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HighPeak Energy Second Quarter 2022 Results

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   |    Tuesday,August 09,2022

HighPeak Energy, Inc. announced financial and operating results for the second quarter 2022 and provided current operational updates.

2Q 2022 and Current Highlights:

• HighPeak legacy second quarter 2022 net sales volumes averaged 21,995 barrels of oil equivalent per day ("Boe/d"), an increase of 83% compared with first quarter 2022, consisting of 86% crude oil and 95% liquids. Company pro forma net production, inclusive of the Hannathon acquisition, averaged approximately 25,400 Boe/d during the second quarter 2022.
  
  
• The Company completed an accretive acquisition of approximately 18,600 net acres from Hannathon Petroleum, LLC ("Hannathon") late in the second quarter 2022. The acquired acreage is largely contiguous to the Company's existing Signal Peak area and includes significant existing production, cash flow and operational infrastructure.
  
  
• EBITDAX (a non-GAAP financial measure as defined and reconciled below) associated with legacy HighPeak second quarter 2022 sales volumes was $135.4 million, an increase of 165% compared with first quarter 2022. The cash flow associated with the acquired Hannathon production from the effective date through the closing date was recognized as a reduction to the purchase price and did not contribute to second quarter 2022 results. On a pro forma basis, inclusive of the Hannathon acquisition, second quarter 2022 Company EBITDAX would have been approximately $155 million.
  
  
• As a result of the Company's recent acquisitions and successful leasing campaign, the Company had more than 97,000 net acres as of June 30, 2022, an increase of approximately 54% compared with year-end 2021.
  
  
• Increased the Company's Revolving Credit Facility borrowing base and aggregate elected commitments from $138.8 million to $400.0 million and added three banks to the bank syndicate.
  
  
• Second quarter 2022 realized price of $100.63 per Boe and realized cash operating margin of $87.20 per Boe, or approximately 87% of the realized price, excluding the effects of derivatives.
  
  
• HighPeak averaged four (4) drilling rigs throughout the second quarter 2022, added a fifth rig in June 2022 and elected to continue Hannathon's one rig drilling program upon closing the acquisition. The Company plans to maintain the current six (6) rig drilling program and average approximately three (3) frac fleets throughout the remainder of 2022.
  
  
• HighPeak had 52 gross (46.8 net) horizontal wells in various stages of drilling and completion plus two salt-water disposal wells in progress at the end of the second quarter.

HighPeak CEO, Jack Hightower said "We continued to execute on our growth strategy as evidenced by our significant production and EBITDA increase in the second quarter. Legacy HighPeak oil production was up roughly 88% and EBITDA increased 165% quarter over quarter.

Mr. Hightower, continued, "We are just now starting to realize the impact of our decision to increase drilling activity at the first of the year. Our production rates are expected to continue to increase throughout the remainder of the year and into 2023 as we continue to reap the benefits of adding to our rig count several months ago. With that said, we will focus on efficient drilling through larger extended-reach multi-well pads, while maintaining flexibility in our capital program to react as warranted to sustained market conditions. We expect to be one of the only public companies generating meaningful free cash flow while significantly increasing production in 2023."

Recent Acquisitions

On June 27, 2022, the Company completed the previously announced acquisition from Hannathon and other non-operated working interest owners to acquire their Howard County assets, consisting of approximately 18,600 net acres predominantly contiguous with the Company's Signal Peak area, substantial existing production and cash flow, for total consideration of $335.5 million, including customary closing adjustments and closing costs, consisting of $238.3 million in cash and 3.52 million shares of HighPeak's common stock valued at $97.2 million on the date of closing. Additional acquisition highlights include the leveraging of Hannathon's substantial infrastructure-in-place to accelerate the pace of the Company's Signal Peak development, the addition of approximately 200 gross top tier drilling locations and an acreage footprint which is 68% held by production and provides for capital efficient, long lateral development with about 90% of the inventory supporting lateral lengths of 10,000 feet or greater. The assets were acquired at roughly three times 2022 estimated EBITDAX with an expected further uplift from synergies estimated at $70 million on a present value basis. The cash portion of the consideration was funded with cash on hand and borrowings under the Company's recently increased Revolving Credit Facility.

During the first half of 2022, the Company completed multiple acquisitions contiguous to its Flat Top operating area which, in aggregate, have added over 14,000 net acres. The acquired properties provide high-margin oil production, a significant number of upside drilling locations and robust in-field infrastructure consisting of a salt-water disposal system, produced fluid gathering pipelines and substantial non-potable water sourcing capacity.

Since year-end 2021, the Company's net acreage position has increased by approximately 54% building from 63,000 net acres to over 97,000 net acres as of June 30, 2022.

2Q Operational Update

The Company's net sales volumes, excluding the acquired Hannathon production, during the second quarter 2022 averaged 21,995 Boe/d, consisting of approximately 86% oil and 95% liquids. Second quarter production increased 83% compared with the first quarter with oil production up about 88% compared with the first quarter. Production volumes from the Hannathon acquisition will be included in the Company's financials beginning in the third quarter 2022.

