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HighPeak Boosts Capex 20% for 2021, Drilling Up 47%; Full Year 2020 Results

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   |    Friday,March 19,2021

HighPeak Energy, Inc. reported its Q4 and full year 2020 results as well as its 2021 capital plan.

2021 Plan

- Capex: $135-150 million - up 20% vs. 2020 levels of $119MM

  • D&C: $115-125 million - up 18% from 2020 levels of $101.7 million
  • Land, Infrastructure & Other: $20-25 million

- Production: 10.5-12 MBOEPD - up 240% from 2020 output of 3.3 MBOEPD

- Wells Drilled: 20-24 gross wells - up 47% from 15 gross wells in 2020

- Rig Count: one rig running

HighPeak's 2021 capital budget is focused on the efficient development of its highly productive 51,000 net acre position in Howard County, Texas. The Company plans to operate one rig on average throughout 2021 with a primary focus on the co-development of its Lower Spraberry and Wolfcamp A formations. Additionally, we will continue the buildout of our water and power infrastructure.

The Company anticipates drilling 20 to 24 gross wells with average lateral lengths between 11,500 and 12,000 feet.

The Company expects the impact of its late 2020 capital program and its 2021 capital program to significantly increase production and lower its operating costs per Boe, thereby increasing margins and cash flow for the year. The Company anticipates 2021 full-year average production to be 10.5 to 12.0 MBoe per day, which includes the impact of the February winter storm in West Texas.

Jack Hightower continued, "We will focus on development of our acreage position, continued infrastructure buildout and ESG commitment during 2021. The low capital cost, low operating cost and substantial value creation characteristics of our assets enable us to rapidly increase our production and cash flow while maintaining low leverage. At mid-March 2021 oil prices of $63 per barrel, we expect to generate great returns on our development drilling program. We constantly monitor the commodity price environment and remain flexible to increase or decrease our development activity as prices change. The quality of our assets and our large inventory of high rate of return drilling locations provide us with the rare combination of increasing production, cash flow and value while maintaining a conservative balance sheet. With the strong momentum created since the closing of our business combination and the recent increase in oil prices, we expect to achieve significant production and proved reserve growth with a single rig program in 2021."


Q4 and Full Year 2020 Highlights

  • Consummated the HighPeak business combination on August 21, 2020 and raised $102 million of equity capital in an extremely challenging market
  • Delivered strong well results from the Lower Spraberry and Wolfcamp A zones across the Company's Flat Top acreage position
  • Fourth quarter 2020 average production of 3,332 barrels equivalent per day ("Boe/d"), with average production up 386% year over year. Mid-March 2021 production was approximately 7,800 Boe per day and is continuing to increase as expected
  • Fifteen wells with an average lateral length of 12,275 feet were drilled during 2020
  • Demonstrated all-in well costs for drilling, completing, equipping and facilities of approximately $505 per lateral foot including drill and complete costs of approximately $400 per lateral foot.
  • Completed 18 wells during 2020 including 12 drilled uncompleted wells ("DUCs") which the Company had in inventory at the closing of its business combination
  • Drilled and commissioned the Permian Basin's first horizontal salt-water disposal well in the Ellenburger formation providing large volume disposal capability
  • Completed the buildout of the first phase of the Company-owned water disposal and transfer system in HighPeak's Flat Top operating area which is expected to lower future operating costs per Boe. The system will also allow for future recycling of produced fluids which is expected to increase our capital efficiency
  • Increased proved reserves 96% year over year and increased proved developed reserves 107% year over year despite suspending the drilling program for six months due to COVID-19 and the related low commodity price environment
  • Fourth quarter 2020 realized price of $37.73 per Boe and a cash operating margin of $29.21 per Boe compared with an average spot oil price at Cushing of approximately $42.66 per barrel
  • Ended 2020 with an undrawn revolving credit facility and an approximate $20 million cash balance
  • No federal lease exposure

HighPeak Chairman and Chief Executive Officer, Jack Hightower, said, "Although 2020 was an exceptionally difficult year for the industry, HighPeak was able to complete several remarkable achievements. During the year, we completed our business combination, raised over $100 million of capital in a very difficult equity market and positioned the Company for continued growth while maintaining a strong, debt-free balance sheet."

