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HighPoint Resources Details Q4 2019 Results

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   |    Wednesday,February 26,2020

HighPoint Resources Corp. reported fourth quarter and full year 2019 financial and operating results, 2020 operating and financial guidance and year-end 2019 proved reserves. Highlights include notable increases in total production, oil volumes, proved reserves, and EBITDAX, a meaningful improvement in operating costs and positive well results from our drilling program.

Ops Review

Hereford Field

During 2019, production sales volume from Hereford averaged 8,582 Boe/d (75% oil), which represents a 155% increase over 2018. Production sales volume for the fourth quarter of 2019 averaged a Company field record of 10,575 Boe/d (72% oil) or a 77% increase over the fourth quarter of 2018. During the fourth quarter of 2019, 4 gross wells were spud and no wells were placed on flowback.

Recent activity is highlighted by DSU 11-63-17, which includes twelve wells drilled at a density of 12 wells per section and the performance impact of Gen 4 completions that utilized greater fluid of up to 52 barrels per lateral foot and an average of approximately 1,500 pounds of sand per lateral foot was assessed. In order to gauge the performance benefits of greater fluid, the wells were stimulated with larger fluid completions than all previous wells. The wells exhibited early production performance consistent with the Company's expectations prior to being adversely impacted by a regional power outage due to a blizzard in November that caused the wells to be shut-in. Production was restored after three days; however, the wells did not return to the same production trend as prior to the storm. Based on a review of flowback and subsurface data, the Company believes that downhole sand obstructions caused by the wells being shut-in impeded flowback. A workover program was initiated in January that confirmed multiple downhole sand bridges in each of the wells. Remediation efforts were recently completed and post workover production continues to be monitored.

In addition, completion operations were initiated in February on 5 DUCs in the Fox Creek area at DSU 12-63-34. It is anticipated that initial flowback will commence during the second quarter of 2020.

NE Wattenberg

During 2019, production sales volumes from NE Wattenberg averaged 25,764 Boe/d (57% oil), which represents a 5% increase over 2018. Production sales volumes averaged 27,464 Boe/d (52% oil) for the fourth quarter of 2019. During the fourth quarter of 2019, 10 gross wells were spud and 2 gross wells were placed on flowback.

Recent operational highlights include seven wells located in DSU 5-61-35 that were placed on flowback in the third quarter of 2019 and completed with high-fluid intensity completions. The wells have exhibited strong performance as the average per well cumulative oil production is tracking 50% above offset analog wells completed with the previous standard completion design after 125 days. During the first quarter of 2020, the Company placed 6 XRL wells on flowback in February that are located in DSU 4-61-4. These wells are on initial flowback and were completed with high-fluid intensity completions.

2020 Guidance

The Company is providing the following guidance for its 2020 activities. See "Forward-Looking Statements" below.

• Capital expenditures of approximately $200-$220 million
  -- First half activity will be primarily focused on the completion of 7 DUCs in Hereford and 24 DUCs in NE Wattenberg, and the spudding of up to 13 wells. Drilling and completion operations will resume at Hereford during the second half of the year and will be based on the results of the Section 17 wells and the larger stimulations and spacing tests being employed on the Hereford DUCs.
  -- First quarter of 2020 capital expenditures are anticipated to total approximately $80-$90 million.
• Production of 10.5-11.0 MMBoe
  -- Production is estimated to be approximately 57%-58% oil.
  -- Includes the effect of excluding approximately 0.6 MMBoe associated with anticipated non-core asset sales
  -- First quarter of 2020 production is expected to approximate 2.7-2.8 MMBoe (approximately 53% oil). This represents lower sequential production from the fourth quarter of 2019 as a result of lower aggregate spending during the second half of 2019 and downtime associated with workover activity on the Section 17 wells in Hereford.
• Oil price differential of approximately $4.00 per barrel
• Lease operating expense of $3.35-$3.55 per Boe
• Gathering, transportation and processing costs of $1.30-$1.50 per Boe
• Cash general and administrative expense of $34-36 million
• Unused commitment for firm natural gas transportation charges of $18-$19 million

Hedges

As of February 26, 2020, the Company had the following commodity hedge positions in place for crude oil for 2020 and 2021:

HighPoint has sold WTI swaptions of 3,000 bbl/d for calendar 2022 at an average strike price of $55.00/bbl. Realized sales prices will reflect basis differentials from the index prices to the sales location.

