stock”).

(e)For purposes of this Certificate of Designations, the following terms have meanings set forth in the Section indicated:

Term	Section
30 Day Date	Section 8(c)
Board of Directors	Preamble
Business Day	Section 4(b)
Capital Stock	Section 1(d)
Certificate of Incorporation	Preamble
Change of Control	Section 8(b)(iv)
CoC Conversion Consideration	Section 8(b)(ii)
Common Stock	Section 1(d)(i)
Conversion Notice	Section 7(a)
Conversion Price	Section 7(a)
Conversion Ratio	Section 7(a)
Corporation	Preamble
Corporation Event	Section 7(f)
Debt	Section 7(b)(ii)
Dividend Payment Date	Section 2(a)
Dividend Period	Section 2(a)
General Corporation Law	Preamble

Term	Section
Holder	Section 3(a)
Issuance Date	Section 2(a)
Issuer Conversion Notice	Section 7(b)
Junior Stock	Section 1(d)(i)
Liquidation	Section 3(a)
Liquidation Distribution	Section 3(a)
Liquidation Preference	Section 3(a)
Mandatory CoC Redemption Offer	Section 8(b)(ii)
Mandatory Conversion Conditions	Section 7(b)
Material Adverse Effect	Section 7(b)
Maturity Date	Section 8(b)(vii)
NYMEX Prices	Section 7(b)(v)
NYSE American Issuance Limitation	Section 9(a)
Optional CoC Conversion	Section 8(b)(iii)
Optional CoC Redemption Offer	Section 8(b)(iii)
Optional Holder Conversion	Section 7(a)
Parity Stock	Section 1(d)(ii)
PDP PV-20	Section 7(b)(i)
Permitted Holder	Section 8(b)(iv)
Person	Section 8(b)(ix)
Preferred Stock	Preamble
Proved Developed Producing Reserves	Section 7(b)(iv)
Purchase Agreement	Section 5(b)
Redemption Notice	Section 8(a)
Redemption Price	Section 8(a)
Schedule 14C Action	Section 9(c)
SEC	Section 9(c)
Senior Stock	Section 1(d)(iii)
Series A Dividend	Section 2(a)
Series A Dividend Rate	Section 2(a)
Series A Preferred Stock	Section 1(a)
Stockholder Approval	Section 9(b)
Subject Transaction	Section 9(d)
Term Loan Credit Agreement	Section 8(b)(vi)
Term Loan Restricted Period	Section 8(b)(v)
Unpaid Dividend Accrual	Section 2(d)
Working Capital Adjustments	Section 7(b)(iii)

2.	Dividends.

(a)Holders of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, and the Corporation shall pay, out of funds lawfully available therefor, cumulative dividends at the rate per share of Series A Preferred Stock equal to the Series A Dividend Rate (the “Series A Dividend”). The “Series A Dividend Rate” shall mean fourteen and one-half percent (14.50%) per annum on the then-applicable Liquidation Preference (as defined herein). The period from the closing date of the issuance of the shares of Series A Preferred

Stock (the “Issuance Date”) to and including June 30, 2023, and each period from but excluding a Dividend Payment Date to and including the following Dividend Payment Date is herein referred to as a “Dividend Period.” “Dividend Payment Date” shall mean March 31, June 30, September 30 and December 31 of each year, commencing on June 30, 2023.

(b)Series A Dividends shall be payable quarterly in arrears at the Series A Dividend Rate and shall compound quarterly and accumulate, whether or not earned or declared, from the most recent date on which dividends have been paid, or, if no dividends have been paid, from the Issuance Date (subject, in each case, to the Unpaid Dividend Accrual).

(c)If a Series A Dividend is declared by the Board of Directors, then such Series A Dividend shall be paid in cash. The Board of Directors shall not be required to declare any Series A Dividends, and any declaration of a Series A Dividend shall be solely at the discretion of the Board of Directors of the Corporation.

(d)If a Series A Dividend is not declared and paid in cash on a Dividend Payment Date, then in full discharge of such Series A Dividend for such Dividend Period, the Liquidation Preference of each outstanding share of Series A Preferred Stock, regardless of its date of issue, shall automatically increase on such Dividend Payment Date by an amount equal to sixteen percent (16.00%) per annum multiplied by the Liquidation Preference in effect immediately after the immediately prior Dividend Payment Date (or the Issuance Date in respect of the first Dividend Period) (such automatic increase, the “Unpaid Dividend Accrual”), which, for the avoidance of doubt, will be pro-rated for the period of time elapsed during such Dividend Period. Notwithstanding anything to the contrary herein, any portion of the Unpaid Dividend Accrual that increased the Liquidation Preference during any historical Dividend Period can be paid by the Corporation in cash, out of funds lawfully available therefor, at any time as and if declared by the Board of Directors; provided that, after any such payment, the Liquidation Preference shall automatically decrease by the amount of such payment.

(e)All cash dividends paid or declared for payment on a Dividend Payment Date with respect to the Series A Preferred Stock and the Parity Stock shall be shared pro rata based on the then-current dividends due on shares of Series A Preferred Stock and (i) in the case of any series of non-cumulative Parity Stock, the aggregate of the current and unpaid dividends due on such series of Parity Stock, and (ii) in the case of any series of cumulative Parity Stock, the aggregate of the current and accumulated and unpaid dividends due on such series of Parity Stock.

(f)Holders of Series A Preferred Stock shall fully participate, on an as-converted basis, in any dividends declared and paid or distributions on Common Stock as if the Series A Preferred Stock were converted into shares of Common Stock as of the record date for such dividend or distribution, at the Conversion Ratio in effect on such record date.

3.	Liquidation.

(a)Prior to conversion pursuant to Section 7, in the event of a liquidation (complete or partial), dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary (a “Liquidation”), after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of Series A Preferred Stock (each, a “Holder”) shall be

entitled to receive, in respect of any shares of Series A Preferred Stock held by them, out of assets of the Corporation available for distribution to stockholders of the Corporation or their assignees, and subject to the rights of any outstanding shares of Senior Stock and before any amount shall be distributed to the holders of Junior Stock, a liquidating distribution (the “Liquidation Distribution”) in an amount equal to the greater of (i) the then-applicable Liquidation Preference, including, for the avoidance of doubt, any adjustment for any Unpaid Dividend Accrual (or payment thereof), and (ii) the amount such Holder would have been entitled to receive had such Holder converted its shares of Series A Preferred Stock into shares of Common Stock at the then-applicable Conversion Ratio immediately prior to such Liquidation. The “Liquidation Preference” shall equal $1,000 per share of Series A Preferred Stock, which amount shall be adjusted as the result of any Unpaid Dividend Accrual (or payment thereof), and as otherwise set forth herein. In addition, in connection with any conversion or redemption of the Series A Preferred Stock, the Liquidation Preference shall be adjusted to include all accrued and unpaid dividends (at the Series A Dividend Rate) between the immediately prior Dividend Payment Date (or the Issuance Date with respect to the first Dividend Period) and the date immediately prior to the effective date of such conversion or redemption. If, upon a Liquidation, the assets of the Corporation, or proceeds thereof, distributable among the holders of the then outstanding shares of Series A Preferred Stock and the holders of any shares of Parity Stock ranking on a parity with the Series A Preferred Stock with respect to any distribution of assets upon Liquidation are insufficient to pay in full the amount of all such Liquidation Preference payable with respect to the Series A Preferred Stock and any such Parity Stock, then the holders of Series A Preferred Stock and such Parity Stock shall share ratably in any distribution of assets in proportion to the full respective preferential amounts to which they are entitled.

(b)The Corporation shall provide the Holders appearing on the stock books of the Corporation as of the date of such notice at the address of said Holder shown therein with written notice of (i) any voluntary Liquidation promptly after such Liquidation has been approved by the Board of Directors and at least five (5) days prior to the effective date of such Liquidation and (ii) any involuntary Liquidation promptly upon the Corporation becoming aware of any instituted proceeding in respect thereof. Such notice shall state a distribution or payment date, the amount of the Liquidation Preference and the place where the Liquidation Preference shall be distributable or payable.

(c)After the payment in cash or proceeds to the Holders of the full amount of the Liquidation Distribution with respect to outstanding shares of Series A Preferred Stock, the Holders shall have no right or claim, based on their ownership of shares of Series A Preferred Stock, to the remaining assets of the Corporation, if any. Whenever any such distribution shall be paid in property other than cash, the value of such distribution shall be the fair market value of such property as determined in the good faith reasonable discretion of the Board of Directors or liquidating trustee, as the case may be.

4.	Voting.

(a)General. Except as otherwise required by the General Corporation Law, other applicable law, the Certificate of Incorporation, or this Certificate of Designations, Holders shall not be entitled to any vote on matters submitted to the Corporation’s stockholders for approval. In any case in which the Holders shall be entitled to vote pursuant to the General Corporation Law,

other applicable law, the Certificate of Incorporation, or this Certificate of Designations, each Holder entitled to vote with respect to such matter shall be entitled to one vote per share of Series A Preferred Stock.

(b)Protective Provisions. In addition to any vote required by the General Corporation Law, other applicable law, the Certificate of Incorporation, or this Certificate of Designations, for so long as any of the shares of Series A Preferred Stock shall remain outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, take any of the following actions, including whether by merger, consolidation or otherwise, without (in addition to any other vote required by the General Corporation Law, other applicable law, the Certificate of Incorporation, or this Certificate of Designations), the written consent or affirmative vote of the holders of at least two-thirds (66 ⅔%) of the then outstanding shares of Series A Preferred Stock voting as a separate class to:

(i)authorize, create, or increase the authorized amount of, or issue any class or series of Senior Stock, or reclassify or amend the provisions of any existing class of securities of the Corporation into shares of Senior Stock;

(ii)authorize, create or issue any stock or debt instrument or other obligation that is convertible or exchangeable into shares of its Senior Stock (or that is accompanied by options or warrants to purchase such Senior Stock);

(iii)amend, alter or repeal any provision of the Certificate of Incorporation or this Certificate of Designations, in either case, in a manner that materially adversely affects the special rights, preferences, privileges or voting powers of the Series A Preferred Stock;

(iv)declare or pay any dividends or other distributions in cash or property with respect to its Common Stock or other Junior Stock;

(v)redeem, repurchase or acquire shares of its Common Stock or other Junior Stock (other than with respect to customary repurchase rights or tax withholding arrangements with respect to equity awards or benefit plans); or

(vi)redeem, repurchase, recapitalize or acquire shares of its Parity Stock other than (A) pro rata offers to purchase all, or a pro rata portion, of the Series A Preferred Stock and such Parity Stock, (B) as a result of a reclassification of Parity Stock for or into other Parity Stock or Junior Stock, (C) the exchange or conversion of Parity Stock for or into other Parity Stock or Junior Stock or (D) the purchase of fractional interests in shares of Parity Stock pursuant to the conversion or exchange provisions of such Parity Stock or the security being converted or exchanged.

If the Corporation shall propose to take any action enumerated above in clauses (i) through (vi) of this Section 4(b) then, and in each such case, the Corporation shall give notice of such proposed action to each Holder of record appearing on the stock books of the Corporation as of the date of such notice at the address of said Holder shown therein. Such notice shall specify, inter alia (x) the proposed effective date of such action; (y) the date on which a record is to be taken for the purposes of such action, if applicable; and (z) the other material terms of such action. Such notice shall be

given at least two Business Days prior to the applicable date or effective date specified above. For the purposes of this Certificate of Designations, “Business Day” shall mean each day that is not a Saturday, Sunday or other day on which banking institutions in Houston, Texas or New York, New York are authorized or required by law to close. If at any time the Corporation shall cancel any of the proposed actions for which notice has been given under this Section 4(b) prior to the consummation thereof, the Corporation shall give prompt notice of such cancellation to each holder of record of the shares of Series A Preferred Stock appearing on the stock books of the Corporation as of the date of such notice at the address of said Holder shown therein. For the avoidance of doubt, if a holder of record of shares of Series A Preferred Stock does not respond to the aforementioned notice, such non-response shall in no way be deemed to constitute the written consent or affirmative vote of such Holder regarding any of the aforementioned actions in this Section 4(b) or described within such notice.

5.	Reservation of Common Stock.

(a)At any time that any Series A Preferred Stock is outstanding, the Corporation shall from time to time take all lawful action within its control to cause the authorized Capital Stock of the Corporation to include a number of authorized but unissued shares of Common Stock equal to the Conversion Ratio multiplied by the number of shares of outstanding Series A Preferred Stock.

(b)If (i) the Common Stock is listed on a national securities exchange and (ii) any shares of Common Stock to be reserved for the purpose of conversion of the Series A Preferred Stock require registration or listing with or approval of any governmental authority, stock exchange or other regulatory body under any federal or state law or regulation or otherwise before such shares may be validly issued or delivered upon conversion, then the Corporation shall, at its sole cost and expense, in good faith and as expeditiously as possible, subject to Section 5.02 (Information Statement) of the Purchase Agreement, dated as of March 24, 2023, among the Corporation and the initial Holders (the “Purchase Agreement”), endeavor to secure such registration, listing or approval, as the case may be.

6.	Uncertificated Shares

The shares of Series A Preferred Stock shall be in uncertificated, book-entry form as permitted by the Seventh Amended and Restated Bylaws of the Corporation (the “Bylaws”) and the General Corporation Law. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof any written notice as required by the General Corporation Law.

7.	Conversion.

(a)Each Holder shall have the option from time to time, exercisable by delivery of written notice to the Corporation substantially in the form attached hereto as Annex A-1 (the “Conversion Notice”), to the extent permitted by applicable law, to convert all or a portion of such Holder’s shares of Series A Preferred Stock into Common Stock at the Conversion Ratio (an “Optional Holder Conversion”); provided that the Corporation shall not be required to honor such request if such Holder has previously delivered a Conversion Notice, in respect of an Optional Holder Conversion, during the same fiscal quarter. The “Conversion Ratio” means, for each share

of Series A Preferred Stock, the quotient of (i) the Liquidation Preference as of the date of the conversion and (ii) the then applicable Conversion Price. The “Conversion Price” shall initially be $9.03, which may be adjusted from time to time as set forth herein.

(b)If based on the Corporation’s financial statements for any fiscal quarter and a reserve report as of the same date prepared by an independent reserve engineering firm as of the end of a fiscal quarter that, as of such date, (x) the PDP PV-20 value divided by (y) the number of outstanding shares of Common Stock, calculated on a fully-diluted basis (including the Series A Preferred Stock), is equal to or exceeds one hundred and thirty percent (130%) of the Conversion Price (the “Mandatory Conversion Conditions”), then the Corporation shall have the option from time to time until such time that the Mandatory Conversion Conditions are no longer satisfied (based on the Corporation’s financial statements for each subsequent fiscal quarter and the Corporation’s reserve report for each subsequent fiscal quarter (without the requirement that such reserve report is prepared by an independent reserve engineer)) or a Material Adverse Effect (as defined in the Purchase Agreement) has occurred since the date of the most recent financial statements that met the Mandatory Conversion Conditions, exercisable by delivery of written notice to the Holders at the address of such Holders shown on the stock books of the Corporation in the form attached hereto as Annex A-2 (the “Issuer Conversion Notice”), to convert some or all outstanding shares of Series A Preferred Stock into Common Stock using the then applicable Conversion Ratio (the “Issuer Forced Conversion”).

(i)“PDP PV-20” means, as of any date of determination, the sum of (A) the net present value of estimated future cashflows from the Proved Developed Producing Reserves, utilizing a twenty percent (20%) discount rate and using NYMEX Prices, plus or minus, (B) the mark-to-market value (whether positive or negative) of the Corporation’s hedge position, plus or minus, (C) Working Capital Adjustments (whether positive or negative), minus, (D) general and administrative expenses as reported in the Corporation’s financial statements for the trailing twelve (12) month period multiplied by four (4), and minus (E) existing Debt.

(ii)“Debt” means, without duplication, all of the principal of and accreted value and accrued and unpaid interest in respect of the Corporation’s (A) indebtedness for borrowed money, (B) other indebtedness that is evidenced by bonds, notes, letters of credit or similar instruments, (C) notes payable and (D) the then-applicable redemption price of any of the Corporation’s outstanding redeemable or purchasable capital stock that is not convertible into Common Stock taken into account in Section 7(b)(y).

(iii)“Working Capital Adjustments” means the Corporation’s current assets minus current liabilities.

(iv)“Proved Developed Producing Reserves” means oil and gas properties designated as proved, developed and producing (in accordance with SEC rules and regulations) in the Corporation’s reserve report.

(v)“NYMEX Prices” means, as of any date of determination, the forward month prices for the most comparable hydrocarbon commodity applicable to such future production month for a sixty (60) month period (or such shorter period if forward month

prices are not quoted for a reasonably comparable hydrocarbon commodity for the full sixty month period), with such prices held constant thereafter using at a price equal to the average of prices between the forty ninth (49th) month and sixtieth (60th) month, as such prices are (A) quoted on the NYMEX (or its successor) calculated as of a date not more than five (5) days prior to the date of determination and (B) adjusted for energy content, quality and basis differentials; provided that with respect to estimated future production for which prices are defined, within the meaning of SEC guidelines, by contractual arrangements excluding escalation based upon future conditions, then contract prices shall be applied to future production subject to such arrangements.

(vi)All of the financial metrics in subclauses (i)-(iii) above (other than (i)(A)) shall use the Corporation’s consolidated financial statements prepared in accordance with United States generally accepted accounting principles. All of the reserve information in subclause (i)(A) and (iv)-(v) above shall use the Corporation’s reserve report based as of the same date.

(c)In the event a Holder has elected an Optional Holder Conversion pursuant to Section 7(a) or in the event the Corporation has elected an Issuer Forced Conversion pursuant to Section 7(b) above, the Corporation shall deliver, no later than two Business Days following the conversion date, a number of shares of Common Stock equal to the Conversion Ratio.

(d)Any Common Stock delivered as a result of conversion pursuant to this Section 7 shall be validly issued, fully paid and non-assessable, free and clear of any preemptive right, liens, claims, rights or encumbrances other than those arising under the General Corporation Law, the Bylaws or transfer restrictions under the Securities Act and state securities laws. Immediately following the settlement of any conversion, if any, the rights of the holders of converted Series A Preferred Stock shall cease and the Persons entitled to receive shares of Common Stock upon the conversion of shares of Series A Preferred Stock shall be treated for all purposes as having become the owners of such shares of Common Stock. Concurrently with such conversion, the converted shares of Series A Preferred Stock shall cease to be outstanding, shall be canceled and the shares of Series A Preferred Stock formerly designated pursuant to this Certificate of Designations shall be restored to authorized but unissued shares of Preferred Stock.

(e)If, after the Issuance Date, the Corporation (i) makes a distribution on its Common Stock in securities (including Common Stock) or other property or assets, (ii) subdivides or splits its outstanding Common Stock into a greater number of shares of Common Stock, (iii) combines or reclassifies its Common Stock into a smaller number of shares of Common Stock or (iv) issues by reclassification of its Common Stock any securities (including any reclassification in connection with a merger, consolidation or business combination in which the Corporation is the surviving Person or another constituent corporation is issuing equity securities in exchange for Common Stock, including a transaction contemplated by the proviso in clause (1) of the definition of Change of Control), then the Conversion Price in effect at the time of the record date for such distribution or of the effective date of such subdivision, split, combination, or reclassification shall be proportionately adjusted so that the conversion of the Series A Preferred Stock after such time shall entitle the holder to receive the aggregate number of shares of Common Stock (or shares of any securities into which such shares of Common Stock would have been combined, consolidated, merged, reclassified or exchanged pursuant to clauses (ii) and (iii) above) that such holder would

have been entitled to receive if the Series A Preferred Stock had been converted into Common Stock immediately prior to such record date or effective date, as the case may be, and in the case of a merger, consolidation or business combination in which the Corporation is the surviving Person or another constituent corporation is issuing equity securities in exchange for Common Stock, the Corporation shall provide effective provisions to ensure that the provisions in this Certificate of Designations relating to the Series A Preferred Stock shall not be abridged or amended and that the Series A Preferred Stock shall thereafter retain the same powers, preferences and relative participating, optional and other special rights, and the qualifications, limitations and restrictions thereon, that the Series A Preferred Stock had immediately prior to such transaction or event either in the Corporation if the surviving corporation or in the constituent corporation. An adjustment made pursuant to this Section 7(e) shall become effective immediately after the record date in the case of a distribution and shall become effective immediately after the effective date in the case of a subdivision, combination, reclassification (including any reclassification in connection with a merger, consolidation or business combination in which the Corporation is the surviving Person or a constituent corporation) or split. Such adjustment shall be made successively whenever any event described above shall occur.

(f)At least fifteen (15) days prior to the consummation of any recapitalization, reorganization, consolidation, Change of Control, spin-off or other business combination (not otherwise addressed in Section 7(e) above) (a “Corporation Event”), the Corporation shall notify each Holder of such event (such notice to set forth in reasonable detail the material terms and conditions of such Corporation Event and the securities, cash or other assets, if any, which a holder of Series A Preferred Stock and Common Stock (each on a per share basis) would receive upon the consummation of such event, to the extent known by the Corporation at the time); provided that the Corporation shall not be obligated to provide any holder with information that is otherwise not publicly available.

(g)Upon any adjustment to the Conversion Price pursuant to this Section 7, the Corporation promptly shall deliver to each Holder a certificate signed by an appropriate officer of the Corporation, setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the increased or decreased Conversion Price then in effect following such adjustment.

(h)The Corporation shall pay any and all issue, documentary, stamp and other taxes, excluding any income, franchise, property or similar taxes, that may be payable in respect of any issue or delivery of Common Stock on conversion of Series A Preferred Stock pursuant hereto. However, the holder of any Series A Preferred Stock shall pay any tax that is due because Common Stock issuable upon conversion thereof are issued in a name other than such holder’s name.

(i)No fractional shares of Common Stock shall be issued upon the conversion of any Series A Preferred Stock. All Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series A Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional stock. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall not issue a fractional share of Common Stock but shall round the fractional share of Common Stock to the nearest whole

share of Common Stock (and a 0.5 of a share of Common Stock shall be rounded up to the next higher share of Common Stock).

(j)The Corporation agrees that it will act in good faith to make any adjustment(s) required by this Section 7 equitably and in such a manner as to afford the Holders the benefits of the provisions hereof, and will not intentionally take any action to deprive such Holders of the express benefit hereof.

(k)Any conversion made pursuant to this Section 7, including any Issuer Forced Conversion made pursuant to Section 7(b), is subject to compliance with all applicable laws, rules and regulations, including any relevant stock exchange rules.

8.	Redemption

(a)The Corporation has the option in its sole discretion, from time to time other than in connection with a Liquidation and to the extent permitted by applicable law, to redeem all or a portion of the then outstanding shares of Series A Preferred Stock, for an amount per share of Series A Preferred Stock equal to the Redemption Price, subject to a holder’s right to elect conversion set forth below. The “Redemption Price” means (a) for the period commencing on the Issuance Date and ending on the date that is one hundred and nineteen (119) days after the Issuance Date, one hundred percent (100%) of the Liquidation Preference at such time; (b) for the period commencing on the day that is one hundred and twenty (120) days after the Issuance Date and ending on the date that is one hundred and seventy-nine (179) days after the Issuance Date, one hundred and two percent (102%) of the Liquidation Preference at such time; (c) for the period commencing on the day that is one hundred and eighty (180) days after the Issuance Date and ending on the first (1st) anniversary of the Issuance Date, one hundred and five percent (105%) of the Liquidation Preference at such time; (d) for the period commencing on the day immediately after the first (1st) anniversary of the Issuance Date and ending on the second (2nd) anniversary of the Issuance Date, one hundred and eight percent (108%) of the Liquidation Preference at such time; and (e) any time after the second (2nd) anniversary of the Issuance Date, one hundred and twenty percent (120%) of the Liquidation Preference at such time. The Corporation may exercise its redemption option under this Section 8(a) by delivery of written notice to the Holders in the form attached as Annex B (the “Redemption Notice”), provided, however, that, the Holders shall have five (5) Business Days from the date of receipt of any such Redemption Notice to, in lieu of being paid the cash Redemption Price, elect to convert the shares of Series A Preferred Stock subject to such Redemption Notice and in accordance with Section 7(a). Such redemption shall be completed on a date specified in the Redemption Notice, which shall be not less than ten (10) and not more than twenty (20) Business Days following the date of the Redemption Notice. If the Corporation redeems only a portion of the then outstanding shares of Series A Preferred Stock, the shares of Series A Preferred Stock subject to such redemption shall be allocated pro rata among the outstanding shares of Series A Preferred Stock.

