Quarterly / Earnings Reports | Second Quarter (2Q) Update

HighPoint Resources Reports Q2 2019 Results

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HighPoint Resources Corp. reported second quarter of 2019 financial and operating results, including year-over-year increases in production, oil volumes and EBITDAX, record Hereford field production and positive well performance in both Hereford and NE Wattenberg.

Highlights:

• Reported production sales volume increased 18% over the second quarter of 2018 to 2.84 million barrels of oil equivalent ("MMBoe")
• Oil production sales volume increased 16% over the second quarter of 2018 to 1.75 million barrels of oil ("MMBbls"), represents approximately 62% of total reported production sales volumes
• Hereford field production has reached a record-high of over 10,000 barrels of oil equivalent per day ("Boe/d")
• Delivered strong operational execution as 30 gross wells were placed on flowback during the second quarter of 2019 and an additional 20 gross wells were placed on flowback in July
• Successfully executed Hereford optimization program with all strategic completion and microseismic data gathered and all 23 wells placed on flowback; seeing immediate performance insights that are contributing to early positive development enhancements 
• Continued strong well performance from Northeast ("NE") Wattenberg high-fluid intensity completions as the most recent seven wells on western flank of the acreage are tracking above 1 MMBoe type-curve after 30 days
• Third quarter of 2019 production expected to be in a range of 3.3-3.4 MMBoe, representing a quarterly sequential increase of approximately 18% at the mid-point of guidance; current total net company production is in excess of 37,000 Boe/d
• Reiterating full-year 2019 production guidance of 12.5-13.0 MMBoe and full-year 2019 capital expenditure guidance of $350-$380 million

For the second quarter of 2019, the Company reported a net loss of $1.9 million, or $0.01 per diluted share. Adjusted net income for the second quarter of 2019 was a net loss of $15.0 million, or $0.07 per diluted share. EBITDAX for the second quarter of 2019 was $71.1 million. Adjusted net income (loss) and EBITDAX are non-GAAP (Generally Accepted Accounting Principles) measures. Please reference the reconciliations to GAAP net income at the end of this release.

Chief Executive Officer and President Scot Woodall commented, "We continue to execute on our operational plan as evidenced by our second quarter results, which were firmly in line with our plan and highlighted by year-over-year growth in total production sales volumes, oil volumes and EBITDAX. We delivered strong operational execution as we placed 30 wells on initial flowback during the second quarter, giving us high confidence in achieving a significantly higher production profile that we have outlined for the second half of the year. We placed an additional 20 wells on flowback in July and are currently producing over 37,000 Boe/d. This has us firmly on track to meet our third quarter production guidance, which was provided today."

"Our second quarter operational activity was highlighted by the successful execution of our large-scale Hereford optimization program, which we expect will deliver increased capital efficiency, enhanced well performance and stronger per well economics. We are extremely pleased with the immediate performance insights gained during the execution of this program, which confirms the quality and potential of this asset. We have significantly advanced our geologic understanding of the field, which is yielding early positive completion design enhancements. This has also confirmed strong reservoir quality and a significant resource of 30-40 MMBbls of original oil in place per section, which is approximately 25% greater than our legacy NE Wattenberg position. We continue to process early drilling and completion data as the real-time integration of early learnings continues. All 23 wells within the program have been completed and were placed on flowback in June and July utilizing controlled flowback. The wells are performing as anticipated during initial flowback and we look forward to providing further updates as the program wells achieve a longer production profile."

"We also continue to see strong well performance from our legacy NE Wattenberg asset as the initial high-fluid intensity completions are averaging approximately 20% above base type-curve expectations. Our most recent seven wells that are located on the western flank of our acreage were placed on flowback in June and are exhibiting strong performance as they are tracking above our 1 MMBoe type-curve during early production, supporting our enthusiasm for utilizing high-fluid intensity completions and demonstrating our ability to continually enhance value from our assets."

"Summit Midstream commissioned its new gas processing plant in July, which increased Hereford gas processing capacity to support our development plans and we continue to produce our NE Wattenberg volumes unconstrained as our diversified midstream outlets provide a strategic advantage that maximizes optionality."

"Although crude oil prices continue to fluctuate, we possess a very strong hedge position with more than 70% of our expected oil production hedged in the second half of 2019 and more than 50% of expected oil production in 2020 hedged at an attractive level of greater than $59.00 per barrel. We will maintain a disciplined approach to capital investment and are on track to achieve our target of generating positive free cash flow for the second half of the year beginning in the third quarter."

Operating & Financial Results

The following table summarizes certain operating and financial results for the second quarter of 2019 and 2018 and for the first quarter of 2019:

(1) Discretionary cash flow, adjusted net income (loss) and EBITDAX are non-GAAP measures. Please reference the reconciliations to GAAP financial statements at the end of this release.

The Company reported oil, natural gas and natural gas liquids ("NGL") production of 2.84 MMBoe for the second quarter of 2019, which was an increase of 18% over the second quarter of 2018. Oil volumes totaled 1.75 MMBbls or 62% of total equivalent production sales volumes, which was an increase of 16% over the second quarter of 2018.

Production sales volumes for the second quarter were comprised of approximately 62% oil, 21% natural gas and 17% NGLs.

For the second quarter of 2019, WTI oil prices averaged $59.81 per barrel, Northwest Pipeline ("NWPL") natural gas prices averaged $2.08 per MMBtu and NYMEX natural gas prices averaged $2.64 per MMBtu. Commodity price realizations to benchmark pricing were WTI less $4.29 per barrel of oil and NWPL less $0.50 per Mcf of gas. The NGL price averaged approximately 16% of the WTI price per barrel.

