Q1 2022 Highpeak Energy Inc Earnings Call
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Thank you for standing by and welcome to the first quarter 2022 High Peak Energy conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session.
Thank you for standing by and welcome to the first quarter 2022 High Peak Energy Conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone as a reminder, today's program may be recorded.
Now I'd like to introduce your host for today's program, Mr. Stephen Nolan Chief Financial Officer. Please go ahead Sir.
host for today's program, Mr. Stephen Dolan, Chief Financial Officer.
Thank you and good morning everyone and welcome to High Peak Energy's first quarter 2022 conference call. Representing High Peak today are Chairman and CEO Jack Hightower, President Michael Hollis, Vice President of Business Development Ryan Hightower, and I am Stephen Tholen, the Energy Management Chief Financial Officer.
Thank you and good morning, everyone and welcome to high Peak Energy's first quarter 2022 conference call representing high peak today, our chairman and CEO Jack High Tower, President, Michael Hollis, Vice President of business development, Ryan High Tower and I am Stephen.
Rowlands Chief Financial Officer.
During today's call, we will reference to our main investor presentation and our first quarter 2022 earnings release and Form 10-Q , which can all be found on High Peak's website. Happy weekend.
During today's call, we will reference too.
Vascular presentation.
And our first quarter 2022 earnings release, and Form 10-Q, which can all be found on <unk>.
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Today's call participants may make certain forward-looking statements relating to the company's financial condition, results of operations, expectations, plans, goals, assumptions, and future performance.
Today's call participants may make certain forward looking statements relating to the company's financial condition.
Results of operations expectations plans goals assumptions and future performance. So please refer to the cautionary information regarding forward looking statements and related risks and the company's SEC filings, including the fact that actual results may.
So please refer to the cautionary information regarding forward looking statements and related risks in the company's SEC filings, including the fact that the active results may differ materially from our expectations due to a variety of reasons, many of which are being
Differ materially from our expectations due to a variety of reasons.
Many of which.
Are beyond our control.
We will also refer to certain non-GAAP financial measures on today's call. So please see the reconciliations in the earnings release, which was issued Monday afternoon.
We will also refer to certain non-GAAP financial measures on today's call, so please see the reconciliations in the earnings release, which was issued Monday afternoon.
Our prepared remarks will begin on slide four of our May investor presentation. I will now turn the call over to our Chairman and CEO Jack Heitel.
Our prepared remarks will begin on slide four of our May investor presentation.
I will now turn the call over to our chairman and CEO Jack High Tower.
Thank you Steve and good morning to everyone, our investors and stakeholders as well as analysts and other interested parties.
Thank you, Steve and good morning to everyone.
Our investors and stakeholders as well as analysts and other interested parties.
This is by far the most exciting presentation that we've given today in Happy.
This is by far the most exciting presentation that we've given today and happy.
We are pleased to announce and update our shareholders on progress of the company and provide additional details on our recently announced Hanathon properties as well as other acquisitions that we have consolidated over the last quarter.
We are pleased to announce an update our shareholders and progress of the company.
Provide additional details on our recently announced Panasonic properties.
As well as other acquisitions that we have consolidated over the last quarter.
We are substantially a different company today compared to a year ago. And this will be obvious from the information we're going to discuss throughout the presentation. We're going to try to spend as much time as we can and updating you on current process, product rates. We're approaching cash flow neutrality and expected transition to positive free cash flow in the second position.
We are substantially a different company today compared to a year ago and this will be obvious from the information we're going to discuss throughout the presentation I'm going to try to spend as much time as we can and updating you on current prices protecting rights.
Approaching cash flow neutrality, and expect to transition to positive free cash flow in the second.
Okay.
And this is all about maintaining our trajectory on production and current growth.
And this is all while maintaining our trajectory on production and current growth.
If prices continue at these levels. During 2023, we expect to be one of the few if not the only U S company, which is substantially increasing production.
If prices continue at these levels during 2023, we expect to be one of the few, if not the only U.S. company, which is substantially increasing production and generating significant free cash flows.
And generating significant free cash flow.
As I've stated before, High Peak is definitely a differentiated grow store.
As I've stated before.
Peak is definitely a differentiated growth store.
If you'll turn to slide four in the presentation, there's many interesting things.
If youll turn to slide four in the presentation, there's many interesting things.
And I want to refer everybody to the festeralies recently because our stocks down right now quite a bit. And this is a super...
And I wanted to refer.
To the press release recently.
As our stocks down right.
Right now quite a bit.
And this is a super buying opportunity.
In fact, when you look at the press release, it's easy to say, well, if our production went from 15,000 barrels at the first quarter to 12,000 barrels, and now Hossie's legacy is at 25,000 barrels.
In fact, when you look at the press release, it's easy to say well yes.
Our production went from.
From 15000 barrels at the first quarter to 12000 barrels and now high peak legacy is it 25000 barrels.
with Hannathon were over 28,000 barrels.
