Good day, ladies and gentlemen, and welcome to the Battalion Oil Q4 Fiscal Year 2019 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to John-Davis Rutkauskas. Please go ahead.

Good morning. I'm joined by a few of my colleagues today, who I'd like to introduce. Battalion's Chief Executive Officer, Richard Little; our Chief Financial Officer, Ragan Altizer; and our Chief Operating Officer, Daniel Rohling. This conference call contains forward-looking statements. For a detailed description of our disclaimer, see our earnings release issued yesterday and posted on our website. This conference call also includes references to certain non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most directly comparable measure under GAAP are contained in our earnings announcement released yesterday. We have also published an investor presentation, which may be found on our website and will be referenced during this webcast. As a reminder, Battalion adopted fresh start accounting as of October 1, 2019, to coincide with the timing of the company's normal fourth quarter reporting period. Please refer to Battalion's annual report on Form 10-K for the year ended December 31, 2019, for further details regarding fresh start accounting and the information discussed during this call. Now I'll turn it over to our team to present a few scripted remarks followed by Q&A. Rich?

Thank you, John-Davis. I'm pleased to welcome the listeners to the Battalion Oil Fourth Quarter 2019 Earnings Call and our first investor update as Battalion Oil Corporation. Admittedly, it's been a long time since we've communicated to the market, and I assure you that truly transformational change has occurred here. I'm proud of what we've done over the last few months, and I hope that after reviewing these milestones, you'll understand why. I have to start by first acknowledging that the industry as a whole is currently facing 2 significant headwinds. First, the COVID-19 virus; and second, an all-out oil price war aimed at the U.S. shale industry. Battalion's business continuity plan allows us to administer the business 100% remotely. That's including processing payments and invoices to all stakeholders that includes vendors, mineral owners and our workforce. We recognize that we work in an industry critical to the national interest, and we don't take that responsibility lightly. We adhere to all CDC guidelines, and we're focused on keeping our workforce safe and healthy. While the workforce for our Houston-based employees may lend itself to new technologies and working remotely, our field operations are a little more nuanced. We've made arrangements to create adequate physical space among our field staff and are fortunate that the population density out in the field is relatively low anyway. You'll hear me elaborate more on EH&S later on. But for now, I'll emphasize that safety is one of our core values. Therefore, we're ensuring the continuity of our in-person safety meetings, which we require multiple times per day, by breaking teams in the groups of fewer than 10 people and increasing the reliance on radio communications as necessary. We really do value the health and safety of our workforce. In dealing with the price war…

That's exactly right, Rich. Thanks, and good morning, everyone. I'm proud to showcase our operating history and to be a part of a team that's been together under a few different umbrellas. We've been able to take what we've learned after each at bat onto the next asset, as you can see. What we've seen after roughly 400 wells in the Permian gives me confidence in what we can keep doing here. I'm actually excited as ever about our future because it's in circumstances like these that I believe we have and will continue to be separated from other operators for our leading performance. Our emphasis has been and still is understanding how to tie the subsurface to key operational and economic decisions that impact our bottom line. This has consistently led to lower CapEx per foot, lower LOE per BOE and higher returns, driving us to achieve the absolute lowest possible breakeven prices. At the same time, well performance in the previous 2 full-scale development programs we led had to improve in order to continue supporting organic growth, where we don't need that here. These are undeniably the highest producing horizontal wells per foot that I have operated in the Permian. Focusing on what we've accomplished at Battalion over the last 7 months, you can see the results of the team's diligent efforts have been substantial. 32% reduction in well cost and almost a 30% reduction in LOE. That's all while the organization was constrained by financial restructuring. We're continuing to make improvements, and I look forward to sharing more of those results in the near future. As I said, the marriage of subsurface and operations is a big part of how we execute. I'm pleased with the vast repository of data the asset team has accumulated and that…

