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HighPeak Energy Second Quarter 2021 Results

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   |    Monday,August 09,2021

HighPeak Energy Inc.reported its Q2 2021 results.

Updated 2021 Guidance

HighPeak Energy increased its development drilling program from one rig to two rigs early in the third quarter with a primary focus on the co-development of its Lower Spraberry and Wolfcamp A formations in its Flat Top area and to drill additional wells in its Signal Peak area. Additionally, we will continue the buildout of our field infrastructure to reduce operating costs and advance our ESG objectives.

The Company projects capital investment of approximately $245 to $270 million, excluding acquisitions, for 2021. The capital program includes $210 to $225 million for drill, complete, equip and facilities costs for an estimated 35 to 40 gross wells with average lateral lengths of 12,000 to 13,000 feet. The updated capital budget also includes $35 to $45 million for the continued buildout of the Company’s infrastructure, land related expenditures, and other expenses.

Second Quarter 2021 Highlights:

• Second quarter 2021 sales volumes of 8,783 barrels of oil equivalent per day (“Boe/d”), 96% liquids, representing an increase of 66% compared with first quarter 2021.
• EBITDAX (a non-GAAP measure as defined and reconciled below) of $38.4 million, an increase of 91% quarter over quarter.
• Second quarter 2021 unhedged realized price of $60.40 per Boe and realized cash operating margin of $51.35 per Boe.
• Drilled eight (8) wells and completed ten (10) operated wells plus placed two (2) wells on production on our Signal Peak acreage position.
• Began recycling produced fluids in the second quarter.
• Signed a contract with Priority Power Management, LLC (“Priority Power”) to develop an electric high-voltage (“EHV”) substation, medium voltage distribution systems and a 13-megawatt direct current solar photovoltaic facility.
• Entered into multiple bolt-on acquisition agreements during the 2021 third quarter.
• Initiated a $0.025 per share quarterly dividend and paid a special dividend of $0.075 per share in July 2021.
• Amended the Revolving Credit Facility to increase the borrowing base and the elected commitments to $125 million.
• Ended second quarter 2021 with a revolving credit facility balance of $14.0 million and a $12.8 million cash balance.
• Continue to realize peer leading operated all-in drill, complete, equip, and facility well costs of approximately $505 per lateral foot in our Flat Top operating area.

HighPeak Chairman and Chief Executive Officer, Jack Hightower, said, “The second quarter proved to be another successful quarter for HighPeak as evidenced by our positive well results, continued capital efficiency and high operating margins. Our second quarter production increased as expected and our EBITDAX was up over 90% from the first quarter. HighPeak’s production stream of 90% oil and 96% liquids continues to differentiate us from our peers; our production stream is much more valuable and results in higher margins per Boe.

"We currently have multiple wells that are in early stages of flowback that have yet to ramp up to peak production which will continue to increase our production going forward. In addition, we added a second rig focused on accelerating the drilling of infill locations to further add to our growth profile. We expect 2022 will be a year of significant growth for HighPeak.”

Second Quarter Operational Update

During the second quarter of 2021, the Company completed ten wells including eight (8) wells in the Flat Top area. In addition, the Company completed 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.

During the second quarter of 2021, the Company entered into a crude oil marketing and gathering contract with affiliates of Delek US Holdings, Inc. (“Delek”).  The contract includes the Company’s current and future crude oil production from its horizontal wells in Flat Top where Delek will construct an oil gathering system and custody transfer meters to all the Company’s central tank batteries which will substantially reduce the trucking of crude oil resulting in higher realized prices and lower emissions.

During the second quarter of 2021, the Company entered into a replacement gas purchase contract with WTG as the gatherer, processor and purchaser of the Company’s current and future gross natural gas production in Flat Top. The replacement contract provides the Company with improved natural gas and NGL pricing and requires WTG to expand its current low-pressure gathering system, which will eliminate the need for in-field compression. Once operational, the expanded natural gas gathering system will reduce flaring and the emission of greenhouse gasses.

The Company also entered into a contract with Priority Power whereby Priority Power will develop an electric high-voltage (“EHV”) substation, medium voltage distribution systems and a 13-megawatt direct current solar photovoltaic facility located on approximately 80 acres of land owned by the Company north of Big Spring, Texas in Howard County to provide for the Company’s electrical power needs in its Flat Top operating area including powering drilling rigs and day-to-day operations. Over the life of the contract, approximately 263 million kilowatt-hours of clean and reliable solar energy will be delivered to the Company, resulting in an estimated reduction of over 100,000 metric tons of CO₂ emissions according to the EPA.

Michael Hollis, HighPeak’s President, commented, “I’m extremely proud of our organization for what we have accomplished in such a short period of time. It is a testament to the experience and ingenuity of our drilling and operational teams that we have managed to keep our capital efficiency consistent over the past three plus quarters especially as oilfield activity has continued to steadily increase. Our team is highly focused on maintaining our level of efficiencies and continues to put in place certain measures to sustain our peer leading capital costs such as utilizing higher levels of recycled produced fluids and sourcing local sand mines for use in our completion operations. These initiatives will not only allow us to continue to keep our costs low but will also improve our ESG metrics.”

Second Quarter 2021 Financial Results

HighPeak reported net income of $5.7 million for the second quarter of 2021, or $0.06 per diluted share. EBITDAX (a non-GAAP financial measure as defined and reconciled below) was $38.4 million, or $0.38 per diluted share. 

Second quarter average realized prices were $64.93 per barrel of oil, $26.77 per barrel of natural gas liquids and $2.81 per Mcf of natural gas, resulting in an overall price of $60.40 per Boe, excluding the effects of derivatives. HighPeak’s cash costs for the second quarter were $11.07 per Boe including lease operating expenses of $5.87 per Boe, production and ad valorem taxes of $3.18 per Boe and cash G&A expenses of $2.02 per Boe. HighPeak’s second quarter cash costs decreased by 7% quarter over quarter.

HighPeak’s second quarter 2021 capital expenditures to drill, complete, equip and provide facilities was approximately $44.1 million. In addition, the Company incurred capital expenditures of approximately $2.7 million for building water infrastructure, power infrastructure, and land related expenses.

At June 30, 2021, the Company had $14.0 million in long-term debt and $12.8 million of cash on hand. In June 2021, the Company’s borrowing base and bank commitments were increased to $125.0 million.

Bolt-On Acquisitions

During the third quarter of 2021, HighPeak Energy entered into multiple unrelated agreements to effect certain bolt-on acquisitions from various third parties. In the aggregate, the assets acquired represent approximately 6,200 net acres and production that is estimated to average greater than 1,400 Boe/d for the remainder of 2021. HighPeak Energy expects to close these acquisitions later in the third quarter of 2021.

Initial Dividend

In July 2021, the Company’s Board of Directors approved its first quarterly dividend of $0.025 per share and also approved a special dividend of $0.075 per share which resulted in a total of $9.3 million in dividends paid to stockholders on July 26, 2021.

Mr. Hollis, continued, “We are making great progress on our key objectives of operating and capital efficiency and maintaining our impeccable safety record while rapidly increasing our production. Furthermore, we have also reworked and signed new marketing contracts for our crude oil and natural gas production and for new electrical infrastructure and localized power generation in our Flat Top operating area. These contracts and infrastructure projects will provide the benefits of increasing our revenue stream, reducing our operating costs and substantially advancing our ESG initiatives once they become operational.”