Drilling & Completions | First Quarter (1Q) Update | Financial Results | Hedging | Capital Markets | Capital Expenditure | Drilling Activity | 2020 Guidance

HighPoint Resources Talks Q1 2020 Results, DJ Basin Ops

Share Print Bookmark    |    Tuesday,May 05,2020

HighPoint Resources Corp. reported its Q1 2020 results.

Highlights:

• Reported production sales volume of 2.9 million barrels of oil equivalent ("MMBoe") for the first quarter of 2020, above the high end of guidance
• Oil production sales volume of 1.6 million barrels of oil ("MMBbls") for the first quarter of 2020; 55% of total equivalent production sales volume and above the high end of guidance
• First quarter of 2020 capital expenditures totaled $70 million, below the low end of guidance
• Reduced bank debt by $45 million or 32% during the first quarter of 2020; prioritizing the preservation of balance sheet and liquidity and free cash flow generation
• Strong hedge position insulates 2020 and 2021 cash flow against fluctuations in crude prices; current mark-to-market value of approximately $170 million
• See COVID-19 disclosures on Page 7

Chief Executive Officer and President Scot Woodall commented, "We are in unprecedented times and responded to the COVID-19 pandemic by moving expeditiously to protect the health and safety of our employees and community by implementing remote workforce measures as part of our business continuity plan. The health, safety and well being of our employees is of utmost importance and I would like to commend them for their commitment, dedication and high level of professionalism in maintaining the smooth functioning of our operations during these challenging times."

"Our top priority remains preserving our balance sheet and liquidity and ensuring free cash flow generation by maintaining a disciplined approach to capital investment. We reacted to what we anticipate will be a sustained period of lower crude prices by prudently deferring drilling and completion activity to maintain our opportunity set of future development locations until oil prices improve. Our robust hedge position insulates us in the short term from the impact of low oil prices. We have nearly all of our anticipated 2020 production hedged at a WTI price that is greater than $57 per barrel and we are well hedged in 2021. The mark-to-market value of our hedge book is approximately $170 million based on current WTI strip prices, providing significant near-term revenue protection."

"We have implemented several cost saving initiatives, including reducing the size of our Board of Directors from twelve members to eight members, lowering Board member compensation, enacting salary reductions of 15%-20% for executives and we are identifying further cost savings opportunities as well. These are necessary actions that better aligns our cost structure to the current operating environment."

Financials

For the first quarter of 2020, the Company reported a net loss of $1,016 million, or $4.81 per diluted share. The net loss was driven primarily by a non-cash impairment of $1,265 million related to proved and unproved oil and gas properties as a result of lower current and forecasted commodity prices. Adjusted net income for the first quarter of 2020 was a net loss of $7 million, or $0.03 per diluted share. EBITDAX for the first quarter of 2020 was $81 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.

Production

The Company reported oil, natural gas and natural gas liquids ("NGL") production of 2.9 MMBoe for the first quarter of 2020, which exceeded the high end of the guidance range of 2.7-2.8 MMBoe. Oil volumes totaled 1.6 MMBbls or 55% of total equivalent volumes, which also exceeded the high end of the guidance range of 1.4-1.5 MMBbls.

Production sales volume for the first quarter were comprised of approximately 55% oil, 25% natural gas and 20% NGLs.

For the first quarter of 2020, West Texas Intermediate ("WTI") oil prices averaged $46.17 per barrel, Northwest Pipeline ("NWPL") natural gas prices averaged $2.22 per MMBtu and NYMEX natural gas prices averaged $1.95 per MMBtu. Commodity price realizations to benchmark pricing were WTI less $3.83 per barrel of oil and NWPL less $0.91 per Mcf of gas. The NGL price averaged approximately 20% of the WTI price per barrel.

For the first quarter of 2020, the Company had derivative commodity swaps in place for 16,500 barrels of oil per day tied to WTI pricing at $59.73 per barrel and no hedges in place for natural gas and NGLs.