Thanks, Danny. You've heard us say it a couple of times now, safety is a core value for us. Together with safety, we have responsibility and obligation to what is right for the environment. I'm very proud of our safety record. As you can see in the lower left hand corner on Slide 12, we're consistently outperforming the industry and the AXPC average TRIR rates. On the spill side, we've drastically reduced our spill volumes both in total and relative to hydrocarbon production. For all these metrics, we'll not be satisfied until we've reduced them down to 0. But for now, I'm pleased with the trends. Something new that I mentioned earlier in the presentation is the formation of an ESG task force that will help us elevate the importance and visibility of environmental stewardship and social awareness throughout our organization. Many of these things we do on a daily basis, but it's never a bad idea to stress the importance and significance of our actions. For instance, we've been tracking our flare intensity for some time. If you look at the graph at the bottom, you see that we measure it favorably versus our peers. We've recently installed an incinerator at the Valkyrie H2S treating plant to reduce sulfur emissions, and we've installed over 20 VRUs at our major gathering locations. All of our oil and water production is transported across the field via pipeline to reduce truck traffic in the field and in our lease roads. And we've had an active leak detection program in place all along. We even own our own FLIR cameras and do self-inspections on a regular basis. With that, let me turn it over to Ragan to review the financials.

Thanks, Rich. I'll begin with a focus on our liquidity position and then touch on a few highlights from Q4 '19. Upon emergence from bankruptcy in October, we entered into a revolving credit facility led by the Bank of Montreal. As of year-end, we had a borrowing base of $240 million and $144 million drawn. After giving effect to cash on hand and undrawn letters of credit, we had $99 million of total liquidity available to us at year-end. We recognize the impact the current market environment has on our access to liquidity. And while we believe it is too early to comment specifically on how redetermination season is going to pan out for the industry, we are aware of and we have confidence in a variety of plans to manage our near-term liquidity. We also have confidence in BMO. They have been a reliable partner for us with a strong relationship that predates Battalion. A relationship that was built on a consistent track record of delivering on what we've said and, therefore, a foundation of trust. Battalion's net leverage of 1.54x at year-end is among the lowest in the micro-cap space. And all the work that went into our restructuring last year positions us well as we navigate this market. We're also glad that we managed to build a strong hedge book before the price war. Our risk management philosophy is predicated on hedging a high percentage of PDP 3 years forward using plain vanilla swaps and 2-way collars. There are no 3-way collars or other floor-eroding instruments in our derivative mix. Our hedge book has a mark-to-market value of $125 million as of last Friday, March 20, which is based on a weighted average hedge price of $54 per barrel on 88% of our PDP volumes for 3…

Thank you, Ragan. As I've stated, we've been busy cleaning up the balance sheet and driving down costs. We think we're in a unique position to create value and grow in a down market. We have the right leverage and the right G&A structure to approach M&A from an advantage position. But if the right opportunity doesn't present itself, we still have significant growth opportunities within our own asset. As shown on Slide 17, we have a significant reserve base with almost 60% of the volume coming from wells that require very little remaining capital. And that's not to mention all the upside potential that we have yet to delineate when the market conditions are right. Moving to Slide 18. Our initial plan for reporting guidance in 2020 was to keep a single rig running throughout the year and complete 12 to 14 wells. We expected to spend approximately $130 million in total CapEx and generate about a 10% production growth while maintaining a cash flow neutral profile, assuming a $55 flat price deck. Given the current price environment, however, we need to pull back capital and reduce spending. As I said in the beginning of this presentation, we have the ability to react quickly without causing harm to the business. We've now released our frac crew, and will evaluate the merits of releasing our drilling rig. The rig is on a pad right now, but we have time between now and the end of May to finish up these wells and make a more informed decision on the path forward. That decision could result in a planned reduction of approximately 45% and only completing 6 to 7 wells. All those wells are expected to be online in Q1. This efficient use of capital should only result in about a 7% drop in production for the year versus our initial plan in 2020. So said differently, we're forecasting that with the slowdown, we have a plan in place that could hold oil flat year-over-year with spending minimal capital. I know that's a lot to digest, and I want to thank you for your attention. These are, no doubt, challenging times and I'd be tone-deaf not to acknowledge that. But I'll try to do my best to reassure you that we've been here before, and all the work we've done over the last 6 months could be a more appropriate preface to this first chapter of our story. You can tell we're proud of what we've done so far and look forward to sharing more progress with you in the next quarter. Thank you for your interest in Battalion. That concludes our scripted remarks. I'll turn it back over to the operator for Q&A.