Mr. Hightower continued, "Our well performance has met and, in many cases, exceeded our expectations. Our mid-March 2021 production of approximately 7,800 Boe per day is more than double our fourth quarter average. As we continue our one rig development program, we anticipate our production to steadily increase."

Operational Update

During the 2020 Successor period, the Company focused on completing and placing on production its inventory of 12 DUCs with completion activities beginning in September 2020 and continuing throughout the year. The Company also initiated a one rig drilling program in September 2020. As of mid-March 2021, the Company has completed and turned 14 wells on production since closing the business combination on August 21, 2020 including five (5) Lower Spraberry and nine (9) Wolfcamp A wells. Two of the wells drilled during the first quarter were drilled in the Company's Signal Peak area including one well in the Wolfcamp C zone and one well in the Wolfcamp D zone. Both of the Signal Peak wells are expected to be completed in the 2021 second quarter.

During the fourth quarter of 2020, HighPeak's production averaged 3,332 Boe per day including 2,979 barrels of oil per day. HighPeak's 2020 fourth quarter production stream was 89% oil and 5% natural gas liquids, or 94% liquids. Mid-March 2021 production has increased to approximately 7,800 Boe per day despite the delays caused by extended freezing temperatures, widespread power outages and road closures which caused HighPeak to temporarily shut in most of its production.

The Company's operating costs ("LOE") were $6.47 per Boe and cash G&A expense was approximately $2.0 million in the Company's 2020 fourth quarter.

With our focus on lowering our operating expenses, increasing our capital efficiency and commensurate with our ESG initiatives, HighPeak began construction and completed phase one of its 100% Company-owned water disposal and transportation system in its Flat Top operating area. This is the first phase of an extensive water handling, disposal and recycle infrastructure system that the Company expects to be completed during 2021.

Mike Hollis, HighPeak's President, said, "We have continued to innovate and improve our capital and operational efficiency since the closing of the business combination. Our average $400 per lateral foot for drill and complete costs and average $505 per lateral foot for all-in costs (drill, complete, equip and facilities costs) are best-in-class. Our capital efficiency combined with our high oil cut and premier acreage position, result in industry leading returns on investment and cash margins. We expect further capital and operating efficiencies as we continue to develop our infrastructure and properties. We are very excited to complete our Signal Peak Wolfcamp C and Wolfcamp D wells in the coming months. I could not be more proud of what our organization has accomplished in such a short period of time especially considering the challenges brought on by the unprecedented COVID-19 pandemic."

ESG: Recent and Expected Activities

During the short time since the closing of the business combination, the Company has added substantial water infrastructure and is positioned to begin recycling water in 2021, demonstrating our commitment to the sustainable development of our natural resources. HighPeak has taken several actions through the date of this release and intends to implement several actions throughout the remainder of 2021 to (i) safeguard the environment, (ii) protect the health and safety of our employees and the communities in which we live and operate and (iii) continue to implement best-in-class governance.

  • Formed an ESG Committee of the Board of Directors in January 2021 with the goal of continuing improving the sustainable long-term development of the Company's natural resources
  • Completed the buildout of a water disposal and transfer infrastructure system in the northern portion of the Company's Flat Top area to reduce truck traffic and environment impact
  • Plan to extend the buildout of the Company's water infrastructure system to the southern portion of its Flat Top area during 2021
  • Completed the Permian Basin's first large volume capacity horizontal Ellenburger disposal well during the 2020 fourth quarter
  • Plan to begin recycling produced water for use in the Company's drilling and completion activities during 2021, which combined with the increased use of non-potable water, will substantially reduce the Company's use of fresh water
  • During 2020, flaring from our properties was limited with most of the flaring associated with third-party disruptions. During 2021, the Company intends to buildout the infrastructure necessary to eliminate flaring under standard operating conditions
  • Anticipate building out an oil gathering system in the Company's Flat Top area in 2021 to connect our central tank batteries to LACT units and pipelines, thereby reducing truck traffic and surface disturbance
  • The Company had no recordable safety incidents in 2020
  • Although HighPeak is a "controlled company" under Nasdaq Global listing rules, a majority of the Company's seven (7) directors are independent
  • Two (2) of the Company's directors self-identify as diverse, meeting the proposed Nasdaq Global listing rules