Lease operating expense ("LOE") averaged $3.81 per Boe in the first quarter of 2020 compared to $4.03 per Boe in the first quarter of 2019. First quarter LOE is typically greater compared to the remainder of the year due to higher seasonal operating costs, including annual compressor maintenance. Production tax expense averaged $(0.86) per Boe in the first quarter of 2020 compared to $1.39 per Boe in the first quarter of 2020. Production taxes for the first quarter of 2020 include an annual true-up of Colorado ad valorem tax based on actual assessments. Production tax expense is expected to average approximately 6%-7% of revenues for the remainder of 2020.

At March 31, 2020, the Company had cash and cash equivalents of $11 million and $95 million outstanding on its credit facility, which was a 32% reduction in bank debt from the end of 2019. This included approximately $8 million associated with the monetization of certain oil derivative contracts for the second half of 2020 that were above anticipated production volume due to lower planned capital investment. In addition, the company has a $26 million letter of credit outstanding that begins reducing ratably per month beginning April 1, 2020 until it expires on August 31, 2021.

Non-Core Asset Sale

As previously disclosed, the Company announced plans to divest certain non-core, non-operated assets in three separate transactions. The Company was able to close on one of the transactions for cash proceeds of $3 million, but was not able to complete the remaining two transactions due to market conditions. Proceeds from the completed transaction were used to reduce the outstanding balance of the Company's credit facility. The Company will continue to assess market conditions and may elect to divest in the future if conditions improve, but cannot be assured it will do so.

Capital Expenditures

Capital expenditures for the first quarter of 2020 totaled $70.0 million, including $68.7 million for drilling and completion operations. Capital projects included spudding 4 gross extended reach lateral ("XRL") wells and 10 gross mid reach lateral ("MRL") wells and placing 12 gross wells on initial flowback. As previously reported, due to the current market volatility being experienced, the Company is deferring new drilling and completion activity following the completion of current in progress activity, which is anticipated to conclude in the second quarter.

Ops Update

Hereford Field

Production sales volumes for the first quarter of 2020 in Hereford averaged 7,443 Boe/d (70% oil).

In March, the Company initiated flowback on two wells located in the Fox Creek area at DSU 12-63-27. The wells were completed with high fluid intensity completions of 50 barrels per lateral foot and approximately 2,000 pounds of sand per lateral foot. The wells are demonstrating positive performance during early controlled flowback as the average per well daily oil production rate is currently tracking approximately 30% higher than the offsetting Section 16 wells after 30 days.

The Company placed on flowback three wells located at DSU 12-63-34 in April, which continue to ramp to peak production. In addition, completion operations were initiated in April on two wells in the Fox Creek area at DSU 12-63-33. It is anticipated that initial flowback will commence on these wells during the second quarter of 2020.

Northeast Wattenberg

The Company produced an average of 24,506 Boe/d (50% oil) in the first quarter of 2020 in NE Wattenberg.

Recent activity includes six XRL wells that were placed on flowback in February that are located in DSU 4-61-5. The wells have continued to illustrate the strong performance uplift observed with high fluid intensity completions as the average per well cumulative oil production is tracking approximately 90% above offset analog wells completed with the previous standard completion design after 50 days.

Q2 2020 Guidance

In response to the volatile, current crude price environment, the Company is reducing planned activity by deferring new drilling and completion activity following the completion of current in progress activity, which concluded in April. Current and future crude oil prices will continue to be monitored, along with the uncertainties and potential impacts of broader macro-economic effects on the oil sector, to determine the appropriate time to resume activity. Given these broader market uncertainties, the Company is providing guidance for the second quarter of 2020 at this time.

For the second quarter of 2020, capital expenditures are anticipated to total approximately $40 million and production is expected to approximate 2.5-2.6 MMBoe, of which approximately 57% is anticipated to be oil. The Company expects to achieve this level of production provided that it does not experience any physical downstream production curtailments or shut-ins as a result of deteriorating crude oil supply and demand fundamentals or broader economic conditions.

Hedge Book

The following table summarizes the Company's current hedge position as of May 4, 2020:

The Company 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.