Battalion Oil Ends Merger with Fury Resources, Showcases Record-Breaking Drilling Success

Battalion Oil Terminates Merger with Fury Resources; Delivers Strong Operational Performance Amidst Strategic Setbacks

Battalion Oil Corporation (NYSE American: BATL) announced today the termination of its previously disclosed Agreement and Plan of Merger with Fury Resources, Inc. This decision follows Fury’s inability to fulfill the necessary financial obligations and close the transaction as stipulated in the Merger Agreement. Despite extensive efforts and multiple amendments over the past year, the merger could not be finalized, prompting Battalion to cancel the special stockholders' meeting scheduled for December 27, 2024. Concurrently, Battalion reported robust operational advancements, underscoring the company's resilience and strategic focus amid corporate challenges.

Termination of the Merger Agreement with Fury Resources

Battalion Oil Corporation officially terminated the Merger Agreement with Fury Resources, Inc. due to Fury’s failure to meet the required obligations and secure additional equity financing essential for closing the transaction. Over the past year, Battalion and Fury engaged in numerous amendments to facilitate the merger, supported by key preferred equity holders including Luminus Management, LLC, Gen IV Investment Opportunities, LLC, and funds managed by Oaktree Capital Management, L.P. These stakeholders had committed to contributing 100% of their preferred equity in exchange for new preferred shares of Fury. Despite these commitments, Fury was unable to provide evidence of the necessary additional equity financing or adhere to the timeline required by the Merger Agreement.

As a result of the merger termination, Battalion has canceled the special meeting of stockholders that was slated for December 27, 2024. This meeting was intended to seek approval for the merger, and its cancellation marks a significant shift in Battalion’s strategic trajectory.

Operational Updates: Strong Performance Amidst Corporate Changes

Successful Drilling Campaign in Monument Draw

Battalion has launched its latest drilling campaign in the fourth quarter, with the first two-well pad in Monument Draw currently outperforming expectations in both cycle-time and budget adherence. This achievement highlights Battalion’s operational efficiency and commitment to cost-effective production processes. Additionally, the two previously announced Vermejo wells have commenced production, exceeding the company’s type curve expectations with an initial 30-day average of 1,211 barrels of oil equivalent per day (Boe/d), of which 84% is oil. Impressively, the capital costs for these wells remain below $950 per foot, demonstrating Battalion’s ability to manage and reduce operational expenses effectively.

Acid Gas Injection (AGI) Facility Milestones

Battalion’s acid gas injection (AGI) facility has successfully treated over 5.1 billion cubic feet (bcf) of sour gas to date, with daily treatment volumes surpassing 30 million cubic feet per day (MMcf/d). In collaboration with its joint venture (JV) partner, Battalion continues to ramp up operations toward reaching the full inlet capacity of the current AGI facility. Furthermore, the company is evaluating potential next steps for its second AGI well, which is already permitted, drilled, and completed in the target injection zone. This expansion could enhance the facility’s capacity and further support Battalion’s environmental and operational objectives.

Strategic Implications and Future Outlook

Short-Term Impacts

The termination of the merger agreement with Fury Resources is expected to cause immediate volatility in Battalion’s stock price, with a potential decline as investors react to the setback in the company’s strategic plans. The cancellation of the special stockholders' meeting underscores the challenges Battalion faces in securing favorable merger or acquisition deals under current market conditions.

Long-Term Impacts

Despite the setback, Battalion’s strong operational performance provides a solid foundation for future growth and financial stability. The successful drilling campaigns and efficient management of the AGI facility demonstrate Battalion’s capability to generate value independently. However, the company may need to explore alternative strategic paths, such as new partnerships, asset sales, or seeking another buyer, to achieve its financial and operational objectives.

Impact on Shareholders and Market Sentiment

Stock Price Volatility

Battalion’s stock price experienced a sharp decline of 22.45% over five days, reflecting significant investor fear and a loss of confidence. This downward momentum indicates sustained negative sentiment, driven by concerns over Battalion’s standalone prospects and financial stability.

Investor Confidence

The termination of the merger may erode investor confidence, prompting existing shareholders to reassess their positions. Preferred equity holders, including major financial players like Oaktree and Luminus, may push for new strategies to stabilize the company and recover their investments. Institutional investors are likely to demand stricter governance or seek alternative avenues to protect their capital, while industry peers may view Battalion as a potential acquisition target given the current undervaluation of its stock.

Strategic Recommendations for Battalion

1. Rebuild Confidence: Battalion must address market concerns by presenting a clear and credible plan for financial stability, possibly through operational cash flow improvements or new partnerships.
2. Communicate Strengths: Highlighting operational successes, such as the performance of Vermejo wells and cost efficiencies, can help counterbalance negative sentiment and attract investors focused on fundamentals.
3. Explore Alternative M&A or Funding Options: Seeking another buyer, joint ventures, or private equity investment could help Battalion achieve its strategic objectives.
4. Focus on Operational Performance: Emphasizing production metrics and cost discipline is crucial for demonstrating value and sustaining long-term investor interest.

Potential Market Trends

The failed merger underscores the challenges in securing financing within the volatile oil and gas sector, particularly for smaller companies. This incident may lead to increased caution regarding speculative mergers and accelerate industry consolidation as companies like Battalion navigate financial constraints and seek strategic stability.

Conclusion

Battalion Oil Corporation’s termination of the merger agreement with Fury Resources marks a significant setback in its strategic plans. However, the company’s strong operational performance in drilling and gas injection highlights its resilience and potential for sustained growth. Moving forward, Battalion must leverage its operational strengths to rebuild investor confidence and explore new strategic initiatives to drive future success. Stakeholders will be closely monitoring Battalion’s ability to navigate this transitional period and implement effective strategies to stabilize and grow the business.