For the second quarter of 2019, the Company had derivative commodity swaps in place for 17,250 barrels of oil per day tied to WTI pricing at $59.18 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.

Lease operating expense ("LOE") averaged $3.79 per Boe in the second quarter of 2019 compared to $3.15 per Boe in the second quarter of 2018.

Production tax expense averaged $3.13 per Boe in the second quarter of 2019 compared to $4.02 per Boe in the second quarter of 2018. Production tax expense averaged 8.3% of revenues in the second quarter of 2019 and is expected to average approximately 8%-9% of revenues for the remainder of 2019.

Debt and Liquidity

At June 30, 2019, the Company had cash and cash equivalents of $16 million and $324 million available under its $500 million credit facility, after taking into account a $26 million letter of credit, resulting in total liquidity of $340 million. Net debt totaled $758.9 million at June 30, 2019. The Company completed its semiannual redetermination in May 2019 and the borrowing base under the credit facility was reaffirmed at $500 million.

Capital Expenditures

Capital expenditures for the second quarter of 2019 totaled $124.4 million and capital projects included spudding 15 gross extended reach lateral ("XRL") wells and placing 30 gross XRL wells on initial flowback.

Capital expenditures included $118.2 million for drilling and completion operations, $0.4 million for leasehold, and $5.8 million for infrastructure and corporate assets.

Operations Update

Hereford Field

Production sales volumes for the second quarter of 2019 in Hereford averaged 7,145 Boe/d (75% oil) and current field production has reached a record-high of over 10,000 Boe/d. During the second quarter of 2019, 3 gross wells were spud and 13 gross wells were placed on flowback. The Company successfully executed and completed its extensive reservoir and geologic technical study within DSU 11-63-16 and DSU 11-63-17 with an emphasis on immediately advancing several generations of development improvements and optimizing all phases of drilling and completion processes. The technical study area consisted of 23 XRL wells within the two DSUs and encompassed over 1,860 total stages of completions that evaluated every aspect of the completion process including, fluid loading of 30-60 barrels per foot, sand loading of 1,000-2,250 pounds per lateral foot, cluster spacing of 10-40 feet and stage spacing of 30-240 feet. Fiber optics were incorporated on three wells, microseismic monitoring was utilized across 18 square miles and well spacing assumptions of 8-16 wells per DSU were used. All 23 XRL wells have been completed and were placed on flowback during June and July.

The Company is pleased with the immediate performance insights gained during the execution of the program that are expected to provide definitive conclusions with respect to optimal well density and completion design. In addition, thermal maturity and saturation data gathered confirms strong reservoir characteristics and a significant hydrocarbon resource of 30-40 MMBbls of original oil in place per section, which is approximately 25% greater than NE Wattenberg. Early drilling and completion data is being processed and real-time integration of the data has commenced. This has provided a significantly better geologic understanding of the Hereford field that is contributing positive development enhancements. Initial program conclusions include identifying opportunities to improve fracture stimulation of the Niobrara and Codell reservoirs, which is expected to positively impact well performance, well economics and capital efficiency and will be confirmed through production data.

The seven wells located on the eastern portion of DSU 11-63-16 were placed on flowback in June. Development consisted of increased well density of 16 wells per section, incorporated higher intensity completions of approximately 30 barrels of fluid per lateral foot and approximately 1,500 pounds of sand per lateral foot. The wells are performing as anticipated during the initial 30-days of controlled flowback based on the increased density spacing. The remaining four wells, which are located on the western portion of the DSU, were placed on flowback in July, utilized higher fluid intensity completions and were drilled at a density of 8 wells per section. In addition, DSU 11-63-17 was placed on flowback in late July and included 12 XRL wells and also utilized high-fluid intensity completions.

Summit Midstream commissioned its new gas processing plant in July, which increased Hereford gas processing capacity from 20 MMcf/d to 60 MMcf/d and supports the Company's planned development.

NE Wattenberg

The Company produced an average of 24,072 Boe/d (57% oil) in the second quarter of 2019 in NE Wattenberg and spud 12 gross wells and placed 17 gross wells on flowback. The Company continues to see improved well performance through high-fluid intensity completions as the initial 11 well program has reached average cumulative production of approximately 100,000 barrels of oil (77% of equivalent volumes) per well after 270 days of production and continue to track approximately 20% above the base NE Wattenberg type-curve.

The Company also placed seven XRL wells on flowback in DSU 4-63-5 on the western flank of its acreage in June. These are the first wells completed by the Company in this area to utilize high-fluid intensity completions. The wells are exhibiting strong early performance and are currently tracking above a 1 MMBoe type-curve after 30 days of production. These encouraging well results further support the Company's enthusiasm for its high-fluid intensity completions, which it has incorporated as the new standard completion.

2019 Guidance

The Company is reiterating its 2019 capital expenditure and production guidance and is providing updated guidance as discussed below.

See "Forward-Looking Statements" below.

• Capital expenditures of approximately $350-$380 million, unchanged 
  -- Third quarter of 2019 capital expenditures are expected to be approximately $70 -$80 million
• Production of 12.5-13.0 MMBoe, unchanged 
  -- Third quarter 2019 production is expected to approximate 3.3-3.4 MMBoe (approximately 62% oil)
• Lease operating expense is expected to average $3.00-$3.25 per Boe for full-year 2019
• Cash general and administrative expense of $3.00-$3.25 per Boe for full-year 2019
• Gathering, transportation and processing costs of $0.75-$0.95 per Boe for full-year 2019

Hedges

The following table summarizes our current hedge position as of August 5, 2019:

Realized sales prices will reflect basis differentials from the index prices to the sales location.