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HighPeak Energy First Quarter 2021 Results

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   |    Tuesday,May 18,2021

HighPeak Energy, Inc. announced financial and operating results for the first quarter 2021.

Q1 Highlights:

• First quarter 2021 sales volumes of 5,290 barrels of oil equivalent per day (“Boe/d”), including 4,735 barrels of oil per day, or approximately 90% oil, equates to increased production of 270% compared with the first quarter 2020 and 59% compared with average 2021 fourth quarter sales volumes of 3,332 Boe/d.

• Net income of $4.7 million, or $0.05 per share, compared with a net loss of $4.9 million in the previous quarter. EBITDAX (a non-GAAP measure as defined and reconciled below) of $20.1 million compared with $7.0 million in the previous quarter.

• First quarter 2021 realized price of $54.01 per Boe compared with an average NYMEX WTI price of $57.84 per barrel and a cash operating margin of $45.83 per Boe, an increase of $16.62 per Boe, or 57%, compared with the fourth quarter 2020. Realized price of $54.01 per Boe was approximately 93% of the average NYMEX WTI price for the quarter.

• Ended first quarter 2021 with an undrawn revolving credit facility and a $9.6 million cash balance

• Drilled and completed six operated wells with an average lateral length of ~14,000 feet. At March 31, 2021, two wells were in the process of being drilled and eight wells were in various stages of completion. The Company also participated in one non-operated horizontal well.

• Drilled two wells on our Signal Peak acreage position including one well in the Wolfcamp C zone and one well in the Wolfcamp D zone. Both wells are currently flowing back and continuing to clean up.

• Continue to realize operated all-in drill, complete, equip, and facility well costs of approximately $505 per lateral foot.

• First phase of Company owned produced water system in Flat Top was fully operational. In addition, the Company currently is building out the second phase of the produced water system.

HighPeak Chairman and Chief Executive Officer, Jack Hightower, said, “HighPeak is a growth story. We continue to build production with our one-rig drilling program primarily focused in the Flat Top area. First quarter 2021 production was up 59% compared with the fourth quarter 2020 demonstrating the productivity of our wells despite the effects of winter storm Uri, which decreased our average first quarter production by approximately 880 Boe/d. We grew EBITDA 187% quarter over quarter and exited the quarter with cash on the balance sheet and zero debt.   Our production is continuing to increase and during the first half of May we averaged approximately 8,300 Boe/d which is an increase of about 57% compared with our first quarter sales volumes.”

Operational Update

During the first quarter 2021, the Company completed six (6) wells in the Flat Top area including five (5) wells in the Wolfcamp A and one (1) well in the Lower Spraberry. In addition, the Company drilled two wells in its Signal Peak area, including a 7,700-foot lateral in the Wolfcamp C and a 12,900-foot lateral in the Wolfcamp D. The Signal Peak wells were completed after quarter end and are currently flowing back.

Mr. Hightower continued, “We drilled wells into the Wolfcamp C and Wolfcamp D zones in Signal Peak based on the encouraging results of offset operators and historical production in the area. Although these wells just recently began to flowback, we are excited about the additional production and drilling potential of these two zones in our Signal Peak area.”

During the first quarter of 2021, HighPeak’s sales volumes averaged 5,290 Boe per day including 4,735 barrels of oil per day despite the effects of winter storm Uri, which reduced first quarter production by approximately 880 Boe/d.  HighPeak’s 2021 first quarter production stream was 90% oil and 5% natural gas liquids, or 95% liquids. 

The Company’s cash operating costs were $11.87 per Boe, including $4.68 per Boe for lease operating expenses and $3.50 per Boe for production and ad valorem taxes. Cash G&A expenses were approximately $1.8 million, or $3.69 per Boe, which represents a reduction of 42% over the previous quarter. 

Michael Hollis, HighPeak’s President, said, “We expect to continue to make big strides. We are working on both sides of the margin equation by increasing revenue with the recent signing of long-term oil and gas gathering contracts while reducing operating expenses through our Company-owned water handling system and contracting for the construction of an upgraded electric power distribution system.   We are also focused on keeping all-in well capex at or near our current levels, which continues to be peer leading.”