During the second quarter of 2022, the Company drilled 29 gross (27.0 net) operated horizontal wells and one salt-water disposal well utilizing approximately four drilling rigs for most of the quarter, adding a fifth rig in June 2022 and a sixth rig upon closing the Hannathon acquisition at the end of June 2022. Also, the Company completed 27 gross (22.8 net) horizontal wells during the second quarter of 2022. At June 30, 2022, the Company was in various stages of completion on 41 gross (35.8 net) horizontal wells, finishing one SWD well and was in the process of drilling 11 gross (11.0 net) horizontal wells and one salt-water disposal well.

The HighPeak 60MW electric high-voltage substation was commissioned in May 2022 and as a result the Company is in the process of removing rental generators, reducing both the Company's lease operating expenses and its carbon emissions. To date, the Company has removed approximately 70% of the rental generators in its Flat Top operating area. The electrification of the substation also enabled HighPeak to power its first drilling rig with highline power in Flat Top, reducing both drilling costs and fuel consumption. The Company's contracted local sand project became operational in June 2022 and is anticipated to significantly reduce well completion costs and improve completion efficiencies. HighPeak is currently servicing 100% of its stimulation fluid needs for two frac crews in Flat Top with recycled produced fluids and local non-potable water sources. The Company is also using recycled fluids for completion operations in Signal Peak.

Michael Hollis, HighPeak's President, commented, "Inflationary pressures continue to be thematic, however, we have initiated a number of measures to mitigate the effects of industry wide cost increases on both the capital and operating expense side of the equation including our local sand project, the use of cost saving non-potable water and recycled fluids for our Flat Top frac operations and the commissioning of our electrical substation."

Mr. Hollis further commented, "The HighPeak substation has enabled us to begin removing rental generators which is estimated to reduce lease operating expenses throughout the year, further expanding our industry leading margins while greatly reducing our carbon footprint. We started powering one of our drilling rigs with highline power, saving roughly $90,000 per well at today's diesel costs. The use of local wet sand is decreasing capital costs per well while also reducing emissions associated with trucking and drying the sand. When fully utilized, wet sand will save approximately $300,000 per well."

2Q 2022 Financial Results

HighPeak reported net income of $77.6 million for the second quarter of 2022, or net income of $0.64 per diluted share. Excluding the effects of derivatives and the deferred tax effect thereon (as reconciled below), the Company's 2022 second quarter net income increased approximately 150% to $87.0 million, or $0.78 per diluted share, compared with $35.9 million, or $0.32 per diluted share, for the first quarter. EBITDAX was $135.4 million, or $1.22 per diluted share, an increase of 165% quarter over quarter. Second quarter EBITDAX was impacted by $37.1 million in derivative settlements.

Second quarter 2022 average realized prices were $111.26 per barrel of crude oil, $47.29 per barrel of natural gas liquids and $6.02 per Mcf of natural gas, resulting in an overall realized price of $100.63 per Boe, or 93% of the weighted average of NYMEX crude oil prices, excluding the effects of derivatives. HighPeak's cash costs for the second quarter were $14.45 per Boe including lease operating expenses of $8.29 per Boe, production and ad valorem taxes of $5.15 per Boe and cash G&A expenses of $1.01 per Boe. The Company's unhedged cash margin was $86.18 per Boe, or 79% of the weighted average of NYMEX crude oil prices for the quarter.

HighPeak's second quarter 2022 capital expenditures to drill, complete, equip, provide facilities and to build water and power infrastructure were approximately $238.1 million. In addition, the Company incurred capital expenditures of approximately $352.5 million for crude oil and natural gas property acquisitions, $108.4 million of which was non-cash with the issuance of 3,893,634 shares of HighPeak common stock.

At June 30, 2022, the Company had $285.0 million in outstanding borrowings under its Revolving Credit Facility, $225.0 million in long-term notes outstanding and $22.4 million of cash on hand. In June 2022, simultaneously with the closing of the Hannathon acquisition, the Company entered into an amendment of its Revolving Credit Facility and increased the borrowing base and bank commitments to $400.0 million and added three banks to the bank group.

Hedging Update

As of June 30, 2022, the Company hedged 1.99 million barrels of its remaining 2022 crude oil production at an average swap price of $87.53 per barrel and 641,200 barrels of its 2023 crude oil production at an average swap price of $66.04 per barrel. The Company's crude oil derivative contracts are based on reported settlement prices on the New York Mercantile Exchange ("NYMEX") for West Texas Intermediate pricing. The Company also hedged 920,000 MMBtu of its remaining 2022 natural gas production and 450,000 MMBtu of its 2023 natural gas production at an average price of $9.00 per MMBtu. The Company's natural gas derivative contracts are based on reported settlement prices on the NYMEX for Henry Hub pricing.

Dividend

In January and April 2022, the Company's Board of Directors approved a quarterly dividend of $0.025 per share which resulted in a total of $2.4 million and $2.6 million in dividends paid to stockholders on February 25, 2022 and May 25, 2022, respectively. In addition, in July 2022, the Company's Board of Directors declared a quarterly dividend of $0.025 per share which will result in a total of $2.7 million in dividends paid on August 25, 2022 to stockholders of record on August 1, 2022.