(b)Change of Control.

(i)At any time on or prior to the one hundred fiftieth (150^th) day following the Issuance Date, upon the occurrence of a Change of Control, at the option of the Corporation, either (A) each Holder shall have all of their shares of Series A Preferred

Stock redeemed in exchange for a cash payment per share of Series A Preferred Stock equal to the Liquidation Preference as of such date or (B) each Holder shall be entitled to receive the same form and amount of consideration such Holder would have received pursuant to the applicable acquisition agreement if, immediately prior to the record date for payments relating to such Change of Control, such share of Series A Preferred Stock had been converted into a number of shares of Common Stock equal to the quotient of (1) the Liquidation Preference as of such date multiplied by one hundred and seven point five percent (107.5%) and (2) the VWAP over fifteen (15) consecutive trading days ending on the third (3rd) trading day prior to the closing of the Change of Control transaction.

(ii)At any time after both the one hundred fiftieth (150^th) day following the Issuance Date and the end of the Term Loan Restricted Period, upon the occurrence of a Change of Control, the Corporation shall offer each Holder a cash payment per share of Series A Preferred Stock equal to the Redemption Price (the “Mandatory CoC Redemption Offer”); provided, however, that, notice of such Mandatory CoC Redemption Offer shall be provided to each Holder at least ten (10) Business Days prior to the consummation of such Change of Control and the Holders shall have five (5) Business Days from the date of receipt of any such notice to, in lieu of being paid the cash Redemption Price, elect to receive from the acquirer in the Change of Control transaction the same form and amount of consideration such Holder would have received pursuant to the applicable acquisition agreement if, immediately prior to the record date for payments relating to such Change of Control, such share of Series A Preferred Stock had been converted into a number of shares of Common Stock at the Conversion Ratio (“CoC Conversion Consideration”).

(iii)At any time after the one hundred fiftieth (150^th) day following the Issuance Date and prior to the end of the Term Loan Restricted Period, upon the occurrence of a Change of Control that occurs, the Corporation shall have the option to offer each Holder a cash payment per share of Series A Preferred Stock it holds equal to the Redemption Price (the “Optional CoC Redemption Offer”). The Corporation shall notify each Holder at least ten (10) Business Days prior to the consummation of such Change of Control if it is electing to exercise the Optional CoC Redemption Offer, and the Holders shall have five (5) Business Days from the date of receipt of any such notice to, in lieu of being paid the cash Redemption Price, elect to receive the CoC Conversion Consideration from the acquirer in the Change of Control transaction in connection with the consummation of such Change of Control. If the Corporation does not elect to offer the Optional CoC Redemption Offer, the Holder shall be entitled to receive the CoC Conversion Consideration from the acquirer in the Change of Control transaction in connection with the consummation of such Change of Control.

(iv)(A) a “Change of Control” means (1) the consummation of any transaction by the Corporation the result of which is that any Person or “group” (as defined in the Securities Exchange Act of 1934, as amended), other than any Permitted Holder, becomes the beneficial owner, directly or indirectly, of more than fifty percent (50%) of the voting stock of the Corporation, measured by voting power rather than number of shares, units or the like; provided that a transaction in which the Corporation becomes a subsidiary of another Person shall not constitute a Change of Control if, immediately following such transaction, the Persons who were beneficial owners of the voting stock of the Corporation

immediately prior to such transaction beneficially own, directly or indirectly, fifty percent (50%) or more of the total voting power of the voting stock of such other Person of whom the Corporation has become a subsidiary or (2) the sale of all or substantially all of the Corporation’s assets; and (B) the “Permitted Holder” means any holder of shares of Series A Preferred Stock as of the Issuance Date and its affiliates.

(v)“Term Loan Restricted Period” means the period from the Issuance Date until the earliest of (a) the termination of the Term Loan Credit Agreement, (b) the first Business Day immediately following the first anniversary of the Maturity Date of the Term Loan Credit Agreement (as in effect on the date hereof), and (c) such time, if any, as the Term Loan Credit Agreement may be amended in a manner that would not cause the Series A Preferred Stock to be “Disqualified Capital Stock” under the Term Loan Credit Agreement as a result of the Corporation being obligated to effect the Mandatory CoC Redemption Offer pursuant to clause (ii) above.

(vi)“Term Loan Credit Agreement” means the Amended and Restated Senior Secured Credit Agreement, dated as of November 24, 2021, by and among the Corporation, Halcón Holdings, LLC, Macquarie Bank Limited and the lenders from time to time party thereto, as amended, restated or otherwise modified from time to time.

(vii)“Maturity Date” means November 24, 2025.

(viii)“VWAP” means the dollar volume-weighted average price for the Common Stock on its trading market during the period beginning at 9:30:01 a.m., New York time (or such other time as the trading market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the trading market publicly announces is the official close of trading), as reported by Bloomberg, L.P. through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time (or such other time as the trading market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York City Time (or such other time as the trading market publicly announces is the official close of trading), as reported by Bloomberg, L.P., or, if no dollar volume-weighted average price is reported for such security by Bloomberg, L.P. for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the VWAP cannot be calculated for the Common Stock on a particular date on any of the foregoing bases, the VWAP of the Common Stock shall be the fair market value of the Common Stock as determined by an independent nationally recognized investment banking firm mutually agreed to by the Corporation and holders of at least two-thirds (66 ⅔%) of the Series A Preferred Stock then outstanding.

(ix)“Person” means any individual, corporation, company, voluntary association, partnership, joint venture, trust, limited liability company, unincorporated organization, government or any agency, instrumentality or political subdivision thereof or any other form of entity.

(c)The Holders and the Corporation agree that each will cooperate in good faith to determine the U.S. federal income tax treatment of any redemption by the Corporation of the Series A Preferred Stock and will (and will cause its affiliates to), in connection with any such redemption, reasonably cooperate (i) to structure such redemption in a manner that permits each Holder to report the redemption payment as received in part or full payment in exchange for its Series A Preferred Stock for U.S. federal income tax purposes if such structure can be achieved without any unreimbursed cost or expense to the Corporation (provided that, for the avoidance of doubt, the Holders and the Corporation acknowledge (A) that it may not be possible to structure any such redemption in a manner that permits a Holder to report a redemption payment as received in part or full payment in exchange for its Series A Preferred Stock for U.S. federal income tax purposes, in which case the Corporation shall still be entitled to make any such redemption pursuant to this Section 8 as it determines is appropriate (and in the amounts it determines is appropriate) and (B) that different Holders may be subject to different treatment for U.S. federal income tax purposes), (ii) to allow each Holder a reasonable opportunity to transfer its Series A Preferred Stock to an affiliate prior to such redemption and (iii) if such redemption is funded by, or occurs in connection with, an issuance of equity by the Corporation, to cause the Person or Persons acquiring such equity to purchase the Series A Preferred Stock from the Holders directly and to make any necessary amendments to this Certificate of Designations following such purchase as agreed between such purchaser(s) and the Corporation. If, as a result of the previous sentence, any such redemption of shares of Series A Preferred Stock is delayed for more than thirty (30) days from the date on which the Corporation otherwise planned to make such redemption (the “30 Day Date”) and the redemption occurs, the Series A Dividend shall stop accumulating (including with respect to any Unpaid Dividend Accrual) on the shares of Series A Preferred Stock that are to be redeemed from the 30 Day Date until the date of such redemption and the Redemption Price for such redemption shall be that applicable at the 30 Day Date. The Corporation further agrees that it shall use reasonable best efforts to conduct an “earnings and profits study” (or similar analysis) to determine its current and accumulated earnings and profits as soon as reasonably practicable following the initial issuance of the Series A Preferred Stock (but in no case later than December 31, 2023) and to update such analysis for every taxable year in which the Series A Preferred Stock remains outstanding.

9.	NYSE American Issuance Limitation.

(a)No Holder will be entitled to receive converted shares of Common Stock or other shares of Common Stock issuable upon redemption, dividend payments, or as otherwise provided in this Certificate of Designations to the extent such issuance would result in a violation of the NYSE American Company Guide or rules of the national securities exchange upon which the Common Stock is then listed(the “NYSE American Issuance Limitation”), unless either (i) the Corporation obtains the Stockholder Approval and the Schedule 14C Action has been completed, or (ii) the Corporation determines upon advice of counsel that Stockholder Approval and the Schedule 14C Action are not required to effect the conversion, in each such case, the NYSE American Issuance Limitation will no longer apply.

(b)“Stockholder Approval” means stockholder approval of the proposal to issue Common Stock upon conversion of the Series A Preferred Stock for purposes of Rule 713 of the New York Stock Exchange American Listed Company Manual, or to comply with the applicable rules of the national securities exchange upon which the Common Stock is then listed.

(c)“Schedule 14C Action” means, collectively, (i) the filing of an Information Statement on Schedule 14C relating to the issuance of converted shares of Common Stock or other shares of Common Stock issuable upon redemption, dividend payments, or as otherwise provided in this Certificate of Designations with the United States Securities and Exchange Commission (the “SEC”) and the receipt from the SEC of notice that it has no comments thereon, (ii) the mailing of such Information Statement to the Corporation’s shareholders and (iii) the expiration of the 20 calendar day waiting period under Rule 14c-2(b).

(d)Notwithstanding anything herein to the contrary, if the Holders (together with their respective affiliates) collectively beneficially own fifty percent (50%) or more of the outstanding Common Stock at the time a transaction is contemplated pursuant to which the NYSE American Issuance Limitation would reduce the consideration being issued to the Holders in connection with such transaction (“Subject Transaction”), the Corporation shall notify the Holders of such Subject Transaction and the related NYSE American Issuance Limitation at least ten (10) Business Days prior to the consummation of such Subject Transaction and give the Holders five (5) Business Days from the date of receipt of any such notice to provide a Stockholder Approval, and if such Stockholder Approval is timely received, the Corporation shall not consummate such Subject Transaction until the Schedule 14C Action removing the NYSE American Issuance Limitation has been completed.

10.	Additional Procedures.

(a)In connection with any conversion pursuant to Section 7 or redemption in accordance with Section 8, the Holder must deliver transfer instruments reasonably satisfactory to the Corporation, at the principal office of the Corporation (or such other place mutually acceptable to the Holder and the Corporation) together with written notice that such Holder elects to convert all or such lesser number of shares as specified therein.

(b)Transfers of Series A Preferred Stock held in uncertificated, book-entry form shall be made only upon the transfer books of the Corporation kept at an office of the Corporation upon receipt of proper transfer instructions from the registered owner of such uncertificated shares, or from a duly authorized attorney or from an individual presenting proper evidence of succession, assignment or authority to transfer the stock. The Corporation may refuse any requested transfer until furnished evidence reasonably satisfactory to it that such transfer is made in accordance with the terms of this Certificate of Designations.

11.	No Other Rights.

The shares of Series A Preferred Stock shall not have any powers, designations, preferences or relative, participating, optional, or other special rights, nor shall there be any qualifications, limitations or restrictions or any powers, designations, preferences or rights of such shares, other than as set forth herein or in the Certificate of Incorporation, or as may be provided by law.

12.	Other Provisions.

(a)The shares of Series A Preferred Stock shall not be subject to the operation of any retirement or sinking fund.

(b)In case any one or more of the provisions contained in this Certificate of Designations shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. Furthermore, in lieu of any such invalid, illegal or unenforceable provision, the Corporation shall use its reasonable best efforts to add as a part of this Certificate of Designations a provision as similar in terms to such invalid, illegal or unenforceable provision as may be possible and be legal, valid and enforceable, unless the requisite parties separately agree to a replacement provision that is valid, legal and enforceable.

(c)Any payments, issuances or distributions required to be made hereunder on any day that is not a Business Day shall be made on the next succeeding Business Day without interest or additional payment for such delay. All payments required hereunder shall be made by wire transfer of immediately available funds in United States Dollars to the Holders in accordance with the payment instructions as such Holders may deliver by written notice to the Corporation from time to time.

(d)Unless otherwise agreed to by the Corporation and the applicable Holder, any certificate representing the Series A Preferred Stock (and the Common Stock issuable upon conversion thereof) will bear a restrictive legend substantially in the form set forth below, which is hereby incorporated in and expressly made a part of this Certificate of Designations, and will be subject to the restrictions set forth therein. In addition, any such certificate may have notations, additional legends or endorsements required by law, stock exchange rules, and agreements to which the Corporation and all of the Holders of Series A Preferred Stock in their capacity as Holders are subject, if any.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER THE SECURITIES ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFERS SET FORTH IN THE CERTIFICATE OF DESIGNATIONS FILED WITH THE SECRETARY OF STATE FOR THE STATE OF DELAWARE PURSUANT TO SECTION 202 OF THE DELAWARE GENERAL CORPORATION LAW (THE “CERTIFICATE OF DESIGNATIONS”). NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THE CERTIFICATE OF DESIGNATIONS. A COPY OF THE CERTIFICATE OF DESIGNATIONS WILL BE FURNISHED WITHOUT CHARGE BY THE CORPORATION TO THE HOLDER UPON REQUEST.

13.	Effective Date.

This Certificate of Designations shall become effective on March 24, 2023.

[The Remainder of this Page Intentionally Left Blank]

IN WITNESS WHEREOF, Battalion Oil Corporation has caused this Certificate of Designations to be duly executed this 24th day of March, 2023.


	BATTALION OIL CORPORATION


	By:	/s/ Richard H. Little
	Name:	Richard H. Little
	Title:	Chief Executive Officer

[Signature Page to Certificate of Designations]

Annex A-1

Conversion Notice

The undersigned holder of Series A Preferred Stock hereby irrevocably elects to convert the number of shares of Series A Preferred Stock indicated below pursuant to Section 7(a) of the Certificate of Designations into shares of Common Stock at the Conversion Ratio. Capitalized terms utilized but not defined herein shall have the meaning ascribed to such terms in that certain Certificate of Designations of Series A Redeemable Convertible Preferred Stock, filed by Battalion Oil Corporation. on March 24, 2023 (the “Certificate of Designations”).

Conversion Calculations:

Number of shares of Series A Preferred Stock owned prior to conversion: [_____]

Number of shares of Series A Preferred Stock to be converted: [_____]

Number of shares of Common Stock to be issued: [_____]

[HOLDER]

By: ‌

Name: ‌

Title: ‌

Date: ‌

Annex A-2

Issuer Conversion Notice

Battalion Oil Corporation, a Delaware corporation, hereby irrevocably elects to convert the number of shares of Series A Preferred Stock held by you indicated below into shares of Common Stock at the Conversion Ratio on the date set forth below pursuant to Section 7(b) of the Certificate of Designations. Capitalized terms utilized but not defined herein shall have the meaning ascribed to such terms in that certain Certificate of Designations of Series A Redeemable Convertible Preferred Stock, filed by Battalion Oil Corporation on March 24, 2023 (the “Certificate of Designations”).

Holder: [_____]

Conversion Calculations:

Number of Shares of Series A Preferred Stock owned by you prior to conversion: [_____]

Number of Shares of Series A Preferred Stock owned by you to be converted: [_____]

Number of shares of Common Stock to be issued: [_____]

BATTALION OIL CORPORATION

By: ‌

Name: ‌

Title: ‌

Date: ‌

Annex B

Redemption Notice

Battalion Oil Corporation, a Delaware corporation, hereby irrevocably elects to redeem the number of shares of Series A Preferred Stock held by you indicated below on the date set forth below. Capitalized terms utilized but not defined herein shall have the meaning ascribed to such terms in that certain Certificate of Designations of Series A Redeemable Convertible Preferred Stock, filed by Battalion Oil Corporation on March 24, 2023.

Holder: [_____]

Date of redemption: [_____]

Redemption Calculations:

Number of Shares of Series A Preferred Stock owned by you prior to redemption: [_____]

Number of Shares of Series A Preferred Stock owned by you to be redeemed: [_____]

Redemption Price: [___]

Elect a Single Form of Payment of Redemption Price:

___ Cash (Cash payment to be made to you: [_____])

BATTALION OIL CORPORATION

By: ‌

Name: ‌

Title: ‌

Date: ‌

Exhibit 10.3.1

EXECUTION VERSION

FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT

This FIRST Amendment to registration rights agreement (this “Amendment”) is made as of March 28, 2023, between Battalion Oil Corporation (formerly known as Halcón Resources Corporation), a Delaware corporation (the “Company”), and each of the parties identified on the signatures pages hereto.

RECITALS

WHEREAS, the Company and the Investors previously entered into that certain Registration Rights Agreement (the “Agreement”), dated as of October 8, 2019;

WHEREAS, the Parties to the Agreement desire to further amend the Agreement as set forth in this Amendment;

WHEREAS, pursuant to Section 10 of the Agreement, any provision of the Agreement may be amended only by a written instrument signed by the Company and the Required Holders;

WHEREAS, the parties identified on the signature pages hereto represent the Required Holders; and

WHEREAS, capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings given to such terms in the Agreement.

AGREEMENT

NOW, THEREFORE, the parties hereby agree as follows:

The definitions of “Business Day”, “Eligible Market” and “Registrable Securities” in Section 1 of the Agreement is hereby amended and restated in their entirety to read as follows:

“Business Day” means any day other than Saturday, Sunday or any other day on which either commercial banks in the City of New York are authorized or required by Law to remain closed or the NYSE American, LLC is not open for a full business day.

“Eligible Market” means The New York Stock Exchange, The NYSE American, LLC, The NASDAQ Global Select, or The NASDAQ Global Market.

“Registrable Securities” means (i) any shares of Common Stock, whether now owned or hereafter acquired by the Investors (including shares of Common Stock issued pursuant to the Plan), (ii) the shares of Common Stock issued or issuable upon conversion or redemption of the Series A Preferred Stock now owned or hereafter acquired by the Investors in accordance with the terms of the Certificate of Designations and (iii) any shares of capital stock of the Company issued or issuable with respect to the Common Stock described in clause (i) and (ii), as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise; provided, that any Registrable Securities beneficially owned by an Investor shall cease to be Registrable Securities to

the extent such securities may be sold pursuant to Rule 144 (or any similar provisions in force) without volume or manner of sale limitations.

Section 1 of the Agreement is hereby amended to add the following definitions:

“Certificate of Designations” means the certificate of designations setting forth the terms of the Series A Preferred Stock.

“Series A Preferred Stock” means the Series A Redeemable Convertible Preferred Stock of the Company and having the rights and obligations specified in the Certificate of Designations.

Section 2(a) of the Agreement is hereby amended to insert “New Registration Statement or a” before the words “post-effective amendment” in the final sentence thereof.

Section 2(b) of the Agreement is hereby amended and restated in its entirety to read as follows:

“Legal Counsel. Subject to Section 5 hereof, the Required Holders shall have the right to select one legal counsel to review and oversee any registration pursuant to this Section 2 (“Legal Counsel”), which shall be Vinson & Elkins L.L.P. or such other counsel as thereafter designated by the Required Holders. The Company and Legal Counsel shall reasonably cooperate with each other in performing the Company’s obligations under this Agreement. For the avoidance of doubt, the Company shall be entitled to select separate legal counsel to represent the Company in connection with fulfilling its obligations under this Agreement.”

Section 2(d) of the Agreement is hereby amended and restated in its entirety to read as follows:

“(d)Termination of Exchange Act Registration. Notwithstanding anything to the contrary in this Agreement, if the Company expects that it may suspend or terminate its reporting obligations under Section 12(b), 12(g) and 15(d) of the Exchange Act, as applicable, and determines that withdrawing the Registration Statements is necessary or appropriate in anticipation of such suspension or termination, the Company and the Investors shall not be required to comply with their respective obligations under this Agreement and, for the avoidance of doubt, the Company shall not be required to file or maintain the effectiveness of any Registration Statements filed under this Agreement or perform any Registration Actions (as defined below) and may withdraw any such Registration Statements in accordance with SEC Guidance; provided, that, in such event, the Company shall thereupon use its commercially reasonable best efforts to enter into a New Registration Rights Agreement with the Investors holding Registrable Securities at such time; provided further, that if the Company ultimately determines not to suspend or terminate such reporting obligations, it will, promptly upon request of any holder of any Registrable Securities, prepare and file a Registration Statement hereunder.”

Section 2(e)(ii) of the Agreement is hereby amended and restated in its entirety to read as follows:

“(ii) In an Underwritten Offering, if the lead managing underwriter advises the Company and the Underwritten Offering Requesting Holder that, in its view, the number of Registrable Securities and other securities requested to be included in such Underwritten Offering (including any securities that the Company proposes to be included that are not Registrable Securities) exceeds the number of Registrable Securities and other securities that may be sold without having a material and adverse effect on such Underwritten Offering (the “Maximum Offering Size”), the Company shall include in such Underwritten Offering the following securities, in the priority listed below, up to the Maximum Offering Size:

(A)first, Shelf Registered Securities that are requested to be included in such Underwritten Offering by the Underwritten Offering Requesting Holder(s) and Investors other than the Underwritten Offering Requesting Holder(s), pro rata based on the number of Shelf Registered Securities proposed to be included by each; and

(B) thereafter, all securities that are registered on the applicable Registration Statement and are requested to be included in such Underwritten Offering by the Company (including securities to be included pursuant to other applicable registration rights agreements or provisions).”

Section 11(d) of the Agreement is hereby amended to replace the copy address for the Investors with the following:

“Vinson & Elkins L.L.P.
Texas Tower

845 Texas Avenue

Suite 4700

Houston, Texas 77002
Attention: Crosby W. Scofield; E. Ramey Layne
E-mail address: cscofield@velaw.com; rlayne@velaw.com”

Except as expressly amended hereby, the Agreement shall remain in full force and effect in accordance with the provisions thereof.

After giving effect to this Amendment, each reference in the Agreement to “this Agreement,” “the Agreement,” “hereof,” “hereunder,” “herein,” “hereby” or words of like import referring to the Agreement shall refer to the Agreement, as amended by this Amendment, and each reference in the Seller Disclosure Schedules to the Agreement to the “Agreement” shall refer to the Agreement as amended by this Amendment.

10.

Section 11 of the Agreement shall apply to this Amendment, mutatis mutandis.

11.

This Amendment may be executed in counterparts (including by facsimile or other electronic transmission), each of which shall be deemed an original and each of which shall constitute one and the same instrument.

[Signature pages follow]

IN WITNESS WHEREOF, the parties to this Amendment have executed this Amendment as of the date first written above.


	COMPANY:

	BATTALION OIL CORPORATION

	By:	/s/ Richard H. Little
	Name:	Richard H. Little
	Title:	Chief Executive Officer


	INVESTORS:

	LUMINUS ENERGY PARTNERS MASTER FUND, LTD.