Mr. Hollis continued, "HighPeak has taken several actions and has numerous additional measures planned throughout the year to ensure we are a leader and a premier operator for the sustainable development of our oil and gas reserves."

2020 Financial Results

HighPeak reported a net loss of $4.9 million for the fourth quarter of 2020, or $0.05 per diluted share. The 2020 fourth quarter net loss includes an abandonment charge of $4.8 million for non-core leases not included in the Company's long-term drilling plan. EBITDAX (a non-GAAP financial measure as defined and reconciled below) was $7.0 million, or $0.08 per diluted share.

Fourth quarter average realized prices were $40.87 per barrel of oil, $19.77 per barrel of natural gas liquids and $1.34 per Mcf of natural gas, resulting in an overall price of $37.73 per barrel of oil equivalent ("Boe"). HighPeak's cash operating costs for the fourth quarter were $14.91 per Boe including lease operating expenses of $6.47 per Boe, production and ad valorem taxes of $2.05 per Boe and cash G&A expenses of $6.39 per Boe. HighPeak expects its cash operating expenses per Boe to decline as it completes its water and power infrastructure projects and continues to build additional scale.

HighPeak's full year capital expenditures to drill, complete, equip and provide facilities was approximately $101.7 million. In addition, the Company incurred capital expenditures of approximately $17.1 million for building water and power infrastructure, land related expenses and other expenses.

At December 31, 2020, the Company had no debt and approximately $20 million of cash. In March 2021, the Company's borrowing base and bank commitments were increased to $50 million, subject to finalization of customary documentation.

2020 Year-End Proved Reserves

HighPeak reported a 96% increase in year-end 2020 total proved reserves to 22.5 MMBoe, consisting of 84% oil, 10% natural gas liquids and 6% natural gas. Proved developed reserves increased 107% to 10.3 MMBoe (46% of the Company's total proved reserves) reflecting continued success of the Company's horizontal drilling program focused on the Wolfcamp A and Lower Spraberry formations in the Company's Flat Top operating area. Cawley, Gillespie & Associates, Inc., an independent reserve engineering firm, prepared the Company's year-end reserve estimates.

Securities and Exchange Commission ("SEC") required pricing for 2020 was $39.57 per barrel of oil and $1.985 per MMBtu of natural gas, adjusted for price differentials, down 29% and 23% respectively compared with 2019 SEC pricing. Natural gas liquids realized pricing for the Company's 2020 proved reserve report was $12.27 per barrel, down 42% compared with $21.17 per barrel pricing used in the Company's 2019 year-end reserve report. Under 2020 SEC pricing, the Company's PV-10 was $235 million at year-end 2020, an increase of 67%, compared with $141 million at year-end 2019.

Using flat prices of $63.00 per barrel oil, $3.00 per MMBtu of natural gas, adjusted for differentials, and an estimated realized price of $19.52 per barrel of natural gas liquids, the Company's estimated 2020 year-end proved reserves were 23.4 MMBoe (84% oil, 94% liquids). Under this pricing scenario, the Company's 2020 year-end PV-10 reserve value increases to approximately $490 million, including approximately $292 million for proved developed reserves.

Mr. Hightower continued, "Although we paused our drilling program beginning in March 2020 for six (6) months due to the low commodity price environment, HighPeak almost doubled its proved reserves year over year. The rapid increase in our PV-10 reserve value demonstrates the quality, productivity and high-margin characteristics of our acreage position."


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