Marketing Contracts and Hedging

In May 2021, the Company signed long-term contracts with affiliates of Delek US Holdings, Inc. (“Delek”) to gather, transport and market oil production from its horizontal wells in our Flat Top area. Delek will install a gathering and transportation network throughout Flat Top, including the installation of LACT units and gathering lines. The oil gathering and transportation network will substantially reduce the Company’s emissions and the use of trucks to transport oil from its central tank batteries, progressing toward the Company’s ESG objectives, and will also result in a higher realized price.

The Company also signed a long-term contract with WTG Gas Processing, L.P. (“WTG”) to gather, process and market the Company’s current and future natural gas production in its Flat Top area. The contract provides the Company with improved natural gas and NGL pricing and allows WTG to expand its current low-pressure gathering system, which will eliminate the need for infield compression, in Flat Top to accommodate the Company’s increased natural gas production volumes based on the current development plan. The WTG contract does not contain minimum volume commitments. Once operational, the expanded natural gas gathering system will reduce flaring and the emission of greenhouse gases.

In April 2021, the Company entered into oil NYMEX WTI derivative financial contracts to hedge 2,500 barrels of oil per day for the period of May 2021 through April 2022 at a swap price of $61.40 per barrel.

ESG: Recent and Expected Activities

During the short time since the closing of the business combination in August 2020, the Company has added substantial water infrastructure and is positioned to begin recycling water later 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 additional 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 continual improvement of the sustainable long-term development of the Company’s natural resources.

• Completed the first phase 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. In the first quarter the Company reduced truck traffic by approximately 11,500 truckloads due to our produced water system. To date, the Company has reduced truck traffic by over 21,000 truckloads. The Company disposed all of its produced fluids into its high-volume horizontal disposal well in the deep Ellenburger formation. This is the first horizontal disposal well in the Ellenburger formation in the Permian Basin.

• Commenced the buildout extension of the second phase of the Company’s water infrastructure system to the southern portion of its Flat Top area during the second quarter of 2021.

• Signed a preliminary contract to construct a substation and an electrical system upgrade in its Flat Top area, which will reduce emissions associated with infield power generators. In addition, the Company is evaluating the construction and use of renewable power sources for its operations.

• 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.

• In May 2021, the Company signed a contract to expand the existing low-pressure gas gathering system in Flat Top without the need for infield compression, which will reduce the need for future flaring under standard operating conditions and the emission of greenhouse gases.

• Signed a contract to build out a gathering system in the Company’s Flat Top area to connect our central tank batteries to LACT units and pipelines, thereby significantly reducing emissions, truck traffic and surface disturbance.

• The Company had no recordable safety incidents in 2020 or in the first quarter of 2021.

• 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, “In the short time since going public in August 2020 we have made substantial progress with our ESG program. The installation of the water infrastructure network in the northern half of Flat Top coupled with the completion of our high-volume horizontal salt-water disposal well has lowered our disposal costs and has already eliminated over 21,000 truckloads of produced water to date. The signing of our long-term crude oil marketing contract and the subsequent buildout of the gathering and transportation system throughout our Flat Top acreage will further reduce truck traffic.   And the signing of our gas marketing and transportation contract with WTG will facilitate the expansion of the low-pressure gas gathering network system throughout our Flat Top area which eliminates the need for infield compression, reduces flaring and the emission of greenhouse gases.”

First Quarter 2021 Financial Results

HighPeak reported net income of $4.7 million for the first quarter of 2021, or $0.05 per diluted share.  EBITDAX (a non-GAAP financial measure as defined and reconciled below) was $20.1 million, or $0.21 per diluted share. 

First quarter average realized prices were $58.36 per barrel of oil, $27.82 per barrel of natural gas liquids and $2.23 per Mcf of natural gas, resulting in an overall price of $54.01 per Boe.  HighPeak’s cash operating costs for the first quarter were $11.87 per Boe including lease operating expenses of $4.68 per Boe, production and ad valorem taxes of $3.50 per Boe and cash G&A expenses of $3.69 per Boe. 

HighPeak’s first quarter 2021 capital expenditures to drill, complete, equip and provide facilities was approximately $42.5 million.  In addition, the Company incurred capital expenditures of approximately $2.7 million for building water and power infrastructure, land related expenses and other expenses.

At March 31, 2021, the Company had no debt and $9.6 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.