	By:		/s/ Jonathan Barrett
	Name:		Jonathan Barrett
	Title:		President


	OAKTREE OPPORTUNITIES FUND X HOLDINGS (DELAWARE), L.P. By: Oaktree Fund GP, LLC, its General Partner By: Oaktree Fund GP I, L.P., its Managing Member

	By:	/s/ Allen Li
	Name:	Allen Li
	Title:	Authorized Signatory

	By:	/s/ Jordan Mikes
	Name:	Jordan Mikes
	Title:	Authorized Signatory


	OAKTREE OPPS XB Holdco LTD. By: Oaktree Capital Management, L.P., its Director

	By:	/s/ Jordan Mikes
	Name:	Jordan Mikes
	Title:	Managing Director

	By:	/s/ Allen Li
	Name:	Allen Li
	Title:	Senior Vice President

Signature Page to

First Amendment to Registration Rights Agreement


	OAKTREE OPPORTUNITIES FUND XB HOLDINGS (DELAWARE), L.P. By: Oaktree Fund GP, LLC, its General Partner By: Oaktree Fund GP I, L.P., its Managing Member

	By:	/s/ Allen Li
	Name:	Allen Li
	Title:	Authorized Signatory

	By:	/s/ Jordan Mikes
	Name:	Jordan Mikes
	Title:	Authorized Signatory


	OAKTREE VALUE OPPORTUNITIES FUND HOLDINGS, L.P. By: Oaktree Value Opportunities Fund GP, L.P., its General Partner By: Oaktree Value Opportunities Fund GP, Ltd., its General Partner By: Oaktree Capital Management, L.P., its Director

	By:	/s/ Jordan Mikes
	Name:	Jordan Mikes
	Title:	Managing Director

	By:	/s/ Allen Li
	Name:	Allen Li
	Title:	Senior Vice President


	GEN IV INVESTMENT OPPORTUNITIES, LLC

	By:	/s/ Jeff Wade
	Name:	Jeff Wade
	Title:	Chief Compliance Officer

Signature Page to

First Amendment to Registration Rights Agreement

Exhibit 10.7

January 19, 2023

Kristen McWatters

(Delivered Via Email)

Dear Kristen,

I am pleased to offer you a position of EVP, Chief Financial Officer and Treasurer with Battalion Oil Corporation (“Battalion Oil”), reporting to Richard Little, Chief Executive Officer. The location of this position will be in the Houston office. Your start date will be January 26, 2023. Please review the following information regarding the terms and conditions of your offer, which supersedes the offer contained in my letter to you dated January 18, 2023:

A base annual salary of $300,000, paid on a semi-monthly basis.

Your position is classified as EXEMPT under wage and hour laws.

You are eligible for an annual bonus. Your bonus target is 100%. Bonus payout is discretionary and based on company and individual performance. You must be employed at the time any bonus is paid in order to receive it. In the event of a “Change of Control Event” (as defined in the Battalion Oil Corporation 2020 Long-Term Incentive Plan, as amended (the “Plan”)), the bonus will be paid at 100% of target.

If your employment is terminated without “Cause” (defined below) by Battalion Oil prior to a “Change in Control Event” (as defined in the Plan), Battalion Oil will pay severance pay (the “Severance Pay”) to you, subject to the following:

The total amount of the Severance Pay shall be $150,000.00.

The Severance Pay will be paid in a cash lump sum after the “Release” (defined below) becomes effective and enforceable, but in no event later than sixty (60) days after the date your employment terminates; provided, however, if such 60-day period spans two calendar years, the lump sum must be paid in the second such calendar year for compliance with Section 409A of the Internal Revenue Code.

The Severance Pay shall be subject to all applicable federal and state withholding, payroll and other taxes, and all applicable deductions for benefits as may be required by law or your authorization.

For purposes of determining whether you are owed Severance Pay, “Cause” shall mean: (i) your willful and continued failure to perform your material duties as required hereunder (other than any such failure resulting from your incapacity due to physical or mental illness or disability) or your commission of an act of willful misconduct in any material respect with respect to the Company; (ii) your engaging in conduct which is demonstrably and materially injurious to the Company and/or its affiliates; (iii) your engaging in conduct which is in material violation of any term of this Agreement or the terms of any of the Company’s written policies and procedures (including, without limitation, sexual harassment); (iv) your material breach of duty (other than inadvertent acts or omissions) involving fraud, dishonesty, disloyalty, or a conflict of interest; (v) your willful failure to cooperate with any investigation or inquiry authorized by the Company or an affiliate or conducted by a governmental authority related to the Company’s or an

CONFIDENTIAL - Offer Letter

3505 W. Sam Houston Parkway N., Suite 300^●Houston, TX 77043 | Phone: 832.538.0300

affiliate’s business or your conduct; or (vi) your conviction of, indictment for, or entry of a plea agreement or consent decree or similar arrangement with respect to, any felony, any crime involving deceit, fraud, perjury or embezzlement, or any violation of federal or state securities laws. With respect to elements (i) through (v) above, the Company shall provide you with 30 days to cure such failure or conduct following written notice of the specific facts and circumstances that are deemed to constitute Cause, unless such failure or conduct is not reasonably capable of being cured.

Your receipt of the Severance Pay shall be contingent on your executing and not revoking an agreement (the “Release”), in a form provided by the Company, granting a full release of all actual and potential claims you have or may have against (i) the Company and any parent, subsidiary, affiliated entity, joint venture, successor, predecessor, or assignee of the Company; (ii) the stockholders, officers, directors, employees, agents, representatives, and/or fiduciaries of the Company and of any parent, subsidiary, affiliated entity, joint venture, successor, predecessor, or assignee of the Company; and (iii) any persons acting by, through, under, or in concert with any of the persons or entities listed in clause (i) and/or clause (ii).

Contingent upon your acceptance of this offer, your employment with Battalion Oil commencing on or before January 26, 2023, and your execution of the applicable award agreements under the Plan, you will be granted 10,000 base restricted stock units and 20,000 M&A restricted stock units under the Plan. The base restricted stock units will vest on the earliest of the following to occur: (i) the first anniversary date of the grant, (ii) the completion of a qualifying transaction (as defined in the award agreement) or (iii) a “Change of Control Event” (as defined in the Plan). The M&A restricted stock units will vest upon the earlier of the following to occur: (i) the completion of a qualifying transaction (as defined in the award agreement) or (ii) a “Change of Control Event” (as defined in the Plan). The grant will be made as soon as administratively practicable following your first day of employment. Your restricted stock units will be subject to the terms and conditions of the Plan and the award agreements under which the restricted stock units are granted. The grant date of the awards will be the first day of the month following your first day of employment per our grant policy.

Battalion Oil offers a comprehensive employee benefit package, including the following benefits:

●

Medical, Dental, and Vision Insurance

●

STD, LTD, and Life Insurance

●

401(k) Retirement Plan

●

Partial coverage for gym membership

Contact Human Resources if you would like more information about the terms and conditions upon which the employee benefits are offered, including, but not limited to, eligibility conditions, plan entry dates, and the steps, if any, that an employee must take to become a participant in each plan. These benefits, and the terms and conditions upon which they are being offered, are subject to change.

Vacation will be awarded and be used in accordance with Battalion Oil’s vacation policy. Your vacation time will be 160 hours per year. Your vacation will be prorated based on your hire date.

CONFIDENTIAL - Offer Letter

3505 W. Sam Houston Parkway N., Suite 300^●Houston, TX 77043 | Phone: 832.538.0300

You will be an “at-will” employee of Battalion Oil, which means that the employment relationship may be terminated by either Battalion Oil or you at any time, with or without notice, and with or without cause, for any reason not prohibited by law.

The terms of your employment, including this offer letter, will be interpreted and enforced pursuant to the laws of the State of Texas regardless of where you perform services.

10.

As a condition of your employment, you will comply with all policies of Battalion Oil.

11.

Our offer and your employment are contingent upon satisfactory completion of a background investigation and drug screen prior to employment and ongoing compliance with the Battalion Oil drug and alcohol policy.

We are excited about the opportunities that exist for you at Battalion Oil. If the terms of this offer letter are acceptable to you, please sign and return it to me either via email at LKasparek@battalionoil.com.. If you any have questions or concerns, please do not hesitate to contact me at 832-538-0505.

Sincerely,

/s/ Leah Kasparek

Leah Kasparek

Sr. Vice President, Human Resources and Corporate Secretary

Battalion Oil Corporation

cc: Rich Little

Acknowledgement: This offer will expire on January 20, 2023.

✓ Accepted ___ Declined this 20 day of January , 2023

By: /s/ Kristen McWatters

Kristen McWatters

CONFIDENTIAL - Offer Letter

3505 W. Sam Houston Parkway N., Suite 300^●Houston, TX 77043 | Phone: 832.538.0300

Exhibit 10.8

EXECUTION VERSION

PURCHASE AGREEMENT

AMONG

BATTALION OIL CORPORATION

AND

THE PURCHASERS PARTY HERETO

TABLE OF CONTENTS

Page

Article I DEFINITIONS‌1

Section 1.01Definitions‌1

Section 1.02Accounting Procedures and Interpretation‌4

Article II AGREEMENT TO SELL AND PURCHASE‌4

Section 2.01Authorization of Sale of the Purchased Securities‌4

Section 2.02Sale and Purchase‌4

Section 2.03Closing‌5

Section 2.04Conditions to Closing‌5

Section 2.05BATL Deliveries‌6

Section 2.06Purchasers’ Deliveries‌7

Section 2.07Independent Nature of the Purchasers’ Obligations and Rights‌7

Section 2.08Further Assurances‌7

Article III REPRESENTATIONS AND WARRANTIES of BATL‌7

Section 3.01Corporate Existence‌8

Section 3.02Capitalization and Valid Issuance of Purchased Securities‌8

Section 3.03BATL SEC Documents‌9

Section 3.04Operations in the Ordinary Course‌10

Section 3.05Litigation‌10

Section 3.06No Conflicts; Compliance with Laws‌10

Section 3.07Authority, Enforceability‌11

Section 3.08Approvals‌11

Section 3.09Investment Company Status‌11

Section 3.10Certain Fees‌11

Section 3.11Books and Records; Sarbanes-Oxley Compliance‌11

Section 3.12Listing and Maintenance Requirements‌11

Section 3.13Insurance‌12

Section 3.14Title to Interests‌12

Article IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS‌12

Section 4.01Existence‌12

Section 4.02Authorization, Enforceability‌12

Section 4.03No Breach‌12

Section 4.04Approvals.‌13

Section 4.05Certain Fees‌13

Section 4.06Unregistered Securities‌13

Article V other covenants‌14

Section 5.01Voting Rights.‌14

Section 5.02Information Statement‌14

Section 5.03Disclosure of Transactions‌14

Article VI INDEMNIFICATION, COSTS AND EXPENSES‌14

Section 6.01Indemnification by BATL‌14

Section 6.02Indemnification by the Purchasers‌15

Section 6.03Indemnification Procedure‌15

Section 6.05Tax Treatment of Indemnification Payments‌16

Article VII MISCELLANEOUS‌16

Section 7.01Expenses‌16

Section 7.02Interpretation‌17

Section 7.03Survival of Provisions‌17

Section 7.04No Waiver; Modifications in Writing‌17

Section 7.05Binding Effect; Assignment‌18

Section 7.06Non-Disclosure‌18

Section 7.07Communications‌18

Section 7.08Removal of Legend‌19

Section 7.09Entire Agreement‌19

Section 7.10Governing Law; Submission to Jurisdiction‌19

Section 7.11Waiver of Jury Trial‌20

Section 7.12Execution in Counterparts‌20

Section 7.15Certain Tax Matters.‌21

Schedule A – Schedule of Purchasers

Exhibit A – Form of Certificate of Designations for the Series A Preferred Stock

Exhibit B – Form of First Amendment to Registration Rights Agreement

PURCHASE AGREEMENT

This PURCHASE AGREEMENT, dated as of March 28, 2023 (this “Agreement”), is entered into by and among Battalion Oil Corporation, a Delaware corporation (“BATL”), and each of the purchasers set forth on Schedule A hereto (the “Purchasers”).

RECITALS:

WHEREAS, BATL desires to sell the Purchased Securities (as defined below) and the Purchasers desire to purchase from BATL the Purchased Securities, in accordance with the provisions of this Agreement; and

WHEREAS, BATL has agreed to provide the Purchasers with certain registration rights with respect to the shares of Common Stock, par value $0.0001 per share, of BATL (the “Common Stock”) underlying the Purchased Securities acquired pursuant hereto.

NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, BATL and each of the Purchasers, severally and not jointly, hereby agree as follows:

Article I
DEFINITIONS

Section 1.01 Definitions. As used in this Agreement, the following terms have the meanings indicated:

“Affiliate” means, with respect to a specified Person, any other Person, directly or indirectly controlling, controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, “controlling,” “controlled by” and “under common control with”) means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; provided however, that BATL and the Purchasers shall not be considered Affiliates for purposes of this Agreement.

“Agreement” has the meaning set forth in the introductory paragraph of this Agreement.

“Allocated Purchase Price” means with respect to each Purchaser, the dollar amount set forth opposite such Purchaser’s name under the heading “Allocated Purchase Price” on Schedule A hereto.

“Basic Documents” means, collectively, this Agreement, the Certificate of Designations and the First Amendment to Registration Rights Agreement.

“BATL” has the meaning set forth in the introductory paragraph of this Agreement.

“BATL Bylaws” shall have the meaning specified in Section 2.05(d).

“BATL Charter” shall have the meaning specified in Section 2.04(b)(iii).

“BATL Financial Statements” shall have the meaning specified in Section 3.03(a).

“BATL Related Parties” shall have the meaning specified in Section 6.02.

“BATL SEC Documents” shall have the meaning specified in Section 3.03(a).

“Board” means the board of directors of BATL.

“Business Day” means any day other than a Saturday, Sunday, any federal legal holiday or day on which banking institutions in the State of New York or State of Texas are authorized or required by Law or other governmental action to close.

“Certificate of Designations” shall have the meaning specified in Section 2.04(b)(iii).

“Change of Control” shall have the meaning specified in the Certificate of Designations.

“Closing” shall have the meaning specified in Section 2.03(a).

“Closing Date” shall have the meaning specified in Section 2.03(b).

“Code” means the Internal Revenue Code of 1986, as amended.

“Common Stock” shall have the meaning set forth in the recitals.

“Conversion Shares” means the Common Stock issuable upon conversion of the Series A Preferred Stock.

“Credit Facility” shall have the meaning specified in Section 3.02(e).

“Delaware Corporations Act” means the General Corporation Law of the State of Delaware.

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations of the SEC promulgated thereunder.

“First Amendment to Registration Rights Agreement” means the First Amendment to Registration Rights Agreement, to be entered into on the date hereof, between BATL and the Purchasers in substantially the form attached hereto as Exhibit B.

“GAAP” means generally accepted accounting principles in the United States of America.

“Governmental Authority” means, with respect to a particular Person, any country, state, county, city and political subdivision in which such Person or such Person’s Property is located or which exercises valid jurisdiction over any such Person or such Person’s Property, and any court, agency, department, commission, board, bureau or instrumentality of any of them and any monetary authority which exercises valid jurisdiction over any such Person or such Person’s Property. Unless otherwise specified, all references to Governmental Authority herein with respect to BATL means a Governmental Authority having jurisdiction over BATL, its Subsidiaries or any of their respective Properties.

“Indemnified Party” shall have the meaning specified in Section 6.03.

“Indemnifying Party” shall have the meaning specified in Section 6.03.

“Law” means any federal, state, local or foreign order, writ, injunction, judgment, settlement, award, decree, statute, law (including common law), rule or regulation.

“Lien” means any mortgage, claim, encumbrance, pledge, lien (statutory or otherwise), security agreement, conditional sale or trust receipt or a lease, consignment or bailment, preference or priority, assessment, deed of trust, charge, easement, servitude or other encumbrance upon or with respect to any property of any kind.

“Material Adverse Effect” means any event, change, circumstance or development that has a material adverse effect on the assets, business, results of operations or financial condition of BATL and its Subsidiaries, taken as a whole; provided, however, that in no event would any of the following (or the effect of any of the following), alone or in combination, be deemed to constitute, or be taken into account in determining whether there has been or will be, a “Material Adverse Effect”, unless solely with respect to subclauses (iii) and (iv) below, such event has a disproportionate and adverse effect on BATL or its business compared to similarly situated participants operating in the upstream oil and gas industry in the geographies in which they operate (in which case, such adverse effects shall be taken into account in determining whether a “Material Adverse Effect” has occurred solely to the extent they are disproportionate): (i) any change or development (including any downturn) in interest rates or general economic, political (including relating to any federal, state or local election), business, financial, commodity, currency or market conditions generally, including changes in the credit, debt, securities, financial, capital or reinsurance markets (including changes in interest or exchange rates, prices of any security or market index or commodity or any disruption of such markets); (ii) any change generally affecting any of the industries or markets in which BATL or its Subsidiaries operate or the economy as a whole; (iii) any earthquake, hurricane, tsunami, tornado, flood, mudslide, wild fire or other natural or man-made disaster, pandemic, epidemic or disease outbreak (including COVID-19), act of God or other force majeure event; (iv) any regional, state, local, national or international political or social conditions (or changes thereof) in countries in which BATL operates, including civil or social unrest, terrorism, acts of war, or sabotage or the engagement by the United States or such other countries in hostilities or the escalation thereof, whether or not pursuant to the declaration of a national emergency or war, or the occurrence or the escalation of any military or terrorist attack (including any internet or “cyber” attack or hacking) upon the United States or such other country, or any territories, possessions, or diplomatic or consular offices of the United States or such other countries or upon any United States or such other country military installation, equipment or personnel; and (v) any failure of BATL and its Subsidiaries, taken as a whole, to meet any projections, forecasts, guidance, estimates, milestones, budgets or financial or operating predictions of revenue earnings, cash flow or cash position (it being understood that the facts giving rise to such failure may be taken into account in determining whether there has been a Material Adverse Effect).

“Non-Recourse Party” shall have the meaning specified in Section 7.15.

“NYSE” means the NYSE American.

“Person” means any individual, corporation, company, voluntary association, partnership, joint venture, trust, limited liability company, unincorporated organization, government or any agency, instrumentality or political subdivision thereof or any other form of entity.

“Property” means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

“Purchased Securities” means, with respect to each Purchaser, the number of shares of Series A Preferred Stock as set forth opposite such Purchaser’s name on Schedule A hereto.

“Purchaser Related Parties” shall have the meaning specified in Section 6.01.

“Purchasers” has the meaning set forth in the introductory paragraph of this Agreement.

“Redemption Price” shall have the meaning specified in the Certificate of Designations.

“Registration Rights Agreement” means that certain Registration Rights Agreement, dated as of October 8, 2019, by and among BATL and the investors party thereto, as amended from time to time.

“Representatives” means, with respect to a specified Person, the officers, directors, managers, employees, agents, counsel, accountants, investment bankers and other representatives of such Person.

“Schedule 14C Action” means, collectively, (i) the filing of an Information Statement on Schedule 14C relating to the transaction contemplated hereby with the SEC and the receipt from the SEC of notice that it has no comments thereon, (ii) the mailing of such Information Statement to BATL’s stockholders and (iii) the expiration of the twenty (20) calendar day waiting period under Rule 14c-2(b).

“SEC” means the United States Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended from time to time, and the rules and regulations of the SEC promulgated thereunder.

“Series A Preferred Stock” means the Series A Redeemable Convertible Preferred Stock having the terms set forth in the Certificate of Designations.

“Stockholder Consent” means an executed consent delivered by holders of a majority of the shares of Common Stock in lieu of a stockholder meeting and in compliance with the Delaware Corporations Act, for the purpose of providing all necessary approvals under the Delaware Corporations Act and the applicable rules and listing standards of the stock exchange upon which the Common Stock is then listed, if any, to consummate the issuance of more than twenty percent (20%) of the outstanding shares of Common Stock in connection with any conversion of the Series A Preferred Stock.

“Subsidiary” means, as to any Person, any corporation or other entity of which: (i) such Person or a Subsidiary of such Person is a general partner or manager; (ii) at least a majority of the outstanding equity interest having by the terms thereof ordinary voting power to elect a majority of the board of directors or similar governing body of such corporation or other entity (irrespective of whether or not at the time any equity interest of any other class or classes of such corporation or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more of its Subsidiaries; or (iii) any corporation or other entity as to which such Person consolidates for accounting purposes.

Section 1.02 Accounting Procedures and Interpretation. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all BATL Financial Statements and certificates and reports as to financial matters required to be furnished to the Purchasers hereunder shall be prepared, in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited financial statements, as permitted by Form 10-Q promulgated by the SEC) and in compliance as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto.

Article II
AGREEMENT TO SELL AND PURCHASE

Section 2.01 Authorization of Sale of the Purchased Securities. BATL has authorized the issuance and sale to the Purchasers of the Purchased Securities on the terms and subject to the conditions set forth in this Agreement.

Section 2.02 Sale and Purchase. Subject to the terms and conditions hereof, BATL hereby agrees to issue and sell to each Purchaser, free and clear of any and all Liens (other than the transfer restrictions under applicable federal and state securities Laws and other than those arising under the Certificates of Designations or the Delaware Corporations Act), and each Purchaser, severally and not jointly, hereby agrees to purchase from BATL, such number of Purchased Securities as set forth on Schedule A, and each Purchaser agrees to pay BATL its Allocated Purchase Price with respect to such Purchased Securities. For the avoidance of doubt, the Allocated Purchase Price shall be the consideration for all Purchased Securities to be acquired by the applicable Purchaser at the Closing.

Section 2.03 Closing

(a)Closing Location. Subject to the terms and conditions hereof, the consummation of the purchase and sale of the Purchased Securities hereunder (the “Closing”) shall take place remotely via overnight courier, electronic transmission of related documentation (such as by use of .pdf), on the date hereof following the delivery, satisfaction or, to the extent permitted, waiver by the appropriate party of each of the items set forth in Sections 2.04, 2.05 and 2.06. Except as otherwise expressly provided herein, all proceedings to be taken and all documents to be executed and delivered by all the parties at the Closing shall be deemed to have been taken and executed simultaneously and no proceedings shall be deemed to have been taken nor documents executed or delivered until all have been taken, executed and delivered.

(b)General. The date of the Closing shall be the “Closing Date”.

Section 2.04 Conditions to Closing.

(a)Mutual Conditions. The respective obligations of each party to consummate the purchase and issuance and sale of the applicable Purchased Securities to be purchased and issued at the Closing shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions (any or all of which may be waived by a particular party on behalf of itself in writing, in whole or in part, to the extent permitted by applicable Law):

(i)no Law shall have been enacted or promulgated, and no action shall have been taken, by any Governmental Authority which temporarily, preliminarily or permanently restrains, precludes, enjoins or otherwise prohibits the consummation of the transactions contemplated hereby or makes the transactions contemplated hereby illegal; and

(ii)there shall not be pending any suit, action or proceeding by any Governmental Authority seeking to restrain, preclude, enjoin or prohibit the transactions contemplated by this Agreement.

(b)Conditions of the Purchasers’ Obligations at Closing. The respective obligations of each Purchaser to consummate the purchase of the applicable Purchased Securities to be purchased at the Closing shall be subject to the satisfaction (or waiver by such Purchaser) on or prior to the Closing Date of each of the following conditions:

(i)(A) the representations and warranties of BATL set forth in Article III hereof (other than Sections 3.02(e), 3.02(f), 3.02(g), 3.07, 3.08 and 3.11) shall be true and correct (disregarding all qualifications or limitations as to materiality or Material Adverse Effect) as of the date of this Agreement (except to the extent that such representation or warranty speaks to an earlier date, in which case each of such earlier date), except where the failure of such representations and warranties to be so true and correct would not, individually or in the aggregate, have a Material Adverse Effect, and (B) the

representations and warranties of BATL set forth in Sections 3.02(e), 3.02(f), 3.02(g), 3.07, 3.08 and 3.11 shall be true in all material respects as of the date of this Agreement;

(ii)BATL and its Subsidiaries shall have performed and complied, in all material respects, with all of the covenants and agreements required to be performed and complied with by them hereunder on or prior to the Closing Date;

(iii)BATL shall have adopted and filed with the Secretary of State of the State of Delaware the Certificate of Designations in the form attached hereto as Exhibit A (the “Certificate of Designations”), and the Certificate of Designations shall have become effective as an amendment to BATL’s Amended and Restated Certificate of Incorporation, as amended (the “BATL Charter”); and

(iv)BATL shall have delivered, or caused to be delivered, to the Purchasers, BATL’s closing deliveries described in Section 2.05.

