Private Equity | Deals - Acquisition, Mergers, Divestitures | Reserves | Capital Markets

HighPeak Energy Preliminary Fourth Quarter Results, Reserve Update

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   |    Wednesday,February 23,2022

HighPeak Energy, Inc. announced an operational update, 2021 year-end proved reserves, 2022 guidance update, the entry into agreements with various sellers to purchase oil and gas assets and the closing of the previously announced private placement of senior unsecured notes.

Highlights:

• Fourth quarter 2021 average net daily sales volumes are expected to be between 14,500 - 15,500 Boe per day, an increase of approximately 77% - 90% compared with third quarter 2021, consisting of approximately 85% - 90% oil and 94% - 96% liquids.
• Fourth quarter 2021 sales volume estimates benefitted from a successfully executed fourth quarter drilling campaign and are based primarily on production from approximately 59 gross (47.4 net) horizontal wells. At December 31, 2021, the Company had an additional 27 gross (23.0 net) horizontal wells in various stages of drilling and completion that are expected to come online during the latter part of the first quarter 2022.
• Fourth quarter 2021 EBITDAX (a non-GAAP financial measure) is expected to range from approximately $70 million to $75 million.
• Using flat pricing of $72 per barrel of oil and $3.75 per MMBtu of natural gas, before adjustments for price differentials, and an estimated realized price of $32.18 per barrel of natural gas liquids, the Company's proved PV-10 reserve value (a non-GAAP financial measure) increased to approximately $1.5 billion.
• Using the SEC pricing, year-end 2021 estimated proved reserves increased 185% to 64.2 MMBoe, compared with year-end 2020 proved reserves. Proved developed reserves increased 178% to 28.6 MMBoe and were 45% of the Company's total proved reserves.
• Closed on the previously announced private placement of $225 million principal amount of 10.0% senior unsecured notes due 2024 (the "Notes"). Simultaneously with the Closing of the Notes, the Company paid down its Revolving Credit Facility to zero.
• During the first quarter 2022, the Company entered into a series of agreements to acquire various oil and gas properties contiguous to its Flat Top operating area, which in the aggregate, consist of approximately 9,500 net acres, associated estimated production of 2,500 Boe per day, approximately 40 additional horizontal drilling locations, three saltwater disposal ("SWD") wells, infield produced fluid pipelines and rights to local non-potable water sourcing of approximately 35,000 barrels per day. The combined purchase price for the acquisitions, subject to customary purchase price adjustments, is up to 7.73 million shares of HighPeak common stock and $4 million in cash. The majority of the acquisitions are expected to close late in the first quarter and early in the second quarter of 2022.

Acquisitions

During the first quarter of 2022, the Company entered into a series of agreements to acquire various oil and gas properties contiguous to its Flat Top operating area in Borden and Howard counties, which in the aggregate, consist of approximately 9,500 net acres and associated estimated production of 2,500 Boe per day ("Boe/d"). The properties under contract also include a salt-water disposal system which includes three (3) active disposal wells with current disposal capacity of 12,000 barrels of water per day, in-field produced fluid gathering pipelines, and three (3) SWD permits. Additional benefits associated with the acquired properties include local non-potable water sourcing capacity of approximately 35,000 barrels per day from local surface landowners at attractive rates, which should equate to over $3 million in annual cost savings, and in-field crude oil gathering pipelines and LACT units. The acquired acreage will add approximately 40 additional horizontal drilling locations in the Wolfcamp A formation, which continues to provide robust rates of return in the current commodity price environment.

HighPeak Chairman and Chief Executive Officer, Jack Hightower, said, "We will take advantage of the present environment and our current rates of return by continuing our robust drilling program and potentially adding an additional drilling rig. This series of acquisitions will help in that process by adding approximately forty locations and production. The contracted properties are adjacent to and contiguous with our Flat Top area, are set up for immediate development with related gathering infrastructure in place, have attractive midstream marketing and gathering contracts, and provide in-fill drilling locations that will augment our drilling program for 2022 and 2023. These accretive acquisitions expand our net acreage position to approximately 72,000 net acres and are projected to increase our 2022 EBITDAX in excess of fifty million dollars at present commodity prices."