[Operator Instructions] We'll take our first question from Noel Parks with Coker & Palmer.

Just had a couple of questions. Would that third processing train that you commissioned this month, the CapEx for that, was that mostly in 2019 or will it hit mostly in this year?

The absolute majority of that was spent in '19. We'll see some of the capital being spent in 2020, but majority of it was spent in '19.

Great. And regarding releasing a rig after June, did -- comment on what you have left as far as acreage commitments, I think you only had to do about 3 years -- 3 wells a year to keep ahead of the leases. At this point, have you -- are you more inclined you think to actually plan for that drilling, of course, we don't know exactly what's happening with oil prices? Or are you looking more towards maybe negotiating extensions on those leases coming up next couple of years?

Yes, no, thank you for your question. And do think you asked an important one with where we are positioned and what separates us from others. Our acreage position, as you mentioned, only assumes that we need to drill 3 wells a year to hold both West Quito and Monument Draw. We don't have to come back to Monument Draw to hold those leases, but this is a good acreage position for us. I'd tell you what we -- the way to think about what we've done is that we positioned ourselves for the flexibility. So if the market recovers, which in our opinion it will, everybody is going to have a different view on when that happens, I think we've positioned ourselves to weather the storm. And at that point, we'll continue the activity. But we do have a good partnership with many of our mineral owners, and so we're continuing to work with them on what that future development looks like. But with only the commitment after the current pad of 3 wells per year, I think we're in a very manageable position. So hopefully, that answers your question. Danny, if you...

Yes, just a little add on there is just that as you think about the out years, we need between 1 and 3 wells. And like Rich said, no significant activity in the back half of the year to be able to hold all of our leases. So just minimal CapEx in '20, but able to react and capitalize on any market as we go forward.

Great. And the last one, in the couple of weeks since we've seen oil prices take this last leg downward, have you gotten any signals from service vendors about if you did decide to hang on to the rig, just what sort of cost concessions they might be willing to make?

Yes. Thanks, Noel. Good question again. I consider our relationships with our service providers also as partnerships, and so we continue to work with our service providers. Through this time, the service providers are really going through some difficult times, and so they're trying to figure out how they manage their business. So we'll keep those communications going. That's also why we said we'll consider the merits of dropping the rig because we are going to continue to have these conversations and we'll pivot with what the market is telling us to do. So again, yes, is the short answer to what you asked. We'll continue those conversations and again make the right moves depending on what the market conditions are.

[Operator Instructions] And we have no further questions in the queue. At this point, I would like to turn the conference back to our speakers for any additional or closing remarks.

Thank you. And again, I want to thank everybody for their interest in Battalion Oil. I hope we were able to convey to you why we're excited about the future. And the work we've done over the last few months has prepared us for this downturn. I realize that's not the case for many of our peers and many of the service providers that we partner with to develop our acreage. So while we talk a lot about our excitement of the future, we recognize that the here and now, it's going to be difficult for many of the workers in our industry. And like we've shown time and time again, this industry is resilient. We'll get through this downturn together. And in fact, if you look back at many of the technological advances and efficiencies that we've experienced in our industry, they're created out of these kind of necessities. So we learn from these experiences and we become even more resilient on the other side of these events. I have no doubt that this will be the case here as well. In addition to the uncertainty in our industry, families are also having to protect themselves from the spread of the coronavirus. We'll continue to put the health and safety of our workforce and their families first and foremost as we do our part to stop the spread of the virus. And then finally, in closing, 2019, I want to recognize is a very tumultuous period for the company. That's now in our rearview mirror. We've emerged as a new company with a new culture of capital discipline and a new strategy for creating value going forward as represented by our strong fourth quarter performance, and we look forward to reporting to continued success in the future. Thanks for your time today.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation. You may now disconnect.