(c)Conditions of BATL’s Obligations at Closing. The obligation of BATL to consummate the sale of the Purchased Securities to be sold at Closing shall be subject to the satisfaction (or waiver by BATL) on or prior to the Closing Date of each of the following conditions:

(i)(A) the representations and warranties of each Purchaser set forth in Article IV (other than Sections 4.02, 4.04 and 4.05) shall be true and correct as of the date of this Agreement (except to the extent that such representation or warranty speaks of an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such date), except where the failure of such representation and warranties to be so true and correct would not, individually or in the aggregate, prevent or materially delay the consummation of the transactions contemplated by this Agreement or the ability of the Purchaser to fully perform its covenants and obligations under this Agreement and (B) the representations and warranties of the Purchaser set forth in Sections 4.02, 4.04 and 4.05 be true in all material respects as of the date of this Agreement;

(ii)each Purchaser shall have performed and complied, in all material respects, with all of the covenants and agreements required to be performed and complied with by such Purchaser on or prior to the Closing Date; and

(iii)each Purchaser shall have delivered, or caused to be delivered, to BATL such Purchaser’s closing deliveries as described in Section 2.06 of this Agreement.

Section 2.05 BATL Deliveries. At the Closing, BATL shall deliver or cause to be delivered:

(a)evidence of the Purchased Securities credited to book-entry accounts maintained by the transfer agent of BATL representing the Purchased Securities to be purchased and sold at the Closing and meeting the requirements of the Certificate of Designations, free and clear of any Liens, other than the transfer restrictions under applicable federal and state securities Laws and other than those arising under the Certificate of Designations or the Delaware Corporations Act, registered in such names as each Purchaser shall have designated;

(b)cross-receipts, dated as of the Closing Date, executed by BATL and delivered to each of the Purchasers certifying as to BATL’s receipt of payments of the Allocated Purchase Price;

(c)a certificate of the Secretary or Assistant Secretary of BATL, certifying as to and attaching (i) board resolutions authorizing the execution and delivery of the Basic Documents and the consummation of the transactions contemplated thereby, including the issuance of the Purchased Securities,

(ii) the BATL Charter and all amendments thereto (including the Certificate of Designations), and BATL’s Seventh Amended and Restated Bylaws, as amended (the “BATL Bylaws”), and (iii) the Certificate of Designations being in full force and effect;

(d)a certificate of the Secretary of State of the State of Delaware, dated as of a recent date, that BATL is in good standing in its jurisdiction of incorporation; and

(e)the First Amendment to Registration Rights Agreement in substantially the form attached hereto as Exhibit B, which shall have been duly executed by BATL.

Section 2.06 Purchasers’ Deliveries. (a) Each of the Purchasers shall pay to BATL its Allocated Purchase Price as of the Closing Date, such payments to be made by wire transfers of immediately available funds on the Closing Date to an account designated by BATL at least two (2) Business Days (or such shorter period of time as shall be agreeable by all parties hereto) prior to the Closing Date and deliver or cause to be delivered the First Amendment to Registration Rights Agreement in substantially the form attached hereto as Exhibit B, which shall have been duly executed by the Required Holders (as defined in the Registration Rights Agreement).

(b)Each Purchaser (except Luminus Energy Partners Master Fund, LTD) shall deliver or cause to be delivered to BATL a properly executed IRS Form W-9 (or any applicable successor form).

Section 2.07 Independent Nature of the Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Basic Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Basic Document. The failure or waiver of performance under any Basic Document of any Purchaser by BATL does not excuse performance by any other Purchaser and the waiver of performance of BATL by any Purchaser does not excuse performance by BATL with respect to each other Purchaser. Nothing contained herein or in any other Basic Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Basic Documents. Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Basic Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.

Section 2.08 Further Assurances. From time to time after the date hereof, without further consideration, BATL and the Purchasers shall use their commercially reasonable efforts to take, or cause to be taken, all actions necessary to consummate the transactions contemplated by this Agreement.

Article III
REPRESENTATIONS AND WARRANTIES of BATL

Except as set forth in any BATL SEC Documents filed or furnished by BATL (excluding any disclosures in such BATL SEC Documents under the headings “Risk Factors,” “Forward-Looking Statements” or “Qualitative Disclosures About Market Risk” and other disclosures that are predictive, cautionary or forward looking in nature and any exhibits or other documents appended thereto), BATL represents and warrants to each Purchaser as follows:

Section 3.01 Corporate Existence. BATL (a) is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware; and (b) has all requisite power and authority,

and has all governmental licenses, authorizations, consents and approvals necessary, to own, lease, use and operate its Properties and carry on its business as its business is now being conducted, except where the failure to obtain such licenses, authorizations, consents and approvals would not be reasonably likely to have a Material Adverse Effect. Each of BATL’s Subsidiaries has been duly incorporated or formed, as the case may be, and is validly existing and in good standing under the laws of the state or other jurisdiction of its incorporation or organization, as the case may be, and has all requisite power and authority, and has all governmental licenses, authorizations, consents and approvals necessary, to own, lease, use or operate its respective Properties and carry on its business as now being conducted, except where the failure to obtain such licenses, authorizations, consents and approvals would not be reasonably likely to have a Material Adverse Effect. None of BATL nor any of its Subsidiaries are in default in the performance, observance or fulfillment of any provision of, in the case of BATL, the BATL Charter or the BATL Bylaws or, in the case of any Subsidiary of BATL, their respective certificate of incorporation, certification of formation, bylaws, limited liability company agreement or other similar organizational documents. Each of BATL and its Subsidiaries is duly qualified or licensed and in good standing as a foreign corporation, limited partnership or limited liability company, as applicable, and is authorized to do business in each jurisdiction in which the ownership or leasing of its respective Properties or the character of its respective operations makes such qualification necessary, except where the failure to obtain such qualification, license, authorization or good standing would not be reasonably likely to have a Material Adverse Effect.

Section 3.02 Capitalization and Valid Issuance of Purchased Securities.

(a)As of the date of this Agreement, the total number of shares of all classes of capital stock, each with a par value of $0.0001 per share, which BATL is authorized to issue is 101,000,000 shares, consisting of (i) 100,000,000 shares of Common Stock and (ii) 1,000,000 shares of preferred stock.

(b)As of the date of this Agreement, prior to the issuance and sale of the Purchased Securities at the Closing as contemplated hereby, the issued and outstanding capital stock of BATL consists of 16,450,507 shares of Common Stock. As of the date of this Agreement, all outstanding shares of Common Stock have been duly authorized and validly issued in accordance with the BATL Charter and BATL Bylaws and are fully paid and nonassessable.

(c)As of the date of this Agreement, other than the BATL 2020 Long Term Incentive Plan, BATL has no equity compensation plans that contemplate the issuance of equity interests of BATL (or securities convertible into or exchangeable for equity interests of BATL). No indebtedness having the right to vote (or convertible into or exchangeable for securities having the right to vote) on any matters on which BATL stockholders may vote is issued or outstanding. Except as contemplated by the BATL 2020 Long Term Incentive Plan, there are no outstanding or authorized options, warrants, preemptive rights, subscriptions, calls, rights of first refusal, or other rights, convertible or exchangeable securities or written agreements obligating BATL or any of its Subsidiaries to issue, transfer or sell any equity interest in, BATL or securities convertible into or exchangeable for such equity interests, obligations of BATL or any of its Subsidiaries to repurchase, redeem or otherwise acquire any equity interests of BATL or any such securities or agreements listed in clause (i) of this sentence or proxy agreements or voting trusts or similar agreements to which BATL or any of its Subsidiaries is a party with respect to the voting of the equity interests of BATL. Except as contemplated by this Agreement, BATL has not entered into any agreements regarding the registration of any equity securities of BATL under the Securities Act.

(d)As of the date of this Agreement, neither BATL nor any of its Subsidiaries owns any shares of capital stock or other securities of, or interest in, any other Person, or is obligated to make any capital contribution to or any other investment in any other Person. As of the date of this Agreement, BATL owns all of the shares of capital stock or other securities of, or interest in, each of its Subsidiaries, which are listed on Exhibit 21.1 to BATL’s most recent Form 10-K filing with the SEC.

(e)As of the date of this Agreement, (i) all of the issued and outstanding equity interests of each of the Subsidiaries of BATL are owned, directly or indirectly, by BATL free and clear of any Liens (except for such restrictions as may exist under applicable Law and except for such Liens as may be imposed under the Amended and Restated Senior Secured Credit Agreement dated as of November 24, 2021 by and among BATL, Halcón Holdings, LLC as borrower, Macquarie Bank Limited, as administrative agents and the lenders party thereto (the “Credit Facility”) or the organizational documents of such Subsidiaries, as applicable), and all such ownership interests have been duly authorized, validly issued and are fully paid (to the extent required in the organizational documents of such Subsidiaries, as applicable) and non-assessable (except as such nonassessability may be affected by matters described in Section 101.206 of the Texas Business Organizations Code, and Sections 18-303, 18-607 and 18-804 of the Delaware Limited Liability Company Act) and (ii) neither BATL nor any of its Subsidiaries owns any shares of capital stock or other securities of, or interest in, any other Person, or is obligated to make any capital contribution to or any other investment in any other Person.

(f)The Purchased Securities being purchased by each of the Purchasers hereunder have been duly authorized by BATL pursuant to the BATL Charter and the Certificate of Designations prior to the Closing and, when issued and delivered by BATL to such Purchaser against payment therefor in accordance with the terms of this Agreement and the terms of the Purchased Securities, will be validly issued, fully paid and non-assessable and will be free of preemptive rights or any Liens and restrictions on transfer, other than (i) restrictions on transfer under the Certificate of Designations or this Agreement and under applicable state and federal securities Laws and (ii) such Liens as are created by such Purchaser or its Affiliates.

(g)6,000,000 shares of Common Stock, which are issuable upon conversion or redemption of the Series A Preferred Stock (or may become issuable within approximately five (5) years following Closing after taking into account potential Unpaid Dividend Accruals (as defined in the Certificate of Designations) during such period), have been duly authorized and reserved pursuant to the BATL Charter and the Certificate of Designations and, upon issuance and delivery by BATL to such Purchaser in accordance with this Agreement and the terms of the Purchased Securities, will be duly authorized, validly issued, fully paid and non-assessable and will be free of any preemptive rights or any Liens and restrictions on transfer, other than (i) restrictions on transfer under the Certificate of Designations or this Agreement and under applicable state and federal securities Laws and (ii) such Liens as are created by such Purchaser or its Affiliates.

Section 3.03 BATL SEC Documents.

(a)Since December 31, 2021, BATL has filed with the SEC all forms, reports, schedules and statements required to be filed by it under the Exchange Act or the Securities Act (all such documents collectively the “BATL SEC Documents”). The BATL SEC Documents, including, without limitation, any audited or unaudited financial statements and any notes thereto or schedules included therein (the “BATL Financial Statements”), at the time filed (except to the extent corrected by a subsequently filed BATL SEC Document filed prior to the date hereof) (i) did not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein (in the light of the circumstances under which they were made) not misleading and (ii) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as applicable.

(b)The historical financial statements (including the related notes and supporting schedules) of BATL and its Subsidiaries included or incorporated by reference in the BATL SEC Documents comply as to form in all material respects with the requirements of Regulation S-X under the Securities Act and present fairly in all material respects the financial condition, results of operations and cash flows of the entities purported to be shown thereby, at the dates and for the periods indicated and have

been prepared in conformity with GAAP applied on a consistent basis throughout the periods involved, except to the extent described therein.

(c)Deloitte & Touche LLP is an independent, registered public accounting firm with respect to BATL and has not resigned or been dismissed as independent public accountants of BATL as a result of or in connection with any disagreement with BATL on a matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. Except as disclosed in the BATL SEC Documents, since the date of the most recent balance sheet of BATL reviewed or audited by Deloitte & Touche LLP, BATL has not been advised of (i) any significant deficiencies or material weakness in the design or operation of internal controls that are reasonably likely to adversely affect BATL’s ability to record, process, summarize and report financial information and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in BATL’s internal controls over financial reporting.

Section 3.04 Operations in the Ordinary Course. Since the date of BATL’s most recent Form 10-K filing with the SEC, BATL and its Subsidiaries have conducted their respective businesses in the ordinary course, consistent with past practice, and there has been no (a) acquisition or disposition of any material asset by BATL or any of its Subsidiaries or any contract or arrangement therefor, other than acquisitions or dispositions for fair value in the ordinary course of business, acquisitions or dispositions as disclosed in the BATL SEC Documents or (b) material change in BATL’s accounting principles, practices or methods.

Section 3.05 Litigation. There is no action, suit, or proceeding pending or, to BATL’s knowledge, threatened against or affecting any of BATL or its Subsidiaries or any of their respective officers, directors, properties or assets, which (a) questions the validity of this Agreement or the Basic Documents or the right of BATL to enter into this Agreement or the Basic Documents or the right to consummate the transactions contemplated by the Basic Documents or (b) individually or in the aggregate, would be reasonably likely to result in a Material Adverse Effect.

Section 3.06 No Conflicts; Compliance with Laws. The execution, delivery and performance by BATL of the Basic Documents and compliance by BATL with the terms and provisions thereof, and the issuance and sale by BATL of the Purchased Securities, does not and will not assuming the accuracy of the representations and warranties of the Purchasers contained herein and their compliance with the covenants contained herein, violate any provision of any Law or permit having applicability to BATL or any of its Subsidiaries or any of their respective Properties, conflict with or result in a violation or breach of any provision of the BATL Charter, the BATL Bylaws or any organizational documents of any of BATL’s Subsidiaries, require any consent, approval or notice under or result in a violation or breach of or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under any contract, agreement, instrument, obligation, note, bond, mortgage, license, loan or credit agreement to which BATL or any of its Subsidiaries is a party or by which BATL or any of its Subsidiaries or any of their respective Properties may be bound or result in or require the creation or imposition of any Lien upon or with respect to any of the Properties now owned or hereafter acquired by BATL or any of its Subsidiaries, except in the case of clauses (a), (c) and (d) where any such conflict, violation, default, breach, termination, cancellation, failure to receive consent, approval or notice, or acceleration with respect to the foregoing provisions of this Section 3.06 would not be, individually or in the aggregate, reasonably likely to result in a Material Adverse Effect.

Section 3.07 Authority, Enforceability. BATL has all necessary corporate power and authority to execute, deliver and perform its obligations under the Basic Documents, and the execution, delivery and performance by BATL of the Basic Documents has been duly authorized by all necessary action on the part of BATL. Other than the Schedule 14C Action andthe filing of the Certificate of Designations, all corporate

action required to be taken by BATL for the authorization, issuance, sale and delivery of the Purchased Securities, the execution, delivery and performance of the Basic Documents by BATL, and the consummation of the transactions contemplated by the Basic Documents has been validly taken. This Agreement has been duly and validly authorized, executed and delivered by BATL and constitutes and, when executed and delivered by BATL the other Basic Documents will be duly and validly authorized, executed and delivered by BATL and will constitute, the legal, valid and binding obligations of BATL, enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent transfer and similar Laws affecting creditors’ rights generally or by general principles of equity and except as the rights to indemnification may be limited by applicable Law.

Section 3.08 Approvals. Except for the approvals required by the SEC in connection with any registration statement filed under the Registration Rights Agreement, the Schedule 14C Action, and for approvals that have already been obtained, no authorization, consent, approval, waiver, license, qualification or written exemption from, nor any filing, declaration, qualification or registration with, any Governmental Authority or any other Person is required in connection with the execution, delivery or performance by BATL of any of the Basic Documents, except for (a) the filing of the Certificate of Designations in the office of the Secretary of State of Delaware or the filing with the SEC of a Current Report on Form 8-K and (b) where the failure to receive such authorization, consent, approval, waiver, license, qualification or written exemption from, or to make such filing, declaration, qualification or registration would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect. The Board has adopted and approved resolutions to cause any acquisitions or dispositions of Series A Preferred Stock and Conversion Shares in connection with this Agreement or pursuant to the terms of the Certificate of Designations by each Purchaser to be exempt under Rule 16b-3 under the Exchange Act.

Section 3.09 Investment Company Status. BATL is not and, immediately after the sale of the Purchased Securities and the application of the net proceeds from such sale will not be, required to register as an “investment company” or a company controlled by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

Section 3.10 Certain Fees. No fees or commissions are or will be payable by BATL to brokers, finders or investment bankers with respect to the sale of any of the Purchased Securities or the consummation of the transactions contemplated by this Agreement. BATL agrees that it will indemnify and hold harmless each Purchaser from and against any and all claims, demands, or liabilities for broker’s, finder’s, placement, or other similar fees or commissions incurred by BATL or alleged to have been incurred by BATL in connection with the sale of the Purchased Securities or the consummation of the transactions contemplated by this Agreement.

Section 3.11 Books and Records; Sarbanes-Oxley Compliance. BATL makes and keeps accurate books and records in all material respects. There is and has been no failure on the part of BATL or any of BATL’s directors or officers, in their capacities as such, to comply in all material respects with the provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith.

Section 3.12 Listing and Maintenance Requirements. As of the Closing, the Common Stock is listed on the NYSE, and BATL has not received any notice of delisting that is in effect as of the date of this Agreement.

Section 3.13 Insurance. BATL and its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged. BATL does not have any reason to believe that it or any

Subsidiary will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business.

Section 3.14Title to Interests. BATL and its Subsidiaries have (a) generally satisfactory title to all of their interests in their producing oil and gas properties and to all of their material interests in non-producing oil and gas properties, title investigations having been carried out by BATL its Subsidiaries, as applicable, in accordance with the general practice in the oil and gas industry, (b) good and indefeasible title to all other real property owned by them that is material to BATL and its Subsidiaries, taken as a whole, and (c) good and valid title to all personal property owned by them that is material to BATL and its Subsidiaries, taken as a whole, in each case free and clear of all liens, encumbrances and defects, except such liens, encumbrances and defects as (i) do not materially interfere with the use made and proposed to be made of such property by BATL or its Subsidiaries or (ii) would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Article IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

Each Purchaser, severally and not jointly, hereby represents and warrants to BATL as follows:

Section 4.01 Existence. Such Purchaser is duly organized and validly existing and in good standing under the laws of its state of formation, with all necessary power and authority to own properties and to conduct its business as currently conducted.

Section 4.02 Authorization, Enforceability. Such Purchaser has all necessary legal power and authority to enter into, deliver and perform its obligations under this Agreement and the Basic Documents to which such Purchaser is or will be a party. The execution, delivery and performance by such Purchaser of this Agreement and the Basic Documents to which such Purchaser is or will be a party and the consummation by it of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary legal action, and no further consent or authorization of such Purchaser is required. This Agreement and the Basic Documents to which such Purchaser is or will be a party have been duly executed and delivered by such Purchaser and constitute or, when executed by such Purchaser, will constitute legal, valid and binding obligations of such Purchaser, except as such enforceability may be limited by bankruptcy, insolvency, fraudulent transfer and similar Laws affecting creditors’ rights generally or by general principles of equity and except as the rights to indemnification may be limited by applicable Law.

Section 4.03 No Breach. The execution, delivery and performance of this Agreement and the Basic Documents by such Purchaser and the consummation by such Purchaser of the transactions contemplated hereby or thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any material agreement to which such Purchaser is a party or by which such Purchaser is bound or to which any of the property or assets of such Purchaser is subject, conflict with or result in any violation of the provisions of the organizational documents of such Purchaser or violate any statute, order, rule or regulation of any court or governmental agency or body having jurisdiction over such Purchaser or the property or assets of such Purchaser, except in the case of clauses (a) and (c), for such conflicts, breaches, violations or defaults as would not have a material adverse effect on the ability to consummate the transactions contemplated by this Agreement and the Basic Documents.

Section 4.04 Approvals. Except for approvals that have already been obtained, no authorization, consent, approval, waiver, license, qualification or written exemption from, nor any filing, declaration, qualification or registration with, any Governmental Authority or any other Person is required

in connection with the execution, delivery or performance by such Purchaser of any of the Basic Documents, except where the failure to receive such authorization, consent, approval, waiver, license, qualification or written exemption from, or to make such filing, declaration, qualification or registration would not have a material adverse effect on the ability to consummate the transactions contemplated by this Agreement and the Basic Documents.

Section 4.05Certain Fees. No fees or commissions are or will be payable by such Purchaser to brokers, finders or investment bankers with respect to the purchase of any of the Purchased Securities or the consummation of the transactions contemplated by this Agreement. Such Purchaser agrees, severally and not jointly with any other Purchaser, that it will indemnify and hold harmless BATL from and against any and all claims, demands or liabilities for broker’s, finder’s, placement, or other similar fees or commissions incurred by such Purchaser or alleged to have been incurred by such Purchaser in connection with the purchase of the Purchased Securities or the consummation of the transactions contemplated by this Agreement.

Section 4.06 Unregistered Securities.

(a)Accredited Investor Status; Sophisticated Purchasers. Such Purchaser is an “accredited investor” within the meaning of Rule 501 under the Securities Act and is able to bear the risk of its investment in Purchased Securities and the Conversion Shares. Such Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Purchased Securities and the Conversion Shares.

(b)Information. Such Purchaser and its Representatives have been furnished with all materials relating to the business, finances and operations of BATL as such Purchaser considers necessary or appropriate to make an informed investment decision with respect to the Purchased Securities. Such Purchaser and its Representatives have been afforded the opportunity to ask questions of BATL. Neither such inquiries nor any other due diligence investigations conducted at any time by any Purchaser and Representatives shall modify, amend or affect such Purchaser’s right to rely on BATL’s representations and warranties contained in Article III above or to indemnification or any other remedy contemplated herein or therein based on, or with respect to the accuracy or inaccuracy of, or compliance with, the representations, warranties, covenants and agreements in this Agreement or any Basic Document. Such Purchaser understands that the purchase of the Purchased Securities involves a high degree of risk. Such Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Purchased Securities.

(c)Cooperation. Such Purchaser shall cooperate reasonably with BATL to provide any information necessary for any applicable securities filings required to be made by BATL.

(d)Legends. Such Purchaser understands that the Purchased Securities will bear a restrictive legend substantially in the form as set forth in the Certificate of Designations.

(e)Purchase Representation. Such Purchaser is purchasing the Purchased Securities for its own account and not with a view to distribution in violation of any securities laws. Such Purchaser has been advised and understands that none of the Purchased Securities, or the Conversion Shares have been registered under the Securities Act or under the “blue sky” laws of any jurisdiction and may be resold only if registered pursuant to the provisions of the Securities Act (or if eligible, pursuant to the provisions of Rule 144 promulgated under the Securities Act or pursuant to another available exemption from the registration requirements of the Securities Act). Such Purchaser has been advised and understands that BATL, in issuing the Purchased Securities, is relying upon, among other things, the representations and

warranties of such Purchaser contained in this Article IV in concluding that such issuance is a “private offering” and is exempt from the registration provisions of the Securities Act.

(f)Rule 144. Such Purchaser understands that there is no public trading market for the Purchased Securities, that none is expected to develop and that the Purchased Securities must be held indefinitely unless and until the Purchased Securities, or the Conversion Shares, as applicable, are registered under the Securities Act or an exemption from registration is available. Such Purchaser has been advised of and is aware of the provisions of Rule 144 promulgated under the Securities Act.

(g)Reliance by BATL. Such Purchaser understands that the Purchased Securities are being offered and sold in reliance on a transactional exemption from the registration requirements of federal and state securities laws and that BATL is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of such Purchaser set forth herein in order to determine the applicability of such exemptions and the suitability of such Purchaser to acquire the Purchased Securities, and the Conversion Shares. Such Purchaser understands the Conversion Shares may not be listed on a national securities exchange.

Article V
other covenants

Section 5.01 Voting Rights. Without the affirmative vote or prior written consent of Purchasers holding at least two-thirds (66 ²/₃%) of the shares of Series A Preferred Stock held by the Purchasers, if any, that hold (together with its Affiliates) at least fifty (50%) of the Series A Preferred Stock such Purchaser (together with its Affiliates) purchased pursuant to this Agreement, BATL agrees that it will not enter into any transaction that is expected to result in a Change of Control unless, in connection with such transaction, each holder of outstanding shares of Series A Preferred Stock will have the option to receive a cash payment per share of Purchased Securities held by such Purchaser at the time of such Change of Control transaction equal to the then applicable Redemption Price (as defined in the Certificate of Designations).