Financials

For the fourth quarter of 2019, the Company reported a net loss of $47.8 million, or $0.23 per diluted share. Adjusted net income for the fourth quarter of 2019 was a loss of $9.6 million, or $0.05 per diluted share. EBITDAX for the fourth quarter of 2019 was $97.4 million. For 2019, the Company reported a loss of $134.8 million, or $0.64 per diluted share. Adjusted net income for 2019 was a net loss of $42.6 million, or $0.20 per diluted share. EBITDAX for 2019 was $339.7 million. Adjusted net income (loss) and EBITDAX are non-GAAP (Generally Accepted Accounting Principles) measures. Please reference the reconciliations to GAAP financial statements at the end of this release.

Chief Executive Officer and President Scot Woodall commented, "We successfully delivered on our organizational objectives during 2019. Our operational execution and ability to optimize costs were evident in our financial results as we delivered 21% growth in EBITDAX. This was underpinned by development activities that drove production sales volume growth of 23% and a corresponding increase in oil volumes of 21%. This was accomplished with capital expenditures that were 29% lower than 2018, underscoring our commitment to maintaining capital discipline. Our development activities delivered in a 22% increase in year-end proved reserves to 127 MMBoe, which was driven by a 32% percent increase in Hereford proved reserves. We also achieved our goal of generating positive free cash flow for the second half of the year, which was used to strengthen our balance sheet by reducing borrowings under our credit facility."

"Operationally, a significant achievement was the completion of our Hereford optimization program, which yielded an enhanced geologic and reservoir understanding of the field and provided an economic baseline for future development. Our growing confidence in the field was supported by the Section 16 wells that continue to exhibit strong performance. In NE Wattenberg, we continue to bring our best wells to date online as the most recent high-fluid intensity completions are exhibiting strong performance. High-fluid intensity completions will remain the standard design going forward as we deliver optimum value from our development program."

"We will maintain a conservative capital approach for 2020 and we have set a spending level that is approximately 40% lower than 2019 to prioritize free cash flow generation and no increased debt. First half activity will primarily focus on the completion of drilled but uncompleted wells ("DUCs") at NE Wattenberg and Hereford as well as drilling activities in NE Wattenberg. Drilling and completion operations are anticipated to resume at Hereford during the second half of the year and will be implemented based on the results of the larger stimulations and spacing tests currently being employed in Hereford. This will enable us to proceed with the most economic future development plan going forward. Although crude prices continue to fluctuate, our capital program economics and cash flow are protected with an underlying hedge portfolio covering approximately 95% of our 2020 oil production at a WTI price that is well in excess of current prices."

Proved Reserves

Total estimated proved reserves at year-end 2019 were 127.4 MMBoe (58% oil, 41% proved developed) compared to 104.6 MMBoe (56% oil, 49% proved developed) at year-end 2018, which is a 22% year-over-year increase. The increase in estimated proved reserves compared to year-end 2018 is primarily the result of extensions and discoveries of 36.1 MMBoe, which were partially offset by price revisions of previous estimates as a result of lower NGL yields and other revisions totaling 2.5 MMBoe. Additions to extensions and discoveries were driven by the Hereford and NE Wattenberg drilling programs, which resulted in a 32% increase in Hereford proved reserves and a 13% increase in NE Wattenberg proved reserves. Hereford reserve additions utilized the success of the Section 16 SE wells as the plan of development to support the additional proved undeveloped reserve bookings.