With Amazon where over 28000 barrels.
30000 barrels a day.
a day. Well, you might say, well, what about missing your first quarter production?
You might say well what about missing your first quarter production.
We've added.
Almost three additional drilling rigs. We've added multiple frat crates.
Almost three additional drilling rigs we've added multiple frac crews.
We are approaching the guidance that we said that we were going to maintain throughout the year. We're actually ahead of our guidance in terms of where our production is today. And we have almost 30 wells that are still in progress being completed in coming online.
We are approaching the guidance that we said that we were going to maintain throughout the year. We're actually ahead of our guidance in terms of where our production is today and we have almost 30 wells that are still in progress being completed and coming online.
We have an un-hedge cash operating margin of $71.71, which is the highest in the industry.
And then hedge cash operating margin of $71 71.
Which is the highest in the industry our profit margin.
our profit margin. Another thing that people don't realize is, what is the operational and land group accomplished in addition to production relative to our overall viewpoint. And that is, we've gone from 63,000 to 91,000 acres.
The other thing that people don't realize.
What is the operational and land group accomplished in addition to production relative to our overall viewpoint and that is we've gone from 63090 1000 acres and.
And we've done that's almost a 45% increase in four months in acreage position, increasing our scale and increasing our exposure. And as we go through the presentation, you're gonna see a lot more interesting things that conceptually with that increase in acreage.
And we've done that is almost a 45% increase in four months, an acreage position, increasing our scale and keep increasing our exposure and as we go through the presentation youre going to see a lot more interesting things conceptually with that increase in acreage.
We also announced the hand-in-the-hand acquisition, which is a large acquisition, 255 million in cash, and 3.78 million shares of high peak. This gave us, along with what we call the Alamo acquisition to the North.
We also announced the Hana Thorn acquisition, which is a large acquisition just $255 million in cash and $3 $7 8 million shares of happy This gave us along with the what we call the Alamo acquisition to the north.
almost 150 net locations at a three times EBITDA multiple. Very, very creative transaction. Also increasing our flow and increasing our leverage in terms of liquidity for the shareholder.
Almost 150 net locations and a three times EBITDA multiple very very accretive transaction also increasing our flow and increasing our leverage in terms of liquidity for the shareholders.
So, and it had a $70 million plus economic value in terms of present value synergies in that acquisition.
So and it had a $70 million plus economic.
<unk> value in terms of present value synergies in that acquisition.
If you'll now turn to slide five, this is probably the most important slide in the entire presentation.
If youll now turn to slide five this is probably the most important slide in the entire presentation.
It shows you our history from when we went public.
It shows you our history from when we went public.
of 50 something hundred barrels a day going up in the second part of that and then going back down again.
5700 barrels a day going up in the second part of that and then going back down again.
And that going back down again is very similar of what happened in the last quarter. Then up to almost 15,000 barrels a day, then down to 12,100 barrels.
And that's that going back down again is very similar of what happened in the last quarter, then up to almost 15000 barrels a day then down to 12100 returns. It begs the question why does the production go up in one as it goes down there is not anything fundamentally.
It begs the question, why does the production go up and why does it go down? There's not anything wrong fundamentally with the reservoir. There's not anything fundamentally wrong with anything we're doing. When you add that many rigs...
With the reservoir there is not anything fundamentally wrong with everything we're doing when you add that many rigs and re emphasizing again frac crews and you can look down at the bottom of the page and see when do you get contribution from these rigs because initially you add.
and re-emphasizing again, frat crews. And you can look down at the bottom of the page and see when do you get contribution from these rigs? Because initially, you actually get negative contribution. You are in a block situation where you can't frat. We literally shut in almost 12 wells at different points in time during that quarter to go up to the next level.
Get negative contribution you're in a block situations, where you can frac you have we literally shut in almost 12 wells at different points in time during that quarter to go to the next level.
Now on a pro-formal basis, you look at the star and see where our production is going straight up. In the first store, star you see pro-formal with Hanathon, our production without Hanathon is still higher than what we projected. But our production with Hanathon is actually even higher. And we have increased our cost from 32 to 37,000 barrels a day.
Now on a pro forma basis, you look at the star and see where our production is going straight up in the first store Star you see.
Barnwell with Amazon our production without paying a ton is still higher than what we projected but our production with Amazon is actually even higher and we have increased our guidance from 32 to 37000 barrels a day.
for the year as an average. And then when we go to our exit this year, between 47,000 and 53,000 barrels a day. And we don't even start getting impact from our fourth, fifth, and sixth rig now with Hannathon until later in the year. And then at the end of the year, we're...
For the year as an average and then we go to our exit this year between 47000 53000 barrels a day.
And we don't even start getting impact from our fourth fifth and sixth rig now with Amazon until later in the year.