Section 5.02Information Statement. Following the delivery to BATL of a Stockholder Consent, which shall not be delivered by any Purchaser earlier than ninety (90) days following the Closing (or two hundred ten (210) days following the Closing if the Board has approved the delisting of the Common Stock from the NYSE within ninety (90) days following the Closing) without BATL’s prior written consent, BATL shall promptly file with the SEC a preliminary Information Statement on Schedule 14C; provided that BATL shall not be obligated to file such preliminary Information Statement on Schedule 14C if the Common Stock is not listed on a national securities exchange that requires approval of the issuance of the Conversion Shares. BATL shall use commercially reasonable efforts to promptly provide responses to the SEC with respect to all comments received on such Information Statement from the SEC, and BATL shall cause the definitive Schedule 14C Information Statement to be mailed promptly after the date the SEC staff advises that it has no further comments thereon or that BATL may commence mailing the Information Statement.

Section 5.03Disclosure of Transactions. On or before 5:30 p.m., New York City time, on or before the fourth (4th) Business Day following the date of this Agreement, BATL shall file a Current Report on Form 8-K or shall make disclosures in lieu thereof in its Annual Report on Form 10-K describing the terms and conditions of the transactions contemplated by this Agreement and the Basic Documents.

Article VI
INDEMNIFICATION, COSTS AND EXPENSES

Section 6.01 Indemnification by BATL. BATL agrees to indemnify each Purchaser, its Affiliates and their respective Representatives (collectively, the “Purchaser Related Parties”) from, and hold each of them harmless against, any and all losses, actions, suits, proceedings (including any investigations, litigation or inquiries), demands and causes of action, and, in connection therewith, and promptly upon demand, pay or reimburse each of them for all reasonable costs, losses, liabilities, damages or expenses of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel and all other reasonable expenses incurred in connection with investigating, defending or preparing to defend any such matter that may be incurred by them or asserted against or involve any of them), whether or not involving a third party claim, as a result of, arising out of, or in any way related to (a) the failure of (i) the representations and warranties of BATL set forth in Article III hereof (other than Sections 3.02(e), 3.02(f), 3.02(g), 3.07, 3.08 and 3.11) to be true and correct (disregarding all qualifications or limitations as to materiality or Material Adverse Effect) as of the date of this Agreement (except to the extent that such representation or warranty speaks to an earlier date, in which case each of such earlier date), except where the failure of such representations and warranties to be so true and correct would not, individually or in the aggregate, have a Material Adverse Effect, or (ii) the representations and warranties of BATL set forth in Sections 3.02(e), 3.02(f), 3.02(g), 3.07, 3.08 and 3.11 to be true in all material respects as of the date of this Agreement; or (b) the material breach of any covenants of BATL contained herein, provided that, in the case of the immediately preceding clause (a), such claim for indemnification is made prior to the expiration of such representation or warranty; provided, further, that for purposes of determining when an indemnification claim has been made, the date upon which a Purchaser Related Party shall have given notice (stating in reasonable detail the basis of the claim for indemnification) to BATL shall constitute the date upon which such claim has been made. The maximum liability of BATL to any Purchaser Related Party with respect to any claim pursuant to this Section 6.01 shall not be greater in amount than such Purchaser’s Allocated Purchase Price.

Section 6.02 Indemnification by the Purchasers. Each Purchaser agrees, severally and not jointly, to indemnify BATL, its controlled Affiliates and their respective Representatives (collectively, the “BATL Related Parties”) from, and hold each of them harmless against, any and all losses, actions, suits, proceedings (including any investigations, litigation or inquiries), demands and causes of action, and, in connection therewith, and promptly upon demand, pay or reimburse each of them for all reasonable costs, losses, liabilities, damages or expenses of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel and all other reasonable expenses incurred in connection with investigating, defending or preparing to defend any such matter that may be incurred by them or asserted against or involve any of them), whether or not involving a third party claim, as a result of, arising out of, or in any way related to (a) the failure of any of the representations or warranties made by such Purchaser contained herein to be true and correct in all material respects as of the date hereof or (b) the material breach of any of the covenants of such Purchaser contained herein, provided that, in the case of the immediately preceding clause (a), such claim for indemnification relating to a breach of any representation or warranty is made prior to the expiration of such representation or warranty; provided, however, that for purposes of determining when an indemnification claim has been made, the date upon which a BATL Related Party shall have given notice (stating in reasonable detail the basis of the claim for indemnification) to such Purchaser shall constitute the date upon which such claim has been made; provided, further, that the liability of such Purchaser shall not be greater in amount than such Purchaser’s Allocated Purchase Price.

Section 6.03 Indemnification Procedure. A claim for indemnification for any matter not involving a third party claim may be asserted by notice to the party from whom indemnification is sought; provided, however, that failure to so notify the indemnifying party shall not preclude the indemnified party from any indemnification which it may claim in accordance with this Article VI, except as otherwise

provided in Sections 6.01 and 6.02. Promptly after any BATL Related Party or Purchaser Related Party (hereinafter, the “Indemnified Party”) has received notice of any indemnifiable claim hereunder, or the commencement of any action, suit or proceeding by a third person, which the Indemnified Party believes in good faith is an indemnifiable claim under this Agreement, the Indemnified Party shall give the indemnitor hereunder (the “Indemnifying Party”) written notice of such claim or the commencement of such action, suit or proceeding, but failure to so notify the Indemnifying Party will not relieve the Indemnifying Party from any liability it may have to such Indemnified Party hereunder except to the extent that the Indemnifying Party is materially prejudiced by such failure. Such notice shall state the nature and the basis of such claim to the extent then known. The Indemnifying Party shall have the right to defend and settle, at its own expense and by its own counsel, any such matter as long as the Indemnifying Party pursues the same diligently and in good faith. If the Indemnifying Party undertakes to defend or settle such claim, it shall promptly after such determination, and in no event later than five (5) days, notify the Indemnified Party of its intention to do so, and the Indemnified Party shall cooperate with the Indemnifying Party and its counsel in all commercially reasonable respects in the defense thereof and/or the settlement thereof. Such cooperation shall include, but shall not be limited to, furnishing the Indemnifying Party with any books, records and other information reasonably requested by the Indemnifying Party and in the Indemnified Party’s possession or control relevant to the claim. Such cooperation of the Indemnified Party shall be at the cost of the Indemnifying Party. After the Indemnifying Party has notified the Indemnified Party of its intention to undertake to defend or settle any such asserted liability, and for so long as the Indemnifying Party diligently pursues such defense, the Indemnifying Party shall not be liable for any additional legal expenses incurred by the Indemnified Party in connection with any defense or settlement of such asserted liability; provided, however, that the Indemnified Party shall be entitled at its expense, to participate in the defense of such asserted liability and the negotiations of the settlement thereof and if the Indemnifying Party has, within ten (10) Business Days of when the Indemnified Party provides written notice of a claim, failed to assume the defense or settlement of such claim and employ counsel or to notify the Indemnified Party of such assumption or if the defendants in any such action include both the Indemnified Party and the Indemnifying Party and counsel to the Indemnified Party shall have concluded that there may be reasonable defenses available to the Indemnified Party that are different from or in addition to those available to the Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to conflict with the interests of the Indemnifying Party, then the Indemnified Party shall have the right to select a separate counsel and to assume such legal defense and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Indemnifying Party as incurred. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not settle any indemnified claim without the consent of the Indemnified Party, unless the settlement thereof imposes no liability or obligation on, and includes a complete release from liability of, and does not contain any admission of wrong doing by, the Indemnified Party.

Section 6.04 Limitation on Damages; Sole Remedy. Notwithstanding any other provision of this Agreement, neither party shall be liable for any exemplary or punitive damages or any other damages to the extent not reasonably foreseeable arising out of or in connection with this Agreement or the transactions contemplated hereby (in each case, unless any such damages are awarded pursuant to a third party claim). Except as contemplated by Sections 7.13 and 7.15, the right to indemnification set forth in this Article VI shall be the sole and exclusive remedy of the parties resulting from, arising out of, or in any way related to the transactions contemplated by this Agreement.

Section 6.05Tax Treatment of Indemnification Payments. Any indemnification payments made under this Article VI shall be treated for all tax purposes as an adjustment to the relevant Purchaser’s Allocated Purchase Price except as otherwise required by applicable Law.

Article VII
MISCELLANEOUS

Section 7.01 Expenses. BATL hereby covenants and agrees to reimburse the Purchasers for their reasonable and documented out-of-pocket fees and expenses (including fees and expenses of the Purchasers’ advisors) incurred in connection with this Agreement and the transactions contemplated hereby.

Section 7.02 Interpretation. Article, Section, Schedule and Exhibit references in this Agreement are references to the corresponding Article, Section, Schedule or Exhibit to this Agreement, unless otherwise specified. All Exhibits and Schedules to this Agreement are hereby incorporated and made a part hereof as if set forth in full herein and are an integral part of this Agreement. All references to instruments, documents, contracts and agreements are references to such instruments, documents, contracts and agreements as the same may be amended, supplemented and otherwise modified from time to time, unless otherwise specified. The word “including” shall mean “including but not limited to” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it. Whenever BATL has an obligation under the Basic Documents, the expense of complying with that obligation shall be an expense of BATL unless otherwise specified. Any reference in this Agreement to $ shall mean U.S. dollars. Whenever any determination, consent or approval is to be made or given by any Purchaser, such action shall be in such Purchaser’s sole discretion, unless otherwise specified in this Agreement. If any provision in the Basic Documents is held to be illegal, invalid, not binding or unenforceable, (i) such provision shall be fully severable and the Basic Documents shall be construed and enforced as if such illegal, invalid, not binding or unenforceable provision had never comprised a part of the Basic Documents, and the remaining provisions shall remain in full force and effect and (ii) the parties hereto shall negotiate in good faith to modify the Basic Documents so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to the Basic Documents, the date that is the reference date in calculating such period shall be excluded. If the last day of such period is a non-Business Day, the period in question shall end on the next succeeding Business Day. Any words imparting the singular number only shall include the plural and vice versa. The words such as “herein,” “hereinafter,” “hereof” and “hereunder” refer to this Agreement as a whole and not merely to a subdivision in which such words appear unless the context otherwise requires. The provision of a Table of Contents, the division of this Agreement into Articles, Sections and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect or be utilized in construing or interpreting this Agreement.

Section 7.03 Survival of Provisions. The representations and warranties set forth in Sections 3.02(e), 3.02(f), 3.02(g), 3.07, 3.08, 3.11, 4.02, 4.04 and 4.06 hereunder shall survive until the expiration of the applicable statute of limitations, and the other representations and warranties set forth herein shall survive for a period of six (6) months following the Closing Date regardless of any investigation made by or on behalf of BATL or the Purchasers. The covenants made in this Agreement or any other Basic Document shall survive the Closing and remain operative and in full force and effect until fully performed or fulfilled, unless and to the extent that non-compliance with such covenants or agreements is waived in writing by the party entitled to such performance.

Section 7.04 No Waiver; Modifications in Writing.

(a)Delay. No failure or delay on the part of any party in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right,

power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to a party at law or in equity or otherwise.

(b)Specific Waiver. Except as otherwise provided herein, no amendment, waiver, consent, modification or termination of any provision of this Agreement or any other Basic Document shall be effective unless signed by each of the parties hereto or thereto affected by such amendment, waiver, consent, modification or termination. Any amendment, supplement or modification of or to any provision of this Agreement or any other Basic Document, any waiver of any provision of this Agreement or any other Basic Document and any consent to any departure by BATL from the terms of any provision of this Agreement or any other Basic Document shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on BATL in any case shall entitle BATL to any other or further notice or demand in similar or other circumstances. Any investigation by or on behalf of any party shall not be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein.

Section 7.05 Binding Effect; Assignment.

(a)Binding Effect. This Agreement shall be binding upon BATL, each Purchaser and their respective successors and permitted assigns. Except as expressly provided in this Agreement, this Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and permitted assigns.

(b)Assignment of Purchased Securities. All or any portion of Purchased Securities purchased pursuant to this Agreement may be sold, assigned or pledged by the Purchasers, subject to compliance with applicable securities Laws, and the Registration Rights Agreement, and, except as provided in the Basic Documents, any such assignment shall not affect the rights of the Purchasers hereunder.

(c)Assignment of Rights. Each Purchaser’s rights and obligations hereunder (including the right to seek indemnification) may not be transferred or assigned in whole or in part by such Purchaser to any Affiliate of such Purchaser without the consent of BATL or the other parties hereto; provided that no such consent shall be required for a Purchaser to transfer its rights and obligations hereunder to an Affiliate to which such Purchaser is also transferring its shares of Series A Preferred Stock. Upon any such permitted transfer or assignment, references in this Agreement to the Purchasers (as they apply to the transferor or assignor, as the case may be) shall thereafter be deemed to include a reference to such transferee or assignee of such Purchaser unless the context otherwise requires and such transferee or assignee of such Purchaser shall be third party beneficiaries to this Agreement entitled to the rights and benefits applicable to them hereunder and may enforce the provisions hereof as if it were a party hereto. Without the written consent of BATL, which consent shall not be unreasonably withheld, no portion of the rights and obligations of any Purchaser under this Agreement may be assigned or transferred by such Purchaser or such a transferee of Purchased Securities to a Person that is not an Affiliate of such Purchaser. No portion of the rights and obligations of BATL under this Agreement may be transferred or assigned without the prior written consent of the Purchasers, which consent shall not be unreasonably withheld.

Section 7.06 Non-Disclosure. BATL, its Subsidiaries and any of their respective Representatives shall disclose the identity of, or any other information concerning, any Purchaser or any of their Affiliates only after providing such Purchaser a reasonable opportunity to review and comment on such disclosure (with such comments being incorporated or reflected in any such disclosure); provided, however, that nothing in this Section 7.06 shall delay any required filing or other disclosure with the SEC, the NYSE or any Governmental Authority or otherwise hinder BATL, their Subsidiaries or their

Representatives’ ability to timely comply with all laws or rules and regulations of the SEC, the NYSE or other Governmental Authority.

Section 7.07 Communications. All notices and demands provided for hereunder shall be (a) in writing and shall be given by registered or certified mail, return receipt requested, air courier guaranteeing overnight delivery or personal delivery and (b) via e-mail, to the following addresses:

If to the Purchasers:

At such address indicated on Schedule A attached hereto.

If to BATL:

Battalion Oil Corporation
3505 West Sam Houston Parkway North, Suite 300
Houston, Texas 77043
Attention: Walter R. Mayer
E-mail: wmayer@battalionoil.com

with a copy (which shall not constitute notice) to:

Weil, Gotshal & Manges LLP
201 Redwood Shores Parkway, Suite 400
Redwood City, CA 94065
Attn: Kyle C. Krpata / Nicholas Doloresco
Email: kyle.krpata@weil.com / nicholas.doloresco@weil.com

or to such other address as BATL or such Purchaser may designate in writing. All notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; upon actual receipt if sent by certified or registered mail, return receipt requested, or regular mail, if mailed; upon actual receipt if sent by overnight courier copy; when receipt is acknowledged, if sent via e-mail; and upon actual receipt when delivered to an air courier guaranteeing overnight delivery.

Section 7.08 Removal of Legend. Each holder of Series A Preferred Stock may request BATL to remove the legend described in Section 4.06(d) from the certificates evidencing the Purchased Securities by submitting to BATL customary representation letters. BATL shall cooperate with reasonable requests of such holder of Series A Preferred Stock to effect the removal of such legend. The holders of Series A Preferred Stock are third party beneficiaries of this Section 7.08.

Section 7.09 Entire Agreement. This Agreement, the other Basic Documents and the other agreements and documents referred to herein are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or the other Basic Documents with respect to the rights granted by BATL or any of its Affiliates or the Purchasers or any of their Affiliates set forth herein or therein. This Agreement, the other Basic Documents and the other agreements and documents referred to herein or therein supersede all prior agreements and understandings between the parties with respect to such subject matter.

Section 7.10 Governing Law; Submission to Jurisdiction. This Agreement, and all claims or causes of action (whether in contract or tort) that may be based upon, arise out of or relate to this Agreement

or the negotiation, execution or performance of this Agreement (including any claim or cause of action based upon, arising out of or related to any representation or warranty made in or in connection with this Agreement), will be construed in accordance with and governed by the laws of the State of Delaware without regard to principles of conflicts of laws. Any action against any party relating to the foregoing shall be brought in any federal or state court of competent jurisdiction located within the State of Delaware, and the parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of any federal or state court located within the State of Delaware over any such action. The parties hereby irrevocably waive, to the fullest extent permitted by applicable Law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.

Section 7.11 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT EACH HEREBY WAIVES, AND AGREES TO CAUSE ITS AFFILIATES TO WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

Section 7.12 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. A signed copy of this Agreement delivered by portable document format (PDF) or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement; provided, however, that each party hereto shall deliver an original signed copy of this Agreement executed by such party to any other party hereto promptly upon the request of any such other party.

Section 7.13 Specific Performance. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that, without the necessity of posting bond or other undertaking, the parties shall be entitled to specific performance of the terms hereof, this being in addition to any other remedies to which they are entitled at law or equity, and in the event that any action or suit is brought in equity to enforce the provisions of this Agreement, and no party will allege, and each party hereby waives, the defense or counterclaim that there is an adequate remedy at law.

Section 7.14No Recourse. This Agreement may only be enforced against, and any claims or causes of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement may only be made against the entities that are expressly identified as parties hereto, including permitted assignees and successors, or that agree in writing for the benefit of BATL to be bound by the terms of this Agreement applicable to the Purchasers, and no former, current or future equityholders, controlling persons, directors, officers, employees, agents or Affiliates of any party hereto or any former, current or future equityholder, controlling person, director, officer, employee, general or limited partner, member, manager, advisor, agent or Affiliate of any of the foregoing

(each, a “Non-Recourse Party”) shall have any liability for any obligations or liabilities of the parties to this Agreement or for any claim (whether in tort, contract or otherwise) based on, in respect of, or by reason of, the transactions contemplated hereby or in respect of any representations made or alleged to be made in connection herewith. Without limiting the rights of any party against the other parties hereto, in no event shall any party or any of its Affiliates seek to enforce this Agreement against, make any claims for breach of this Agreement against, or seek to recover monetary damages from, any Non-Recourse Party.

Section 7.15Certain Tax Matters.

(a)BATL shall pay any and all documentary, stamp or similar issue or transfer tax due on (i) the issue of the Purchased Securities and (ii) the issue of shares of Common Stock upon conversion or redemption of the Purchased Securities.

(b)The Purchasers and BATL agree not to treat the Series A Preferred Stock (based on the terms as set forth in the Certificate of Designations) as “preferred stock” within the meaning of Section 305 of the Code and U.S. Treasury Regulation § 1.305-5 for U.S. federal income tax and withholding tax purposes and shall not take any position inconsistent with such treatment, including on any applicable U.S. federal income or state tax return or in connection with any audit or other proceeding, except as required by a final “determination” within the meaning of Section 1313(a) of the Code (or similar provisions of state tax law).

(c)BATL agrees that, provided that each Purchaser delivers to BATL a properly executed IRS Form W-9, or similar form sufficient to cause under current Law BATL (including any paying agent of BATL) to avoid a requirement to withhold on any payments or deemed payments treated as a dividend for U.S. federal income tax purposes to any such Purchaser, BATL (including any paying agent of BATL) will not withhold on any such payments or deemed payments to any such Purchaser, unless required by a change in law. In the event that a Purchaser fails to deliver to BATL such properly executed IRS Form W-9 or similar form or applicable law changes, BATL and its paying agent shall be entitled to deduct or withhold on all applicable payments made to such Purchaser in the form of cash such Tax amounts as BATL reasonably determines are required (including where BATL is advised by its external advisors that there is a not insignificant risk that withholding is required) to be deducted or withheld therefrom under any provision of applicable Law (and, to the extent such amounts are paid to the relevant taxing authority in accordance with applicable Law, such amounts will be treated for all purposes of this Agreement as having been paid to the Person in respect of which such withholding was made); provided, that if BATL determines that an amount is required to be deducted or withheld (including where BATL is advised by its external advisors that there is a not insignificant risk that withholding is required) on any payment with respect to a Purchaser, BATL shall provide reasonable prior notice to such Purchaser in writing of its intent to deduct or withhold Taxes on such payment and will reasonably cooperate with such Purchaser in obtaining any available exemption or reduction of such withholding.

[Remainder of Page Left Intentionally Blank]

IN WITNESS WHEREOF, the parties hereto execute this Agreement, effective as of the date first above written.


	BATTALION OIL CORPORATION


	By:	/s/ Richard H. Little
	Name:	Richard H. Little
	Title:	Chief Executive Officer


	LUMINUS ENERGY PARTNERS MASTER FUND, LTD.


	By:	/s/ Jonathan Barrett
	Name:	Jonathan Barrett
	Title:	President


	OCM HLCN Holdings, L.P. By: Oaktree Fund GP, LLC, its General Partner By: Oaktree Fund GP I, L.P., its Managing Member


	By:	/s/ Allen Li
	Name:	Allen Li
	Title:	Authorized Signatory


	By:	/s/ Jordan Mikes
	Name:	Jordan Mikes
	Title:	Authorized Signatory


	GEN IV INVESTMENT OPPORTUNITIES, LLC


	By:	/s/ Jeff Wade
	Name:	Jeff Wade
	Title:	Chief Compliance Officer

[Signature Page to Purchase Agreement]

Schedule A


Purchaser	Series A Preferred Stock	Allocated Purchase Price
LUMINUS ENERGY PARTNERS MASTER FUND, LTD c/o Luminus Management, LLC 1811 Bering Drive Suite 400 Houston, TX 77057 Attention: Jonathan Barrett; Carlos Treistman; Philip Cibulsky E-mail: jbarrett@luminusmgmt.com; ctreistman@luminusmgmt.com; pcibulsky@luminusmgmt.com	13,336	$ 13,002,600.00
OCM HLCN HOLDINGS, L.P. c/o Oaktree Capital Management, LLC 333 South Grand Avenue, 28^th Floor Los Angeles, CA 90071 Attention: Jordan Mikes E-mail: jmikes@oaktreecapital.com	6,526	$ 6,362,850.00
with a copy (which shall not constitute notice) to:
Vinson & Elkins L.L.P. 845 Texas Avenue, Suite 4700 Houston, Texas 77002 Attention: Crosby W. Scofield; E. Ramey Layne Email: cscofield@velaw.com; rlayne@velaw.com
GEN IV INVESTMENT OPPORTUNITIES, LLC 1700 Broadway, 35th floor New York, NY 10019 Attention: David Chang E-mail: dchang@LSpower.com	5,138	$ 5,009,550.00
Total	___________ 25,000	______________ $ 24,375,000.00

Schedule A

Exhibit A

FORM OF CERTIFICATE OF DESIGNATIONS FOR
THE SERIES A PREFERRED STOCK

Exhibit A

Exhibit B

FORM OF FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT

Exhibit B

Exhibit 21.1

Subsidiaries of the Registrant


Subsidiary		State of Incorporation or Organization
Battalion Oil Management, Inc.		Delaware
Halcón Holdings, LLC		Delaware
Halcón Energy Properties, Inc.		Delaware
Halcón Operating Co., Inc.		Texas
Halcón Field Services, LLC		Delaware
Halcón Permian, LLC		Delaware
Brazos Amine Treater Holdings, LLC		Texas

Exhibit 31.1

CERTIFICATION

I, Richard H. Little, certify that:

1. I have reviewed this Annual Report on Form 10-K of Battalion Oil Corporation;

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

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

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

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

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

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

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

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

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

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



Date: March 30, 2023

	By:	/s/ RICHARD H. LITTLE
		Richard H. Little
		Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Kristen McWatters, certify that:

1. I have reviewed this Annual Report on Form 10-K of Battalion Oil Corporation;

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


Date: March 30, 2023

	By:	/s/ KRISTEN MCWATTERS
		Kristen McWatters
		Executive Vice President,
		Chief Financial Officer and Treasurer

Exhibit 32

Certification Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

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

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

(1) The Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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


March 30, 2023	/s/ RICHARD H. LITTLE
	Richard H. Little
	Chief Executive Officer


March 30, 2023	/s/ KRISTEN MCWATTERS
	Kristen McWatters
	Executive Vice President, Chief Financial Officer
	and Treasurer

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

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

Exhibit 99.1

February 22, 2023

Mr. Russell W. Greco

Battalion Oil Corporation

3505 West Sam Houston Parkway North, Suite 300

Houston, Texas 77043

Dear Mr. Greco:

In accordance with your request, we have estimated the proved reserves and future revenue, as of December 31, 2022, to the Battalion Oil Corporation (Battalion) interest in certain oil and gas properties located in Oklahoma and Texas. We completed our evaluation on or about the date of this letter. It is our understanding that the proved reserves estimated in this report constitute all of the proved reserves owned by Battalion. The estimates in this report have been prepared in accordance with the definitions and regulations of the U.S. Securities and Exchange Commission (SEC) and, with the exception of the exclusion of future income taxes, conform to the FASB Accounting Standards Codification Topic 932, Extractive Activities—Oil and Gas. Definitions are presented immediately following this letter. This report has been prepared for Battalion's use in filing with the SEC; in our opinion the assumptions, data, methods, and procedures used in the preparation of this report are appropriate for such purpose.