The standardized measure of discounted future net cash flows for proved reserves at December 31, 2019 was $974 million. NYMEX pricing used in the preparation of the proved reserves was $55.85 per barrel for oil, a percentage of the $55.85 oil price per Bbl for NGLs and $2.58 per Mcf for natural gas. The proved reserves were audited by Netherland, Sewell & Associates, Inc.

Production and Financial Results

Reported oil, natural gas and natural gas liquids production sales volume totaled 12.5 MMBoe for 2019, which is an increase of 23% over 2018. Reported oil production sales volume totaled 7.7 MMBbls, which is an increase of 21% over 2018. Production sales volume from NE Wattenberg totaled 9.4 MMBoe, which was an increase of 5%, and production sales volume for Hereford totaled 3.1 MMBoe, which was an increase of 155%.

Production sales volume for the fourth quarter of 2019 totaled 3.5 MMBoe, which was an increase of 12% over the fourth quarter of 2018. Oil volumes totaled 2.0 MMBbls, which was an increase of 3% over the fourth quarter of 2018. Production sales volume from NE Wattenberg totaled 2.5 MMBoe and Hereford production volumes totaled 1.0 MMBoe.

Fourth quarter of 2019 volumes were adversely impacted by a blizzard in November which caused a widespread regional power outage and resulted in all Hereford field production being shut in for three days, with full production being restored to the field after approximately one week.

For 2019, West Texas Intermediate ("WTI") oil prices averaged $57.03 per barrel, NWPL natural gas prices averaged $2.59 per MMBtu and NYMEX natural gas prices averaged $2.63 per MMBtu. Commodity price differentials to benchmark pricing for 2019 were oil less $4.08 per barrel versus WTI; and natural gas less $1.03 per Mcf compared to NWPL. The NGL price averaged approximately 17% of the WTI price per barrel.

For the fourth quarter of 2019, WTI oil prices averaged $56.96 per barrel, NWPL natural gas prices averaged $2.59 per MMBtu and NYMEX natural gas prices averaged $2.50 per MMBtu. Fourth quarter of 2019 commodity price differentials to benchmark pricing were oil less $3.92 per barrel versus WTI and natural gas less $1.09 per Mcf compared to NWPL. The NGL price averaged approximately 19% of the WTI price per barrel.

For the fourth quarter of 2019, the Company had derivative commodity swaps in place for 16,712 barrels of oil per day tied to WTI pricing at $59.01 per barrel and derivative collars in place for 3,000 barrels of oil per day with a ceiling price of $77.56 per barrel and a floor price of $55.00 per barrel, 7,000 MMBtu of natural gas per day tied to NWPL regional pricing at $2.11 per MMBtu, and no hedges in place for NGLs.

Debt and Liquidity

At December 31, 2019, the Company had cash and cash equivalents of $16 million and $334 million in available capacity under its $500 million credit facility, after taking into account a $26 million letter of credit. The letter of credit will begin reducing ratably per month beginning April 1, 2020 until it expires on August 31, 2021. Net debt (principal balance of debt outstanding less the cash and cash equivalents balance) totaled $749 million at December 31, 2019.

Non-Core Asset Sale

The Company anticipates entering into agreements to divest certain non-core, non-operated assets in three separate transactions for expected aggregate cash proceeds of approximately $27 million. The combined properties produced approximately 2,000 Boe/d during January 2020. The transactions are expected to close in the first and second quarters of 2020, and are subject to customary closing conditions and adjustments. The proceeds will be used to reduce the outstanding balance of the Company's credit facility.

Capital Expenditures

Capital expenditures totaled $361.0 million for 2019 and included $319.3 million for drilling and completion operations, $4.7 million for leasehold and minerals, and $37.0 million for infrastructure and corporate purposes.

Capital expenditures for the fourth quarter of 2019 totaled $34.3 million and included included $24.4 million for drilling and completion operations, $0.4 million for leaseholds, and $9.5 million for infrastructure and corporate assets.