Closing on Issuance of $225 million Senior Unsecured Notes

The Company closed its previously announced issuance of $225 million 10.0% Senior Unsecured Notes due 2024. The Company used a portion of the proceeds to pay off its outstanding debt balance under its Revolving Credit Facility. The remaining proceeds will be used to fund the Company's 2022 development drilling program. The Company's liquidity after receipt of funds from the issuance of the Notes is approximately $225 million including cash and borrowing capacity under its Revolving Credit Facility.

Credit Suisse Securities (USA), LLC served as sole book running manager and placement agent for the placement of the Notes. BofA Securities, Inc., BOK Financial Securities, Inc., Citizens Capital Markets, Inc., Fifth Third Securities, Inc. and Roth Capital Partners served as co-placement agents.

Vinson & Elkins, LLP served as legal advisor to HighPeak Energy, Inc., White & Case LLP served as legal advisor to Credit Suisse Securities (USA), LLC and Pillsbury Winthrop Shaw Pittman, LLP served as legal advisor to certain Note purchasers.

Year end 2021 Proved Reserves

As of December 31, 2021, HighPeak's estimated SEC proved reserves, prepared by Cawley, Gillespie & Associates, Inc., increased 185% to 64.2 MMBoe consisting of 81% oil, 8% natural gas and 11% natural gas liquids compared with December 31, 2020 estimated proved reserves. Proved developed reserves increased 178% to 28.6 MMBoe and were 45% of the Company's total proved reserves. The Company's PV-10, a non-GAAP financial measure, was approximately $1.34 billion at year end 2021, an increase of 468%, compared with $235.5 million at year end 2020, each based on pricing guidelines established by the Securities and Exchange Commission ("SEC"). 2021 SEC pricing ("SEC Pricing") was $66.56 per barrel of oil and $3.598 per MMBtu of natural gas, before adjustments for price differentials. Natural gas liquids realized pricing for the 2021 proved reserve report was $29.76 per barrel.

Using flat pricing of $72 per barrel of oil and $3.75 per MMBtu of natural gas, before adjustments for price differentials, and an estimated realized price of $32.18 per barrel of natural gas liquids, 2021-year end proved reserves are estimated to be 64.5 MMBoe of which 45% are proved developed. Under this price case ("Management Pricing"), the Company's PV-10 reserve value, a non-GAAP financial measure, increased to approximately $1.5 billion including $815 million for proved developed reserves.

Michael Hollis, HighPeak's President, commented, "I am so proud of what our team has accomplished in such short order. HighPeak is a growth story and we plan to continue to take advantage of this investment environment. We have laid the groundwork to combat industry-wide inflationary pressures and continue to widen the gap between industry peers on every important business and operational metric. In the fourth quarter we supplied approximately 58% of our stimulation fluid with recycled produced fluid, our electric substation and solar farm are on schedule, and our oil and gas pipelines in Flat Top are currently being installed. We expect access to a local wet-sand mine in June and we have pre-purchased tubular goods and vessels through our third quarter drilling schedule. All of these initiatives will further lower our capital and operating costs while increasing realized prices for our products."

"The series of highly accretive acquisitions that HighPeak entered into this quarter not only add production and future drilling locations, but also complement our already robust infrastructure. The acquired acreage includes three SWD's and three additional SWD permits, Oil and SWD gathering systems, and access to a significant non-potable water source. HighPeak can now supply one hundred percent of the stimulation fluid for a frac crew operating in Flat Top with recycled and non-potable sources."

Mr. Hollis, concluded, "As excited as we are about the growth potential from our approximately 72,000 acres in 2022, I implore everyone to gaze into 2023 to see the substantial free cash flow profile that HighPeak can generate in any reasonable oil price environment."