We estimate the net reserves and future net revenue to the Battalion interest in these properties, as of December 31, 2022, to be:

	Net Reserves			Future Net Revenue⁽¹⁾ (M$)
	Oil	NGL	Gas		Present Worth
Category	(MBBL)	(MBBL)	(MMCF)	Total	at 10%

Proved Developed Producing	22,500.7	10,195.1	81,634.6	1,664,558.1	927,542.7
Proved Developed Shut-In	0.0	0.0	0.0	-4,487.5	-3,371.5
Proved Undeveloped	27,521.0	7,855.9	62,048.9	1,497,610.2	644,066.5

Total Proved	50,021.7	18,051.1	143,683.5	3,157,680.1	1,568,237.7

Totals may not add because of rounding.

⁽¹⁾ Future net revenue is after deducting estimated abandonment costs.

The oil volumes shown include crude oil and condensate. Oil and natural gas liquids (NGL) volumes are expressed in thousands of barrels (MBBL); a barrel is equivalent to 42 United States gallons. Gas volumes are expressed in millions of cubic feet (MMCF) at standard temperature and pressure bases.

Reserves categorization conveys the relative degree of certainty; reserves subcategorization is based on development and production status. As requested, probable and possible reserves that exist for these properties have not been included. The estimates of reserves and future revenue included herein have not been adjusted for risk. This report does not include any value that could be attributed to interests in undeveloped acreage beyond those tracts for which undeveloped reserves have been estimated.

Gross revenue is Battalion's share of the gross (100 percent) revenue from the properties prior to any deductions. Future net revenue is after deductions for Battalion's share of production taxes, ad valorem taxes, capital costs, abandonment costs, and operating expenses but before consideration of any income taxes. The future net revenue has been discounted at an annual rate of 10 percent to determine its present worth, which is shown to indicate the

effect of time on the value of money. Future net revenue presented in this report, whether discounted or undiscounted, should not be construed as being the fair market value of the properties.

Prices used in this report are based on the 12-month unweighted arithmetic average of the first-day-of-the-month price for each month in the period January through December 2022. For oil and NGL volumes, the average West Texas Intermediate spot price of $94.14 per barrel is adjusted for quality, transportation fees, and market differentials. The oil differentials for the Monument Draw Area have been adjusted for existing contractual agreements. For gas volumes, the average Henry Hub spot price of $6.357 per MMBTU is adjusted for energy content, transportation fees, and market differentials. All prices are held constant throughout the lives of the properties. The average adjusted product prices weighted by production over the remaining lives of the properties are $94.46 per barrel of oil, $37.42 per barrel of NGL, and $4.835 per MCF of gas.

Operating costs used in this report are based on operating expense records of Battalion. These costs include the per-well overhead expenses allowed under joint operating agreements along with estimates of costs to be incurred at and below the district and field levels. Operating costs have been divided into midstream-level costs, per-well costs, and per-unit-of-production costs. Headquarters general and administrative overhead expenses of Battalion are included to the extent that they are covered under joint operating agreements for the operated properties. Operating costs are not escalated for inflation.

Capital costs used in this report were provided by Battalion and are based on authorizations for expenditure and actual costs from recent activity. Capital costs are included as required for new development wells, production equipment, and facilities. Based on our understanding of future development plans, a review of the records provided to us, and our knowledge of similar properties, we regard these estimated capital costs to be reasonable. Abandonment costs used in this report are Battalion's estimates of the costs to abandon the wells and production facilities, net of any salvage value. Capital costs and abandonment costs are not escalated for inflation.

For the purposes of this report, we did not perform any field inspection of the properties, nor did we examine the mechanical operation or condition of the wells and facilities. We have not investigated possible environmental liability related to the properties; therefore, our estimates do not include any costs due to such possible liability.

We have made no investigation of potential volume and value imbalances resulting from overdelivery or underdelivery to the Battalion interest. Therefore, our estimates of reserves and future revenue do not include adjustments for the settlement of any such imbalances; our projections are based on Battalion receiving its net revenue interest share of estimated future gross production. Additionally, we have made no specific investigation of any firm transportation contracts that may be in place for these properties; our estimates of future revenue include the effects of such contracts only to the extent that the associated fees are accounted for in the historical field- and lease-level accounting statements.

The reserves shown in this report are estimates only and should not be construed as exact quantities. Proved reserves are those quantities of oil and gas which, by analysis of engineering and geoscience data, can be estimated with reasonable certainty to be economically producible; probable and possible reserves are those additional reserves which are sequentially less certain to be recovered than proved reserves. Estimates of reserves may increase or decrease as a result of market conditions, future operations, changes in regulations, or actual reservoir performance. In addition to the primary economic assumptions discussed herein, our estimates are based on certain assumptions including, but not limited to, that the properties will be developed consistent with current development plans as provided to us by Battalion, that the properties will be operated in a prudent manner, that no governmental regulations or controls will be put in place that would impact the ability of the interest owner to recover the reserves, and that our projections of future production will prove consistent with actual performance. If the reserves are recovered, the revenues therefrom and the costs related thereto could be more or less than the estimated amounts. Because of governmental policies and uncertainties of supply and demand, the sales rates, prices received for the reserves, and costs incurred in recovering such reserves may vary from assumptions made while preparing this report.

For the purposes of this report, we used technical and economic data including, but not limited to, well logs, geologic maps, well test data, production data, historical price and cost information, and property ownership interests. The reserves in this report have been estimated using deterministic methods; these estimates have been prepared in accordance with the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers (SPE Standards). We used standard engineering and geoscience methods, or a combination of methods, including performance analysis and analogy, that we considered to be appropriate and necessary to categorize and estimate reserves in accordance with SEC definitions and regulations. A substantial portion of these reserves are for undeveloped locations; such reserves are based on analogy to properties with similar geologic and reservoir characteristics. As in all aspects of oil and gas evaluation, there are uncertainties inherent in the interpretation of engineering and geoscience data; therefore, our conclusions necessarily represent only informed professional judgment.

The data used in our estimates were obtained from Battalion, public data sources, and the nonconfidential files of Netherland, Sewell & Associates, Inc. (NSAI) and were accepted as accurate. Supporting work data are on file in our office. We have not examined the titles to the properties or independently confirmed the actual degree or type of interest owned. The technical persons primarily responsible for preparing the estimates presented herein meet the requirements regarding qualifications, independence, objectivity, and confidentiality set forth in the SPE Standards. Neil H. Little, a Licensed Professional Engineer in the State of Texas, has been practicing consulting petroleum engineering at NSAI since 2011 and has over 9 years of prior industry experience. Edward C. Roy III, a Licensed Professional Geoscientist in the State of Texas, has been practicing consulting petroleum geoscience at NSAI since 2008 and has over 11 years of prior industry experience. We are independent petroleum engineers, geologists, geophysicists, and petrophysicists; we do not own an interest in these properties nor are we employed on a contingent basis.

Sincerely,

NETHERLAND, SEWELL & ASSOCIATES, INC.

Texas Registered Engineering Firm F-2699

/s/ C.H. (Scott) Rees III

By: ‌

C.H. (Scott) Rees III, P.E.

Executive Chairman

/s/ Neil H. Little/s/ Edward C. Roy III

By: By: ‌

Neil H. Little, P.E. 117966Edward C. Roy III, P.G. 2364

Vice PresidentVice President

Date Signed: February 22, 2023Date Signed: February 22, 2023

NHL:SMD

DEFINITIONS OF OIL AND GAS RESERVES

Adapted from U.S. Securities and Exchange Commission Regulation S-X Section 210.4-10(a)

The following definitions are set forth in U.S. Securities and Exchange Commission (SEC) Regulation S-X Section 210.4-10(a). Also included is supplemental information from (1) the 2018 Petroleum Resources Management System approved by the Society of Petroleum Engineers, (2) the FASB Accounting Standards Codification Topic 932, Extractive Activities—Oil and Gas, and (3) the SEC's Compliance and Disclosure Interpretations.

(1) Acquisition of properties. Costs incurred to purchase, lease or otherwise acquire a property, including costs of lease bonuses and options to purchase or lease properties, the portion of costs applicable to minerals when land including mineral rights is purchased in fee, brokers' fees, recording fees, legal costs, and other costs incurred in acquiring properties.

(2) Analogous reservoir. Analogous reservoirs, as used in resources assessments, have similar rock and fluid properties, reservoir conditions (depth, temperature, and pressure) and drive mechanisms, but are typically at a more advanced stage of development than the reservoir of interest and thus may provide concepts to assist in the interpretation of more limited data and estimation of recovery. When used to support proved reserves, an "analogous reservoir" refers to a reservoir that shares the following characteristics with the reservoir of interest:

(i)

Same geological formation (but not necessarily in pressure communication with the reservoir of interest);

(ii)

Same environment of deposition;

(iii)

Similar geological structure; and

(iv)

Same drive mechanism.

Instruction to paragraph (a)(2): Reservoir properties must, in the aggregate, be no more favorable in the analog than in the reservoir of interest.

(3) Bitumen. Bitumen, sometimes referred to as natural bitumen, is petroleum in a solid or semi-solid state in natural deposits with a viscosity greater than 10,000 centipoise measured at original temperature in the deposit and atmospheric pressure, on a gas free basis. In its natural state it usually contains sulfur, metals, and other non-hydrocarbons.

(4) Condensate. Condensate is a mixture of hydrocarbons that exists in the gaseous phase at original reservoir temperature and pressure, but that, when produced, is in the liquid phase at surface pressure and temperature.

(5) Deterministic estimate. The method of estimating reserves or resources is called deterministic when a single value for each parameter (from the geoscience, engineering, or economic data) in the reserves calculation is used in the reserves estimation procedure.

(6) Developed oil and gas reserves. Developed oil and gas reserves are reserves of any category that can be expected to be recovered:

(i)

Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared to the cost of a new well; and

(ii)

Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not involving a well.

Supplemental definitions from the 2018 Petroleum Resources Management System:

Developed Producing Reserves – Expected quantities to be recovered from completion intervals that are open and producing at the effective date of the estimate. Improved recovery Reserves are considered producing only after the improved recovery project is in operation.

Developed Non-Producing Reserves – Shut-in and behind-pipe Reserves. Shut-in Reserves are expected to be recovered from (1) completion intervals that are open at the time of the estimate but which have not yet started producing, (2) wells which were shut-in for market conditions or pipeline connections, or (3) wells not capable of production for mechanical reasons. Behind-pipe Reserves are expected to be recovered from zones in existing wells that will require additional completion work or future re-completion before start of production with minor cost to access these reserves. In all cases, production can be initiated or restored with relatively low expenditure compared to the cost of drilling a new well.

(7) Development costs. Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and gas. More specifically, development costs, including depreciation and applicable operating costs of support equipment and facilities and other costs of development activities, are costs incurred to:

(i)

Gain access to and prepare well locations for drilling, including surveying well locations for the purpose of determining specific development drilling sites, clearing ground, draining, road building, and relocating public roads, gas lines, and power lines, to the extent necessary in developing the proved reserves.

(ii)

Drill and equip development wells, development-type stratigraphic test wells, and service wells, including the costs of platforms and of well equipment such as casing, tubing, pumping equipment, and the wellhead assembly.

Definitions - Page 1 of 6

DEFINITIONS OF OIL AND GAS RESERVES

Adapted from U.S. Securities and Exchange Commission Regulation S-X Section 210.4-10(a)

(iii)

Acquire, construct, and install production facilities such as lease flow lines, separators, treaters, heaters, manifolds, measuring devices, and production storage tanks, natural gas cycling and processing plants, and central utility and waste disposal systems.

(iv)

Provide improved recovery systems.

(8) Development project. A development project is the means by which petroleum resources are brought to the status of economically producible. As examples, the development of a single reservoir or field, an incremental development in a producing field, or the integrated development of a group of several fields and associated facilities with a common ownership may constitute a development project.

(9) Development well. A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive.

(10) Economically producible. The term economically producible, as it relates to a resource, means a resource which generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation. The value of the products that generate revenue shall be determined at the terminal point of oil and gas producing activities as defined in paragraph (a)(16) of this section.

(11) Estimated ultimate recovery (EUR). Estimated ultimate recovery is the sum of reserves remaining as of a given date and cumulative production as of that date.

(12) Exploration costs. Costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects of containing oil and gas reserves, including costs of drilling exploratory wells and exploratory-type stratigraphic test wells. Exploration costs may be incurred both before acquiring the related property (sometimes referred to in part as prospecting costs) and after acquiring the property. Principal types of exploration costs, which include depreciation and applicable operating costs of support equipment and facilities and other costs of exploration activities, are:

(i)

Costs of topographical, geographical and geophysical studies, rights of access to properties to conduct those studies, and salaries and other expenses of geologists, geophysical crews, and others conducting those studies. Collectively, these are sometimes referred to as geological and geophysical or "G&G" costs.

(ii)

Costs of carrying and retaining undeveloped properties, such as delay rentals, ad valorem taxes on properties, legal costs for title defense, and the maintenance of land and lease records.

(iii)

Dry hole contributions and bottom hole contributions.

(iv)

Costs of drilling and equipping exploratory wells.

(v)

Costs of drilling exploratory-type stratigraphic test wells.

(13) Exploratory well. An exploratory well is a well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir. Generally, an exploratory well is any well that is not a development well, an extension well, a service well, or a stratigraphic test well as those items are defined in this section.

(14) Extension well. An extension well is a well drilled to extend the limits of a known reservoir.

(15) Field. An area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature and/or stratigraphic condition. There may be two or more reservoirs in a field which are separated vertically by intervening impervious strata, or laterally by local geologic barriers, or by both. Reservoirs that are associated by being in overlapping or adjacent fields may be treated as a single or common operational field. The geological terms "structural feature" and "stratigraphic condition" are intended to identify localized geological features as opposed to the broader terms of basins, trends, provinces, plays, areas-of-interest, etc.

(16) Oil and gas producing activities.

(i)

Oil and gas producing activities include:

(A)

The search for crude oil, including condensate and natural gas liquids, or natural gas ("oil and gas") in their natural states and original locations;

(B)

The acquisition of property rights or properties for the purpose of further exploration or for the purpose of removing the oil or gas from such properties;

(C)

The construction, drilling, and production activities necessary to retrieve oil and gas from their natural reservoirs, including the acquisition, construction, installation, and maintenance of field gathering and storage systems, such as:

(1)

Lifting the oil and gas to the surface; and

(2)

Gathering, treating, and field processing (as in the case of processing gas to extract liquid hydrocarbons); and

Definitions - Page 2 of 6

DEFINITIONS OF OIL AND GAS RESERVES

Adapted from U.S. Securities and Exchange Commission Regulation S-X Section 210.4-10(a)

(D)

Extraction of saleable hydrocarbons, in the solid, liquid, or gaseous state, from oil sands, shale, coalbeds, or other nonrenewable natural resources which are intended to be upgraded into synthetic oil or gas, and activities undertaken with a view to such extraction.

Instruction 1 to paragraph (a)(16)(i): The oil and gas production function shall be regarded as ending at a "terminal point", which is the outlet valve on the lease or field storage tank. If unusual physical or operational circumstances exist, it may be appropriate to regard the terminal point for the production function as:

The first point at which oil, gas, or gas liquids, natural or synthetic, are delivered to a main pipeline, a common carrier, a refinery, or a marine terminal; and

In the case of natural resources that are intended to be upgraded into synthetic oil or gas, if those natural resources are delivered to a purchaser prior to upgrading, the first point at which the natural resources are delivered to a main pipeline, a common carrier, a refinery, a marine terminal, or a facility which upgrades such natural resources into synthetic oil or gas.

Instruction 2 to paragraph (a)(16)(i): For purposes of this paragraph (a)(16), the term saleable hydrocarbons means hydrocarbons that are saleable in the state in which the hydrocarbons are delivered.

(ii)

Oil and gas producing activities do not include:

(A)

Transporting, refining, or marketing oil and gas;

(B)

Processing of produced oil, gas, or natural resources that can be upgraded into synthetic oil or gas by a registrant that does not have the legal right to produce or a revenue interest in such production;

(C)

Activities relating to the production of natural resources other than oil, gas, or natural resources from which synthetic oil and gas can be extracted; or

(D)

Production of geothermal steam.

(17) Possible reserves. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves.

(i)

When deterministic methods are used, the total quantities ultimately recovered from a project have a low probability of exceeding proved plus probable plus possible reserves. When probabilistic methods are used, there should be at least a 10% probability that the total quantities ultimately recovered will equal or exceed the proved plus probable plus possible reserves estimates.

(ii)

Possible reserves may be assigned to areas of a reservoir adjacent to probable reserves where data control and interpretations of available data are progressively less certain. Frequently, this will be in areas where geoscience and engineering data are unable to define clearly the area and vertical limits of commercial production from the reservoir by a defined project.

(iii)

Possible reserves also include incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than the recovery quantities assumed for probable reserves.

(iv)

The proved plus probable and proved plus probable plus possible reserves estimates must be based on reasonable alternative technical and commercial interpretations within the reservoir or subject project that are clearly documented, including comparisons to results in successful similar projects.

(v)

Possible reserves may be assigned where geoscience and engineering data identify directly adjacent portions of a reservoir within the same accumulation that may be separated from proved areas by faults with displacement less than formation thickness or other geological discontinuities and that have not been penetrated by a wellbore, and the registrant believes that such adjacent portions are in communication with the known (proved) reservoir. Possible reserves may be assigned to areas that are structurally higher or lower than the proved area if these areas are in communication with the proved reservoir.

(vi)

Pursuant to paragraph (a)(22)(iii) of this section, where direct observation has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves should be assigned in the structurally higher portions of the reservoir above the HKO only if the higher contact can be established with reasonable certainty through reliable technology. Portions of the reservoir that do not meet this reasonable certainty criterion may be assigned as probable and possible oil or gas based on reservoir fluid properties and pressure gradient interpretations.

(18) Probable reserves. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves but which, together with proved reserves, are as likely as not to be recovered.

(i)

When deterministic methods are used, it is as likely as not that actual remaining quantities recovered will exceed the sum of estimated proved plus probable reserves. When probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable reserves estimates.

Definitions - Page 3 of 6

DEFINITIONS OF OIL AND GAS RESERVES

Adapted from U.S. Securities and Exchange Commission Regulation S-X Section 210.4-10(a)

(ii)

Probable reserves may be assigned to areas of a reservoir adjacent to proved reserves where data control or interpretations of available data are less certain, even if the interpreted reservoir continuity of structure or productivity does not meet the reasonable certainty criterion. Probable reserves may be assigned to areas that are structurally higher than the proved area if these areas are in communication with the proved reservoir.

(iii)

Probable reserves estimates also include potential incremental quantities associated with a greater percentage recovery of the hydrocarbons in place than assumed for proved reserves.

(iv)

See also guidelines in paragraphs (a)(17)(iv) and (a)(17)(vi) of this section.

(19) Probabilistic estimate. The method of estimation of reserves or resources is called probabilistic when the full range of values that could reasonably occur for each unknown parameter (from the geoscience and engineering data) is used to generate a full range of possible outcomes and their associated probabilities of occurrence.

(20) Production costs.

(i)

Costs incurred to operate and maintain wells and related equipment and facilities, including depreciation and applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities. They become part of the cost of oil and gas produced. Examples of production costs (sometimes called lifting costs) are:

(A)

Costs of labor to operate the wells and related equipment and facilities.

(B)

Repairs and maintenance.

(C)

Materials, supplies, and fuel consumed and supplies utilized in operating the wells and related equipment and facilities.

(D)

Property taxes and insurance applicable to proved properties and wells and related equipment and facilities.

(E)

Severance taxes.

(ii)

Some support equipment or facilities may serve two or more oil and gas producing activities and may also serve transportation, refining, and marketing activities. To the extent that the support equipment and facilities are used in oil and gas producing activities, their depreciation and applicable operating costs become exploration, development or production costs, as appropriate. Depreciation, depletion, and amortization of capitalized acquisition, exploration, and development costs are not production costs but also become part of the cost of oil and gas produced along with production (lifting) costs identified above.

(21) Proved area. The part of a property to which proved reserves have been specifically attributed.

(22) Proved oil and gas reserves. Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

(i)

The area of the reservoir considered as proved includes:

(A)

The area identified by drilling and limited by fluid contacts, if any, and

(B)

Adjacent undrilled portions of the reservoir that can, with reasonable certainty, be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.

(ii)

In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.

(iii)

Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap, proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable technology establish the higher contact with reasonable certainty.

(iv)

Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are included in the proved classification when:

(A)

Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering analysis on which the project or program was based; and

Definitions - Page 4 of 6

DEFINITIONS OF OIL AND GAS RESERVES

Adapted from U.S. Securities and Exchange Commission Regulation S-X Section 210.4-10(a)

(B)

The project has been approved for development by all necessary parties and entities, including governmental entities.

(v)

Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average price during the 12-month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions.

(23) Proved properties. Properties with proved reserves.

(24) Reasonable certainty. If deterministic methods are used, reasonable certainty means a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate. A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to estimated ultimate recovery (EUR) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease.

(25) Reliable technology. Reliable technology is a grouping of one or more technologies (including computational methods) that has been field tested and has been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.

(26) Reserves. Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

Note to paragraph (a)(26): Reserves should not be assigned to adjacent reservoirs isolated by major, potentially sealing, faults until those reservoirs are penetrated and evaluated as economically producible. Reserves should not be assigned to areas that are clearly separated from a known accumulation by a non-productive reservoir (i.e., absence of reservoir, structurally low reservoir, or negative test results). Such areas may contain prospective resources (i.e., potentially recoverable resources from undiscovered accumulations).

Excerpted from the FASB Accounting Standards Codification Topic 932, Extractive Activities—Oil and Gas:

932-235-50-30 A standardized measure of discounted future net cash flows relating to an entity's interests in both of the following shall be disclosed as of the end of the year:

a.Proved oil and gas reserves (see paragraphs 932-235-50-3 through 50-11B)

b.Oil and gas subject to purchase under long-term supply, purchase, or similar agreements and contracts in which the entity participates in the operation of the properties on which the oil or gas is located or otherwise serves as the producer of those reserves (see paragraph 932-235-50-7).

The standardized measure of discounted future net cash flows relating to those two types of interests in reserves may be combined for reporting purposes.

932-235-50-31 All of the following information shall be disclosed in the aggregate and for each geographic area for which reserve quantities are disclosed in accordance with paragraphs 932-235-50-3 through 50-11B:

a.Future cash inflows. These shall be computed by applying prices used in estimating the entity's proved oil and gas reserves to the year-end quantities of those reserves. Future price changes shall be considered only to the extent provided by contractual arrangements in existence at year-end.

b.Future development and production costs. These costs shall be computed by estimating the expenditures to be incurred in developing and producing the proved oil and gas reserves at the end of the year, based on year-end costs and assuming continuation of existing economic conditions. If estimated development expenditures are significant, they shall be presented separately from estimated production costs.

c.Future income tax expenses. These expenses shall be computed by applying the appropriate year-end statutory tax rates, with consideration of future tax rates already legislated, to the future pretax net cash flows relating to the entity's proved oil and gas reserves, less the tax basis of the properties involved. The future income tax expenses shall give effect to tax deductions and tax credits and allowances relating to the entity's proved oil and gas reserves.

d.Future net cash flows. These amounts are the result of subtracting future development and production costs and future income tax expenses from future cash inflows.

Definitions - Page 5 of 6

DEFINITIONS OF OIL AND GAS RESERVES

Adapted from U.S. Securities and Exchange Commission Regulation S-X Section 210.4-10(a)

e.Discount. This amount shall be derived from using a discount rate of 10 percent a year to reflect the timing of the future net cash flows relating to proved oil and gas reserves.

f.Standardized measure of discounted future net cash flows. This amount is the future net cash flows less the computed discount.

(27) Reservoir. A porous and permeable underground formation containing a natural accumulation of producible oil and/or gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

(28) Resources. Resources are quantities of oil and gas estimated to exist in naturally occurring accumulations. A portion of the resources may be estimated to be recoverable, and another portion may be considered to be unrecoverable. Resources include both discovered and undiscovered accumulations.

(29) Service well. A well drilled or completed for the purpose of supporting production in an existing field. Specific purposes of service wells include gas injection, water injection, steam injection, air injection, salt-water disposal, water supply for injection, observation, or injection for in-situ combustion.

(30) Stratigraphic test well. A stratigraphic test well is a drilling effort, geologically directed, to obtain information pertaining to a specific geologic condition. Such wells customarily are drilled without the intent of being completed for hydrocarbon production. The classification also includes tests identified as core tests and all types of expendable holes related to hydrocarbon exploration. Stratigraphic tests are classified as "exploratory type" if not drilled in a known area or "development type" if drilled in a known area.

(31) Undeveloped oil and gas reserves. Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion.

(i)

Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled, unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.

(ii)

Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be drilled within five years, unless the specific circumstances, justify a longer time.

From the SEC's Compliance and Disclosure Interpretations (October 26, 2009):

Although several types of projects — such as constructing offshore platforms and development in urban areas, remote locations or environmentally sensitive locations — by their nature customarily take a longer time to develop and therefore often do justify longer time periods, this determination must always take into consideration all of the facts and circumstances. No particular type of project per se justifies a longer time period, and any extension beyond five years should be the exception, and not the rule.

Factors that a company should consider in determining whether or not circumstances justify recognizing reserves even though development may extend past five years include, but are not limited to, the following:

●The company's level of ongoing significant development activities in the area to be developed (for example, drilling only the minimum number of wells necessary to maintain the lease generally would not constitute significant development activities);

●The company's historical record at completing development of comparable long-term projects;

●The amount of time in which the company has maintained the leases, or booked the reserves, without significant development activities;

●The extent to which the company has followed a previously adopted development plan (for example, if a company has changed its development plan several times without taking significant steps to implement any of those plans, recognizing proved undeveloped reserves typically would not be appropriate); and

●The extent to which delays in development are caused by external factors related to the physical operating environment (for example, restrictions on development on Federal lands, but not obtaining government permits), rather than by internal factors (for example, shifting resources to develop properties with higher priority).

(iii)

Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous reservoir, as defined in paragraph (a)(2) of this section, or by other evidence using reliable technology establishing reasonable certainty.

(32) Unproved properties. Properties with no proved reserves.

Definitions - Page 6 of 6

Document and Entity Information - USD ($)
$ in Millions

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
shares in Thousands, $ in Thousands

CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($)
$ in Thousands

Additional Paid-In Capital

Retained Earnings (Accumulated Deficit)

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands

SUMMARY OF SIGNIFICANT EVENTS AND ACCOUNTING POLICIES

OPERATING REVENUES

- Definition

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
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+ Details

OIL AND NATURAL GAS PROPERTIES

(1)	In 2019, with the adoption of fresh-start accounting, the Company’s unevaluated properties were recorded at fair value.

The ceiling test value of the Company’s reserves was calculated based on the following prices:


	West Texas Intermediate (per barrel) ⁽¹⁾		Henry Hub (per MMBtu) ⁽¹⁾
December 31, 2022	$	94.14	$	6.36
December 31, 2021		66.55	$	3.60

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

(1)	As of December 31, 2022, amount primarily reflects amortization payments of $35.0 million under the Amended Term Loan Agreement due within one year. As of December 31, 2021, amount represents the balance owed under the Paycheck Protection Program Loan.

(2)

Term Loan Credit Facility

On November 24, 2021, the Company and its wholly owned subsidiary, Halcón Holdings, LLC (Borrower) entered into an Amended and Restated Senior Secured Credit Agreement (Term Loan Agreement) with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders. The Term Loan Agreement amended and restated in its entirety the senior secured revolving credit agreement, as amended, (the Senior Credit Agreement) entered into in 2019.

●

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

●


Period (after amendment date)			Premium
Months 0 - 12			Make-whole amount equal to 12 months of interest plus 2.00%
Months 13 - 24			2.00%
Thereafter			0.00%

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

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

●

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

●

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

●

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

Debt Maturities

Aggregate maturities required on debt at December 31, 2022 due in future years are as follows (in thousands):


2023	$	35,067
2024		50,067
2025		150,056
Total	$	235,190

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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+ Details

FAIR VALUE MEASUREMENTS

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

DERIVATIVE AND HEDGING ACTIVITIES

The following table summarizes the location and fair value amounts of all derivative contracts in the consolidated balance sheets as of December 31, 2022 and 2021 (in thousands):


	Years Ended December 31,					Years Ended December 31,
Balance sheet location	2022		2021		Balance sheet location	2022		2021
Current assets	$	16,244	$	1,383	Current liabilities	$	(29,286)	$	(58,322)
Other noncurrent assets		5,379		2,515	Other noncurrent liabilities		(33,649)		(7,144)
	$	21,623	$	3,898		$	(62,935)	$	(65,466)


	Location of gain or (loss)
	on derivative contracts on	Years Ended December 31,
Type	Statement of Operations	2022		2021
Commodity contracts:
Unrealized gain (loss)	Other income (expenses)	$	20,256	$	(47,721)
Realized gain (loss)	Other income (expenses)		(130,262)		(77,898)
Total net gain (loss)		$	(110,006)	$	(125,619)

At December 31, 2022, the Company had the following open crude oil and natural gas derivative contracts:


Instrument		2023		2024		2025		2026
Crude oil:
Fixed-price swap:
Total volumes (Bbls)		2,430,183		1,812,285		1,172,171		711,741
Weighted average price	$	69.17	$	63.75	$	60.88	$	64.19
Basis swap:
Total volumes (Bbls)		2,586,562		1,810,056		1,172,171		711,741
Weighted average price	$	0.40	$	0.27	$	0.16	$	0.09
WTI NYMEX roll:
Total volumes (Bbls)		2,490,458		1,733,719		1,172,171		711,741
Weighted average price	$	0.58	$	0.30	$	0.13	$	0.18
Natural gas:
Fixed-price swap:
Total volumes (MMBtu)		5,236,373		4,271,034		3,451,713		1,829,816
Weighted average price	$	3.75	$	3.54	$	3.33	$	4.03
Two-way collar:
Total volumes (MMBtu)		2,545,828		2,167,139		1,052,153		895,562
Weighted average price (call)	$	6.19	$	5.17	$	5.05	$	4.86
Weighted average price (put)	$	4.50	$	3.74	$	3.72	$	4.03
Basis swap:
Total volumes (MMBtu)		7,565,173		6,438,122		4,477,126		2,725,378
Weighted average price	$	(0.83)	$	(0.85)	$	(0.64)	$	(0.75)


	Derivative Assets				Derivative Liabilities
	Years Ended December 31,				Years Ended December 31,
Offsetting of Derivative Assets and Liabilities	2022		2021		2022		2021

Gross Amounts - Consolidated Balance Sheet	$	21,623	$	3,898	$	(62,935)	$	(65,466)
Amounts Not Offset - Consolidated Balance Sheet		(20,997)		(3,898)		20,997		3,898
Net amount	$	626	$	—	$	(41,938)	$	(61,568)

ASSET RETIREMENT OBLIGATIONS

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY

(1)

●


	Year Ended
	December 31, 2020
Weighted average value per performance based RSUs granted during the period	$	6.13
Assumptions:
Stock price volatility⁽¹⁾		51.79	%
Risk free rate of return		1.22	%
Expected term		3.9	years

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

Stock Options

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


	Year Ended
	December 31, 2020
Weighted average value per option granted during the period	$	3.36
Assumptions:
Stock price volatility⁽¹⁾		61.87	%
Risk free rate of return		1.21	%
Expected term		4.75	years

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

Warrants

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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+ Details

EARNINGS PER SHARE

		PAGE
PART I
ITEM 1.	Business	8
ITEM 1A.	Risk factors	21
ITEM 1B.	Unresolved staff comments	35
ITEM 2.	Properties	35
ITEM 3.	Legal proceedings	36
ITEM 4.	Mine safety disclosures	36
PART II
ITEM 5.	Market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities	36
ITEM 6.	Reserved	36
ITEM 7.	Management’s discussion and analysis of financial condition and results of operations	37
ITEM 7A.	Quantitative and qualitative disclosures about market risk	48
ITEM 8.	Consolidated financial statements and supplementary data	49
ITEM 9.	Changes in and disagreements with accountants on accounting and financial disclosure	86
ITEM 9A.	Controls and procedures	86
ITEM 9B.	Other information	86
ITEM 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	88
PART III
ITEM 10.	Directors, executive officers and corporate governance	89
ITEM 11.	Executive compensation	89
ITEM 12.	Security ownership of certain beneficial owners and management and related stockholder matters	89
ITEM 13.	Certain relationships and related transactions, and director independence	89
ITEM 14.	Principal accountant fees and services	90
PART IV
ITEM 15.	Exhibits and financial statements schedules	90
ITEM 16.	Form 10-K Summary	91

2.1		Order of the Bankruptcy Court, dated September 24 2019, confirming the Joint Prepackaged Plan of Reorganization of Halcón Resources Corporation, et al, under Chapter 11 of the Bankruptcy Code, together with such Joint Prepackaged Plan of Reorganization (Incorporated by reference to Exhibit 2.1 of our Current Report on Form 8-K filed September 26, 2019).
3.1		Amended and Restated Certificate of Incorporation of Battalion Oil Corporation (formerly Halcón Resources Corporation) dated October 8, 2019, as amended by the Certificate of Amendment, dated January 21, 2020 (Incorporated by reference to Exhibit 3.1 of our Annual Report on Form 10-K filed March 25, 2020).
3.1.1	^*	Certificate of Designations of Series A Redeemable Convertible Preferred Stock dated effective March 24, 2023
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).
4.1		Description of Battalion Oil Corporation’s securities registered under Section 12 of the Exchange Act. (Incorporated by reference to Exhibit 4.1 of our Annual Report on Form 10-K filed March 25, 2020).
10.1		Amended and Restated Senior Secured Credit Agreement dated as of November 24, 2021, by and among Battalion Oil Corporation, as holdings, Halcón Holdings LLC, as borrower, the subsidiary guarantors party thereto, Macquarie Bank Limited, as administrative agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed November 29, 2021).
10.1.1		Second Amendment to Amended and Restated Senior Secured Credit Agreement dated as of November 14, 2022, by and among Halcón Holdings, LLC, as borrower, Macquarie Bank Limited, as administrative agent and the lenders party hereto, the guarantors party hereto and Battalion Oil Corporation, as holdings (Incorporated by reference to Exhibit 10.1.1 of our Quarterly Report on Form 10-Q filed November 14, 2022).
10.2		Warrant Agreement, dated as of October 8, 2019, by and between Halcón Resources Corporation and Broadridge Corporate Issuer Solutions, Inc., as warrant agent (Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed October 8, 2019).
10.3		Registration Rights Agreement, dated as of October 8, 2019, by and among Halcón Resources Corporation and each of the parties thereto, as investors (Incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K filed October 8, 2019).
10.3.1	^*	First Amendment to Registration Rights Agreement dated March 28, 2023, by and among Battalion Oil Corporation and each of the parties thereto, as investors.

10.4	^†	Battalion Oil Corporation 2020 Long-Term Incentive Plan, effective as of January 1, 2020 (Incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed January 31, 2020).
10.5	^†	Employment Agreement between Richard H. Little and Battalion Oil Corporation effective as of January 28, 2020 (Incorporated by reference to Exhibit 10.5 of our Annual Report on Form 10-K filed March 25, 2020).
10.6	^†	Employment Agreement between Daniel P. Rohling and Battalion Oil Corporation effective as of January 28, 2020 (Incorporated by reference to Exhibit 10.7 of our Annual Report on Form 10-K filed March 25, 2020).
10.7	^*†	Offer Letter with Kristen McWatters dated January 20, 2023
10.8	^*	Purchase Agreement, dated March 28, 2023, by and among Battalion Oil Corporation and each of the purchasers set forth on Schedule A thereto.
10.22	^†	Form of Nonqualified Stock Option Award Agreement (Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed January 31, 2020).
10.23	^†	Form of Base Restricted Stock Unit Award Agreement (Incorporated by reference to Exhibit 10.3 of our Current Report on Form 8-K filed January 31, 2020).
10.24	^†	Form of Performance-Based Restricted Stock Unit Award Agreement (Incorporated by reference to Exhibit 10.4 of our Current Report on Form 8-K filed January 31, 2020).
10.25	^†	Form of M&A Restricted Stock Unit Award Agreement (Incorporated by reference to Exhibit 10.5 of our Current Report on Form 8-K filed January 31, 2020).
21.1	^*	List of Subsidiaries of Battalion Oil Corporation
31.1	^*	Sarbanes-Oxley Section 302 certification of Principal Executive Officer
31.2	^*	Sarbanes-Oxley Section 302 certification of Principal Financial Officer
32	^*	Sarbanes-Oxley Section 906 certification of Principal Executive Officer and Principal Financial Officer
99.1	^*	Report of Netherland, Sewell & Associates, Inc.
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)

Document and Entity Information - USD ($) $ in Millions	12 Months Ended
Document and Entity Information - USD ($) $ in Millions	Dec. 31, 2022	Mar. 27, 2023	Jun. 30, 2022
Cover [Abstract]
Document Type	10-K
Document Annual Report	true
Document Transition Report	false
Document Period End Date	Dec. 31, 2022
Entity Tax Identification Number	20-0700684
Entity Registrant Name	Battalion Oil Corp
Entity Incorporation, State or Country Code	DE
Entity File Number	001-35467
Entity Address, Address Line One	3505 West Sam Houston Parkway North
Entity Address, Address Line Two	Suite 300
Entity Address, City or Town	Houston
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	77043
City Area Code	832
Local Phone Number	538-0300
Title of 12(b) Security	Common Stock par value $0.0001
Trading Symbol	BATL
Security Exchange Name	NYSEAMER
Amendment Flag	false
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
ICFR Auditor Attestation Flag	false
Entity Shell Company	false
Entity Public Float			$ 31.9
Entity Common Stock, Shares Outstanding		16,450,407
Current Fiscal Year End Date	--12-31
Entity Central Index Key	0001282648
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	FY
Auditor Name	DELOITTE & TOUCHE LLP
Auditor Firm ID	34
Auditor Location	Houston, Texas

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Oil, natural gas and natural gas liquids sales:
Total oil, natural gas and natural gas liquids sales	$ 357,401	$ 284,154
Other	1,663	1,051
Total operating revenues	359,064	285,205
Production:
Lease operating	48,095	43,977
Workover and other	6,683	3,224
Taxes other than income	18,483	12,312
Gathering and other	64,117	60,396
General and administrative	17,635	16,514
Depletion, depreciation and accretion	51,915	45,408
Total operating expenses	206,928	181,831
Income (loss) from operations	152,136	103,374
Other income (expenses):
Net gain (loss) on derivative contracts	(110,006)	(125,619)
Interest expense and other	(23,591)	(8,018)
Gain (loss) on extinguishment of debt		1,946
Total other income (expenses)	(133,597)	(131,691)
Income (loss) before income taxes	18,539	(28,317)
Income tax benefit (provision)	0	0
Net income (loss)	$ 18,539	$ (28,317)
Net income (loss) per share of common stock:
Basic (in dollars per share)	$ 1.14	$ (1.74)
Diluted (in dollars per share)	$ 1.12	$ (1.74)
Weighted average common shares outstanding:
Basic (in shares)	16,331	16,261
Diluted (in shares)	16,510	16,261
Oil
Oil, natural gas and natural gas liquids sales:
Total oil, natural gas and natural gas liquids sales	$ 267,690	$ 213,512
Natural gas
Oil, natural gas and natural gas liquids sales:
Total oil, natural gas and natural gas liquids sales	46,210	35,248
NGLs
Oil, natural gas and natural gas liquids sales:
Total oil, natural gas and natural gas liquids sales	$ 43,501	$ 35,394

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 32,726	$ 46,864
Accounts receivable, net	37,974	36,806
Assets from derivative contracts	16,244	1,383
Restricted cash	90	1,495
Prepaids and other	1,131	1,366
Total current assets	88,165	87,914
Oil and natural gas properties (full cost method):
Subject to depletion	713,585	569,886
Unevaluated	62,621	64,305
Gross oil and natural gas properties	776,206	634,191
Less - accumulated depletion	(390,796)	(339,776)
Net oil and natural gas properties	385,410	294,415
Other operating property and equipment:
Other operating property and equipment	4,434	3,467
Less - accumulated depreciation	(1,209)	(1,035)
Net other operating property and equipment	3,225	2,432
Other noncurrent assets:
Assets from derivative contracts	5,379	2,515
Operating lease right of use assets	352	721
Other assets	2,827	2,270
Total assets	485,358	390,267
Current liabilities:
Accounts payable and accrued liabilities	100,095	62,826
Liabilities from derivative contracts	29,286	58,322
Current portion of long-term debt	35,067	85
Operating lease liabilities	352	369
Asset retirement obligations	225
Total current liabilities	165,025	121,602
Long-term debt, net	182,676	181,565
Other noncurrent liabilities:
Liabilities from derivative contracts	33,649	7,144
Asset retirement obligations	15,244	11,896
Operating lease liabilities		352
Other	4,136	4,003
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock: 100,000,000 shares of $0.0001 par value authorized; 16,344,815 and 16,273,913 shares issued and outstanding as of December 31, 2022 and 2021, respectively	2	2
Additional paid-in capital	334,571	332,187
Retained earnings (accumulated deficit)	(249,945)	(268,484)
Total stockholders' equity	84,628	63,705
Total liabilities and stockholders' equity	$ 485,358	$ 390,267

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Dec. 31, 2022	Dec. 31, 2021
Stockholders' equity:
Common stock, shares authorized	100,000,000	100,000,000
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares issued	16,344,815	16,273,913
Common stock, shares outstanding	16,344,815	16,273,913

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock	Additional Paid-In Capital	Retained Earnings (Accumulated Deficit)	Total
Balances at Dec. 31, 2020	$ 2	$ 330,123	$ (240,167)	$ 89,958
Balances (in shares) at Dec. 31, 2020	16,204
Increase (Decrease) in Stockholders' Equity
Net income (loss)			(28,317)	$ (28,317)
Long-term incentive plan vestings (in shares)	96			95,994
Tax withholding on vesting of restricted stock units		(290)		$ (290)
Tax withholding on vesting of restricted stock units (in shares)	(26)
Stock-based compensation		2,354		2,354
Balances at Dec. 31, 2021	$ 2	332,187	(268,484)	63,705
Balances (in shares) at Dec. 31, 2021	16,274
Increase (Decrease) in Stockholders' Equity
Net income (loss)			18,539	$ 18,539
Long-term incentive plan vestings (in shares)	98			98,121
Tax withholding on vesting of restricted stock units		(493)		$ (493)
Tax withholding on vesting of restricted stock units (in shares)	(28)
Stock-based compensation and other		2,877		2,877
Stock-based compensation and other (in shares)	1
Balances at Dec. 31, 2022	$ 2	$ 334,571	$ (249,945)	$ 84,628
Balances (in shares) at Dec. 31, 2022	16,345

SUMMARY OF SIGNIFICANT EVENTS AND ACCOUNTING POLICIES (Details)	12 Months Ended
	Dec. 31, 2022 segment
Basis of Presentation and Principles of Consolidation
Number of operating segments	1

SUMMARY OF SIGNIFICANT EVENTS AND ACCOUNTING POLICIES - Other Operating Property and Equipment (Details)	12 Months Ended
	Dec. 31, 2022
Buildings
Other operating property and equipment
Estimated useful lives	20 years
Automobiles
Other operating property and equipment
Estimated useful lives	3 years
Computers
Other operating property and equipment
Estimated useful lives	3 years
Computer software
Other operating property and equipment
Estimated useful lives	5 years
Fixtures, furniture and equipment
Other operating property and equipment
Estimated useful lives	5 years
Trailers
Other operating property and equipment
Estimated useful lives	7 years
Heavy equipment \| Minimum
Other operating property and equipment
Estimated useful lives	8 years
Heavy equipment \| Maximum
Other operating property and equipment
Estimated useful lives	10 years

LEASES (Details) - USD ($) $ in Thousands	12 Months Ended
LEASES (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Lease cost
Operating lease costs	$ 391	$ 444
Short-term lease costs	7,972	3,152
Variable lease costs		375
Total lease costs	8,363	3,971
Other information
Operating cash flows from operating leases	$ 391	537
Right-of-use assets obtained in exchange for new operating lease liabilities		$ 841
Weighted-average remaining lease term - operating leases	10 months 24 days	1 year 10 months 24 days
Weighted-average discount rate - operating leases	4.29%	4.29%
Minimum
Other information
Initial lease term	2 years 3 months 18 days	2 years 3 months 18 days

LEASES - Reported under ASC 842 and ASC 840 (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Future minimum lease payments for non-cancellable operating leases
2023	$ 359
Total operating lease payment	359
Less: discount to present value	(7)
Total operating lease liabilities	352
Less: current operating lease liabilities	$ 352	$ 369
Noncurrent operating lease liabilities		$ 352

OPERATING REVENUES - Revenue Recognition (Details) - USD ($) $ in Millions	Dec. 31, 2022	Dec. 31, 2021
Accounts receivable
Disaggregation of operating revenue
Due from contracts with customers	$ 34.0	$ 35.1

OIL AND NATURAL GAS PROPERTIES (Details) $ in Thousands	12 Months Ended
OIL AND NATURAL GAS PROPERTIES (Details) $ in Thousands	Dec. 31, 2022 USD ($) $ / bbl $ / MMBTU	Dec. 31, 2021 USD ($) $ / bbl $ / MMBTU
OIL AND NATURAL GAS PROPERTIES
Subject to depletion	$ 713,585	$ 569,886
Incurred in 2022	1,427
Incurred in 2021	1,427	1,427
Incurred in 2020	983	983
Incurred in 2019	58,784	61,895
Total not subject to depletion	62,621	64,305
Gross oil and natural gas properties	776,206	634,191
Less - accumulated depletion	(390,796)	(339,776)
Net oil and natural gas properties	$ 385,410	294,415
Maximum discount percentage of estimated future net revenues for full cost ceiling limitation	10.00%
Depletion expense	$ 51,000	$ 44,600
Ceiling Limitation Disclosures
First day average of the (WTI) crude oil spot price (in dollars per barrel) \| $ / bbl	94.14	66.55
First day average of the Henry Hub natural gas price (in dollars per Mmbtu) \| $ / MMBTU	6.36	3.60

DEBT (Details) - USD ($) $ in Thousands	12 Months Ended
DEBT (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Current and long-term debt
Debt	$ 235,190	$ 200,085
Current Portion of Long-Term Debt(1)	(35,067)	(85)
Other(2)	(17,447)	(18,435)
Total long-term debt	182,676	181,565
Unamortized debt issuance costs	13,000	14,200
Interest expense	5,400	400
Unamortized premium related to debt issued	35,000
Term loan credit facility
Current and long-term debt
Debt	235,000	200,000
Paycheck Protection Program Loan [Member]
Current and long-term debt
Debt	$ 190	$ 85

DEBT - Term Loan Credit Facility (Details) $ in Thousands		2 Months Ended	12 Months Ended
DEBT - Term Loan Credit Facility (Details) $ in Thousands	Nov. 14, 2022 USD ($)	Dec. 31, 2022 USD ($) item	Dec. 31, 2022 USD ($) item	Dec. 31, 2021 USD ($)
Debt Instrument [Line Items]
Lender fees paid			$ 5,448	$ 379
Gain (loss) on extinguishment of debt				$ 1,946
Term loan credit facility
Debt Instrument [Line Items]
Amount available for issuance of letters of credit		$ 3,600	$ 3,600
Weighted average interest rate			9.10%
Lender fees paid	$ 2,400
Maturity date			Nov. 24, 2025
Cash dividend or cash interest for prepayment premium	$ 0
Amount outstanding		235,000	$ 235,000
Letters of credit outstanding		$ 1,400	$ 1,400
Interest plus	2.00%
Covenant compliance			As of December 31, 2022, the Company was in compliance with the financial covenants under the Amended Term Loan Agreement.
Threshold from capital expenditures to cash balance			$ 20,000
Maximum number of additional approved plan of development wells if out of compliance with loan agreement \| item		6	6
Aggregate scheduled amortization payments		$ 120,000	$ 120,000
Term loan credit facility \| Minimum
Debt Instrument [Line Items]
Current ratio			1.00%
Threshold new capital raising requirements for prepayment premiums	$ 20,000
Term loan credit facility \| Prior to February 15, 2020
Debt Instrument [Line Items]
Interest plus	2.00%
Term loan credit facility \| Prior to February 15, 2020 \| Minimum
Debt Instrument [Line Items]
Debt instrument prepayment term	0 months
Term loan credit facility \| Prior to February 15, 2020 \| Maximum
Debt Instrument [Line Items]
Debt instrument prepayment term	12 months
Term loan credit facility \| February 15, 2020
Debt Instrument [Line Items]
Interest plus	2.00%
Term loan credit facility \| February 15, 2020 \| Minimum
Debt Instrument [Line Items]
Debt instrument prepayment term	13 months
Term loan credit facility \| February 15, 2020 \| Maximum
Debt Instrument [Line Items]
Debt instrument prepayment term	24 months
Term loan credit facility \| February 15, 2022
Debt Instrument [Line Items]
Interest plus	0.00%
Term loan credit facility \| SOFR
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)	0.50%
Applicable margin (as a percent)	7.65%	7.50%
Term loan credit facility \| SOFR \| Minimum
Debt Instrument [Line Items]
Applicable margin (as a percent)	0.15%
Term loan credit facility \| Fiscal quarter ending September 30, 2022 \| Minimum
Debt Instrument [Line Items]
Current ratio	0.90%
Term loan credit facility \| Fiscal quarter ending December 31, 2022 and each fiscal quarter thereafter \| Minimum
Debt Instrument [Line Items]
Asset coverage ratio	1.80%
Term loan credit facility \| Fiscal quarter ending December 31, 2022 [Member] \| Minimum
Debt Instrument [Line Items]
Current ratio	0.70%
Term loan credit facility \| Fiscal quarter ending December 31, 2022 [Member] \| Maximum
Debt Instrument [Line Items]
Net Leverage Ratio	3.00%
Term loan credit facility \| Fiscal quarter ending March 31, 2023 \| Minimum
Debt Instrument [Line Items]
Current ratio	0.75%
Term loan credit facility \| Fiscal quarter ending March 31, 2023 \| Maximum
Debt Instrument [Line Items]
Net Leverage Ratio	2.75%
Term loan credit facility \| Fiscal quarter ending June 30, 2023 \| Minimum
Debt Instrument [Line Items]
Current ratio	1.00%
Term loan credit facility \| Fiscal quarter ending each fiscal quarter thereafter \| Maximum
Debt Instrument [Line Items]
Net Leverage Ratio	2.50%

DEBT - Debt Maturities and Debt Issuance Costs (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Debt maturities
2023	$ 35,067
2024	50,067
2025	150,056
Total	235,190
Debt Issuance Costs
Debt issuance costs	$ 17,447	$ 18,435

FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	12 Months Ended
FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Assets
Asset transfers between levels	$ 0
Liabilities
Liability transfers between levels	$ 0
Recurring
Assets
Derivative Asset, Statement of Financial Position [Extensible Enumeration]	Derivative Asset, Current, Derivative Asset, Noncurrent	Derivative Asset, Current, Derivative Asset, Noncurrent
Liabilities
Derivative Liability, Statement of Financial Position [Extensible Enumeration]	Derivative Liability, Current, Derivative Liability, Noncurrent	Derivative Liability, Current, Derivative Liability, Noncurrent
Recurring \| Total
Assets
Receivables from derivative contracts	$ 21,623	$ 3,898
Liabilities
Liabilities from derivative contracts	62,935	65,466
Recurring \| Level 2
Assets
Receivables from derivative contracts	21,623	3,898
Liabilities
Liabilities from derivative contracts	$ 62,935	$ 65,466

FAIR VALUE MEASUREMENTS - Change of Control Call Option (Details) - Change of Control Call Option $ in Thousands	12 Months Ended
	Dec. 31, 2022 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at the beginning of the period	$ 4,003
Change in fair value	133
Balance at the end of the period	$ 4,136

DERIVATIVE AND HEDGING ACTIVITIES - (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Derivative and hedging activities
Asset derivative contracts	$ 21,623	$ 3,898
Liability derivative contracts	(62,935)	(65,466)
Derivatives not designated as hedging contracts
Derivative and hedging activities
Asset derivative contracts	21,623	3,898
Liability derivative contracts	(62,935)	(65,466)
Derivatives not designated as hedging contracts \| Commodity contracts \| Current assets - receivables from derivative contracts
Derivative and hedging activities
Asset derivative contracts	16,244	1,383
Derivatives not designated as hedging contracts \| Commodity contracts \| Other noncurrent assets - receivables from derivative contracts
Derivative and hedging activities
Asset derivative contracts	5,379	2,515
Derivatives not designated as hedging contracts \| Commodity contracts \| Current liabilities - liabilities from derivative contracts
Derivative and hedging activities
Liability derivative contracts	(29,286)	(58,322)
Derivatives not designated as hedging contracts \| Commodity contracts \| Other noncurrent liabilities - liabilities from derivative contracts
Derivative and hedging activities
Liability derivative contracts	$ (33,649)	$ (7,144)

DERIVATIVE AND HEDGING ACTIVITIES - Open Contracts (Details)	12 Months Ended
	Dec. 31, 2022 MMBTU $ / bbl $ / MMBTU bbl
January 2023 - December 2023 \| Fixed Swap \| Crude oil
Derivative and hedging activities
Volume in Bbl's \| bbl	2,430,183
January 2023 - December 2023 \| Fixed Swap \| Crude oil \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's) \| $ / bbl	69.17
January 2023 - December 2023 \| Fixed Swap \| Natural Gas [Member]
Derivative and hedging activities
Volume in Mmbtu's \| MMBTU	5,236,373
January 2023 - December 2023 \| Fixed Swap \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	3.75
January 2023 - December 2023 \| Basis Swap \| Crude oil
Derivative and hedging activities
Volume in Bbl's \| bbl	2,586,562
January 2023 - December 2023 \| Basis Swap \| Crude oil \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's) \| $ / bbl	0.40
January 2023 - December 2023 \| Basis Swap \| Natural Gas [Member]
Derivative and hedging activities
Volume in Mmbtu's \| MMBTU	7,565,173
January 2023 - December 2023 \| Basis Swap \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	(0.83)
January 2023 - December 2023 \| WTI NYMEX Roll \| Crude oil \| Maximum
Derivative and hedging activities
Volume in Bbl's \| bbl	2,490,458
January 2023 - December 2023 \| WTI NYMEX Roll \| Crude oil \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's) \| $ / bbl	0.58
January 2023 - December 2023 \| Collars \| Natural Gas [Member]
Derivative and hedging activities
Volume in Mmbtu's \| MMBTU	2,545,828
January 2023 - December 2023 \| Call option \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	6.19
January 2023 - December 2023 \| Put options \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	4.50
January 2024 - December 2024 \| Fixed Swap \| Crude oil
Derivative and hedging activities
Volume in Bbl's \| bbl	1,812,285
January 2024 - December 2024 \| Fixed Swap \| Crude oil \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's) \| $ / bbl	63.75
January 2024 - December 2024 \| Fixed Swap \| Natural Gas [Member]
Derivative and hedging activities
Volume in Mmbtu's \| MMBTU	4,271,034
January 2024 - December 2024 \| Fixed Swap \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	3.54
January 2024 - December 2024 \| Basis Swap \| Crude oil
Derivative and hedging activities
Volume in Bbl's \| bbl	1,810,056
January 2024 - December 2024 \| Basis Swap \| Crude oil \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's) \| $ / bbl	0.27
January 2024 - December 2024 \| Basis Swap \| Natural Gas [Member]
Derivative and hedging activities
Volume in Mmbtu's \| MMBTU	6,438,122
January 2024 - December 2024 \| Basis Swap \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	(0.85)
January 2024 - December 2024 \| WTI NYMEX Roll \| Crude oil \| Maximum
Derivative and hedging activities
Volume in Bbl's \| bbl	1,733,719
January 2024 - December 2024 \| WTI NYMEX Roll \| Crude oil \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's) \| $ / bbl	0.30
January 2024 - December 2024 \| Collars \| Natural Gas [Member]
Derivative and hedging activities
Volume in Mmbtu's \| MMBTU	2,167,139
January 2024 - December 2024 \| Call option \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	5.17
January 2024 - December 2024 \| Put options \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	3.74
January 2025 - December 2025 \| Fixed Swap \| Crude oil
Derivative and hedging activities
Volume in Bbl's \| bbl	1,172,171
January 2025 - December 2025 \| Fixed Swap \| Crude oil \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's) \| $ / bbl	60.88
January 2025 - December 2025 \| Fixed Swap \| Natural Gas [Member]
Derivative and hedging activities
Volume in Mmbtu's \| MMBTU	3,451,713
January 2025 - December 2025 \| Fixed Swap \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	3.33
January 2025 - December 2025 \| Basis Swap \| Crude oil
Derivative and hedging activities
Volume in Bbl's \| bbl	1,172,171
January 2025 - December 2025 \| Basis Swap \| Crude oil \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's) \| $ / bbl	0.16
January 2025 - December 2025 \| Basis Swap \| Natural Gas [Member]
Derivative and hedging activities
Volume in Mmbtu's \| MMBTU	4,477,126
January 2025 - December 2025 \| Basis Swap \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	(0.64)
January 2025 - December 2025 \| WTI NYMEX Roll \| Crude oil \| Maximum
Derivative and hedging activities
Volume in Bbl's \| bbl	1,172,171
January 2025 - December 2025 \| WTI NYMEX Roll \| Crude oil \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's) \| $ / bbl	0.13
January 2025 - December 2025 \| Collars \| Natural Gas [Member]
Derivative and hedging activities
Volume in Mmbtu's \| MMBTU	1,052,153
January 2025 - December 2025 \| Call option \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	5.05
January 2025 - December 2025 \| Put options \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	3.72
January 2026 - December 2026 \| Fixed Swap \| Crude oil
Derivative and hedging activities
Volume in Bbl's \| bbl	711,741
January 2026 - December 2026 \| Fixed Swap \| Crude oil \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's) \| $ / bbl	64.19
January 2026 - December 2026 \| Fixed Swap \| Natural Gas [Member]
Derivative and hedging activities
Volume in Mmbtu's \| MMBTU	1,829,816
January 2026 - December 2026 \| Fixed Swap \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	4.03
January 2026 - December 2026 \| Basis Swap \| Crude oil
Derivative and hedging activities
Volume in Bbl's \| bbl	711,741
January 2026 - December 2026 \| Basis Swap \| Crude oil \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's) \| $ / bbl	0.09
January 2026 - December 2026 \| Basis Swap \| Natural Gas [Member]
Derivative and hedging activities
Volume in Mmbtu's \| MMBTU	2,725,378
January 2026 - December 2026 \| Basis Swap \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	(0.75)
January 2026 - December 2026 \| WTI NYMEX Roll \| Crude oil \| Maximum
Derivative and hedging activities
Volume in Bbl's \| bbl	711,741
January 2026 - December 2026 \| WTI NYMEX Roll \| Crude oil \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's) \| $ / bbl	0.18
January 2026 - December 2026 \| Collars \| Natural Gas [Member]
Derivative and hedging activities
Volume in Mmbtu's \| MMBTU	895,562
January 2026 - December 2026 \| Call option \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	4.86
January 2026 - December 2026 \| Put options \| Natural Gas [Member] \| Weighted Average
Derivative and hedging activities
Weighted Average Price (in dollars per Mmbtu's/Bbl's)	4.03

DERIVATIVE AND HEDGING ACTIVITIES - Netting Arrangements (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Derivative Assets
Gross Amounts Presented in the Consolidated Balance Sheet	$ 21,623	$ 3,898
Amounts Not Offset in the Consolidated Balance Sheet	(20,997)	(3,898)
Net Amount	626
Derivative Liabilities
Gross Amounts Presented in the Consolidated Balance Sheet	(62,935)	(65,466)
Amounts Not Offset in the Consolidated Balance Sheet	20,997	3,898
Net Amount	$ (41,938)	$ (61,568)

ASSET RETIREMENT OBLIGATIONS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Activity related to ARO liability
Asset retirement obligations at beginning of the period	$ 11,896	$ 10,583
Accretion expense	528	477
Liabilities incurred	151	111
Liabilities settled/divested	(647)
Revisions to estimate	3,541	725
Asset retirement obligations at end of period	15,469	11,896
Less: current asset retirement obligations	(225)
Long-term asset retirement obligations at the end of the period	$ 15,244	$ 11,896

COMMITMENTS AND CONTINGENCIES (Details) $ in Millions	1 Months Ended	12 Months Ended
COMMITMENTS AND CONTINGENCIES (Details) $ in Millions	May 31, 2022 MMcf / d	Dec. 31, 2023 MMcf / d	Dec. 31, 2022 USD ($) contract $ / Mcf
Obligations under drilling rig commitments
Commitment next year			$ 7.3
Purchase commitments related to equipment
Total			2.7
Drilling rig commitment			2.7
Early termination penalty			$ 1.1
Minimum volume commitment \| MMcf / d	20,000
Volume commitment term	5 years
Minimum
Purchase commitments related to equipment
Treating rate paid \| $ / Mcf			1.65
Gathering, transportation and sales \| West Texas
Purchase commitments related to equipment
Number of long-term crude oil sales contracts to which the entity is committed \| contract			2
Number of long-term natural gas sales contracts to which the entity is committed \| contract			12
Gathering, transportation and sales \| West Texas \| Minimum
Purchase commitments related to equipment
Period of commitment for production from the date of first production			1 year
Gathering, transportation and sales \| West Texas \| Maximum
Purchase commitments related to equipment
Period of commitment for production from the date of first production			20 years
Plan
Purchase commitments related to equipment
Minimum volume commitment \| MMcf / d		12,000

STOCKHOLDERS' EQUITY - Warrants (Details) - $ / shares	Oct. 08, 2019	Dec. 31, 2022	Dec. 31, 2021
Stockholders' equity
Percentage of shares of class of directors	85.00%
Warrants issued	6,900,000
Warrant term (in years)	3 years
Warrant maturity date		Oct. 08, 2022
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001	$ 0.0001
Authorized shares of capital stock, after amendment of certificate of incorporation	101,000,000
Authorized shares of common stock, after amendment of certificate of incorporation	100,000,000	100,000,000	100,000,000
Minimum
Stockholders' equity
Exercise price (in dollars per share)	$ 40.17
Maximum
Stockholders' equity
Exercise price (in dollars per share)	60.45
Preferred Stock
Stockholders' equity
Preferred stock, par value (in dollars per share)	$ 0.0001
Authorized shares of preferred stock, after amendment of certificate of incorporation	1,000,000

STOCKHOLDERS' EQUITY - Incentive Plans (Details) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2022 USD ($) $ / shares shares	Dec. 31, 2021 USD ($) $ / shares shares	Jan. 29, 2020 shares
Number of Shares
Outstanding at the end of the period (in shares)	478,152
Weighted Average Exercise Price Per Share
Outstanding at the end of the period (in dollars per share) \| $ / shares	$ 28.32
Weighted Average Remaining Contractual Term
Options exercisable	0	0
Outstanding at the end of the period	4 years 2 months 12 days
Number of Shares
Unvested outstanding shares at the beginning of the period (in shares)	775,515	874,134
Granted (in shares)	225,700	12,000
Vested (in shares)	(98,121)	(95,994)
Forfeited (in shares)	(13,700)	(14,625)
Unvested outstanding shares at the end of the period (in shares)	889,394	775,515
Weighted Average Grant Date fair Value Per Share
Unvested outstanding shares at the beginning of the period (in dollars per share) \| $ / shares	$ 9.16	$ 9.48
Granted (in dollars per share) \| $ / shares	13.75	8.00
Vested (in dollars per share) \| $ / shares	11.40	11.51
Forfeited (in dollars per share) \| $ / shares	12.20	11.89
Unvested outstanding shares at the end of the period (in dollars per share) \| $ / shares	$ 10.03	$ 9.16
Aggregate Intrinsic Value
Aggregate Intrinsic Value at the beginning of the period (in dollars) \| $	$ 2,914	$ 3,287
Aggregate Intrinsic Value at the end of period (in dollars) \| $	3,993	2,914
General and administrative
Stock-based compensation
Compensation expense recorded \| $	$ 2,200	$ 2,000
2020 Incentive Plan \| Common Stock
Stock-based compensation
Aggregate number of shares available			1,800,000
Maximum number of shares that remained reserved for issuance under the Plan	200,000
2020 Incentive Plan \| Stock options
Stock-based compensation
Percentage of awards vesting on the annual anniversary date of the grant	0.25
2020 Incentive Plan \| Restricted Stock
Additional Disclosures
Total fair value of shares vested \| $	$ 1,700

STOCKHOLDERS' EQUITY - Restricted Stock (Details) - USD ($) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Stock-based compensation
Outstanding RSU	889,394	775,515	874,134
Number of shares granted	225,700	12,000
Granted (in dollars per share)	$ 13.75	$ 8.00
Restricted Stock
Stock-based compensation
Unrecognized compensation expense other than options	$ 2.6	$ 2.2
Weighted average remaining vesting period	1 year	1 year 9 months 18 days
Restricted Stock \| Minimum
Stock-based compensation
Vesting period	3 years
Restricted Stock \| Maximum
Stock-based compensation
Vesting period	4 years
Restricted Stock \| Employee
Stock-based compensation
Outstanding RSU	900,000
2020 Incentive Plan \| Time-Based RSU \| Employee
Stock-based compensation
Number of shares granted	400,000
Aggregate average grant date fair value	$ 5.2
2020 Incentive Plan \| Time-Based RSU \| Employee \| Minimum
Stock-based compensation
Vesting period	3 years
2020 Incentive Plan \| Time-Based RSU \| Employee \| Maximum
Stock-based compensation
Vesting period	4 years
2020 Incentive Plan \| Performance share units (PSU) \| Employee
Stock-based compensation
Number of shares granted	200,000
Aggregate average grant date fair value	$ 1.8
Compensation expense recorded	$ 0.0
2020 Incentive Plan \| Market-Based RSU \| Employee
Stock-based compensation
Number of shares granted	300,000
Aggregate average grant date fair value	$ 1.9

STOCKHOLDERS' EQUITY - Stock Options (Details) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2022 USD ($) tranche $ / shares shares	Dec. 31, 2020 $ / shares	Dec. 31, 2021 shares
Stock-based compensation
Outstanding common stock (in shares) \| shares	478,152
Number of tranches \| tranche	3
Weighted average exercise price \| $ / shares	$ 28.32
Options exercisable \| shares	0		0
Outstanding at the end of the period	4 years 2 months 12 days
Tranche One
Stock-based compensation
Outstanding common stock (in shares) \| shares	159,384
Weighted average exercise price \| $ / shares	$ 18.91
Tranche Two
Stock-based compensation
Outstanding common stock (in shares) \| shares	159,384
Weighted average exercise price \| $ / shares	$ 28.23
Tranche Three
Stock-based compensation
Outstanding common stock (in shares) \| shares	159,384
Weighted average exercise price \| $ / shares	$ 37.83
Stock options
Stock-based compensation
Weighted average grant date fair value of grants \| $ / shares		$ 3.36
2020 Incentive Plan \| Stock options
Stock-based compensation
Vesting period	4 years
Percentage of awards vesting on the annual anniversary date of the grant	0.25
Expiration term	7 years
Unrecognized compensation expense stock option \| $	$ 0.2
Weighted average remaining vesting period	8 months 12 days

INCOME TAXES (Details) - USD ($) $ in Thousands	12 Months Ended
INCOME TAXES (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Income tax benefit (provision)
Total income tax benefit (provision)	$ 0	$ 0
Differences between the actual income tax benefit (provision) and the expected income tax benefit (provision)
Federal statutory rate (as a percent)	21.00%	21.00%
Expected tax benefit (provision)	$ (3,893)	$ 5,947
Change in valuation allowance and related items	6,689	57,845
Attribute reduction	(2,704)	(64,024)
Permanent adjustments	(5)	404
Employee retention credit		(153)
Non-deductible compensation	(56)
Other	(31)	(19)
Total income tax benefit (provision)	0	0
Deferred noncurrent income tax assets:
Net operating loss carry-forwards	151,905	135,454
Built in loss adjustment Section 382	693	693
Capital loss carryforward	114,725	114,725
Stock-based compensation expense	2,334	1,870
Asset retirement obligations	2,558	2,447
Book-tax differences in property basis	129,427	148,008
Unrealized hedging transactions	8,676	12,929
Disallowed interest Section 163(j)	14,905	15,230
Embedded derivative liability	459	841
Operating lease liability	74	151
Other	874	382
Gross deferred noncurrent income tax assets	426,630	432,730
Valuation allowance	(425,005)	(431,694)
Deferred noncurrent income tax assets	1,625	1,036
Net operating loss limitation under IRC Section 382	723,300
Deferred noncurrent income tax liabilities:
Basis difference in debt	(885)	(885)
Investment in unconsolidated entities	(580)
Amortization of debt issuance costs	(86)
Lease right of use	(74)	(151)
Deferred noncurrent income tax liabilities	(1,625)	(1,036)
Net noncurrent deferred income tax assets (liabilities)	$ 0	$ 0

ADDITIONAL FINANCIAL STATEMENT INFORMATION (Details) - USD ($) $ in Thousands	Dec. 31, 2022	May 31, 2022	Dec. 31, 2021
Accounts receivable:
Oil, natural gas and natural gas liquids revenues	$ 33,980		$ 34,110
Joint interest accounts	3,201		2,503
Other	793		193
Total	37,974		36,806
Prepaids and other:
Prepaids	715		975
Funds in escrow	341		390
Other	75		1
Total	1,131		1,366
Other assets:
Investment in unconsolidated affiliate	1,561
Oil, natural gas and natural gas liquids revenues			1,010
Funds in escrow	527		1,227
Other	739		33
Total	2,827		2,270
Accounts payable and accrued liabilities:
Trade payables	42,919		25,315
Accrued oil and natural gas capital costs	19,911		4,881
Revenues and royalties payable	26,759		22,763
Accrued interest expense	160		42
Accrued employee compensation	2,300		3,735
Accrued lease operating expenses	8,005		6,090
Drilling advances from partners	41
Total	$ 100,095		$ 62,826
Brazos Amine Treater, LLC [Member]
Accounts payable and accrued liabilities:
Equity interest		5.00%