And then at the end of the year, we're going to exit at an average of almost 67000 barrels a day. If you take the mid point of that I'm going to spend more time talking about that throughout the presentation, but this slide shows you. This was not anomalies like we put on.
At an average of almost 67,000 barrels a day if you take the midpoint of that. I'm gonna spend more time talking about that throughout the presentation.
But this slide shows you, this was not anomalous. It isn't like we put on a lot of locations and pad sites that are coming on temporarily and going down. This is just part of our growth profile. And we are hitting our numbers.
A lot of Av.
Locations and pad sites that are coming on temporarily in going down. This is just part of our growth profile and we are hitting our numbers.
Personally, I am so excited about what's taking place. When you think about doubling your production in four and a half months and showing that same growth profile through the rest of the year, it's phenomenal for our company.
Personally I am so excited about what's taking place when you think about doubling your production in four and a half months and showing the same growth profile through the rest of the year.
Domino for our company.
Now going to slide <unk>.
This also gives you a sense of our full-weighted growth profile and it's going to continue as we go on. We mentioned about going into an average of 67,000 barrels a day at the end of 2023. This is in keeping with our plan to run the six rigs, but going beyond that and looking at exit production of almost 80,000 barrels a day in 2023.
Six. This also gives you a sense of our oil weighted growth profile and it's going to continue as we go on we mentioned about going into an average of 67000 barrels a day at the end of 2023.
This is in keeping with our plan to run the six rigs, but going beyond that and looking at exit production of almost 80000 barrels a day in 2023.
These are hypothetical numbers. We are hitting these numbers as we drew. And we're having the success that we had planned on. We have had to increase our capital budget.
These arent hypothetical numbers, we are hitting these numbers and we drill and we're having the success that we had planned on.
<unk> had to increase our capital budget.
Our exit rate is already accretive when we go forward from where we are right now today with oil prices where they are, we are not outspending anymore as we go forward and count the roughly 30 wells that are in progress. That will be pretty continuous now for the rest of the time, so on an average.
Our exit rate is.
Already accretive when we go forward from where we are right now today with oil prices, where they are we're not outspending anymore. As we go forward and count the roughly 30 wells that are in progress that will be pretty continuous now for the rest of the time.
No.
On an average basis.
almost $1,200,000,000 a year in exit. And at the end of 2023, we expect to be above $2,000,000, which gives us tremendous free cash flow and opportunity. And that's still just maintaining six rigs as we go forward, which gives us almost 150 to 175 new locations with the excess.
Almost $1.200 billion, a year and exit and at the end of 2023.
The above $2 billion, which gives us tremendous free cash flow and opportunity and Thats still just maintaining six rigs as we go forward, which gives us almost a 150 to 175 new locations with the excess.
very, very successful, very, very repetitive, and we're in process drilling now. If you'll look on page seven, which is adding cash flow, scale, and development opportunity.
Very very successful very very.
Repetitive and were in process drilling now if you look on page seven which is adding cash flow scale and development opportunity.
The first part of that on the left-hand side of the page is flat top. It shows our bolt-on acquisitions, which we divide into basically three now.
The first part of that on the left hand side of the page is flat top it shows our bolt on acquisitions, which we divide into basically three now.
Our area we call Alamo to the north is north of the block line, and that's kind of a circle showing what we're doing in that area. And a lot of it is because this is well performance, and we're going to talk more about that, but all that acreage to the north up there in Borden County, that's the county line, is the dark black line almost in the middle of the page.
Our area, we called them out to the North is north of the block line and Thats kind of a circle showing what we're doing in that area.
And a lot of it is because this is well performance and we're going to talk more about that but all of that acreage to the north up there in Borden County, that's the county line into the dark Black line almost in the middle of the page.
We've added 10,000 acres there and continuing to bolt on and put together lump areas where we have 15,000 foot opportunities to drill this well. You're going to be extremely excited when Mike talks about the operational excellence and what's happening to those wells. But that's adding to our area. We added infrastructure to the area. I'm not going to talk much about that at this stage on this.
We've added 10000 net acres, there and continuing to bolt on and put together lump areas, where we have 15000 foot opportunities to drill those wells youre going to be extremely excited when Mike talks about the operational excellence and what's happening to those wells.
But that's adding to our area, we added infrastructure to the area I'm not going to talk much about that at this stage on this but moving from 63000 to 91000 acres as you go into the hand upon area, it's almost the whole western part of that area now.
but moving from 63,000 to 91,000 acres as you go into the Hanathon area, it's almost the whole western part of that area now that we control 100% of adding 18,600 acres to that particular acquisition.
We control, 100% of adding 18600 acres to that particular acquisition buying it at a three times multiple on where present production is and being able to almost double that production in a period of between now and year end.
buying it at a three times multiple on where present production is and being able to almost double that production in a period of between out and year in.
from 3,300-100 barrels up to 7,500 barrels a day. So again, we're extremely excited about it. And I think you have to look, none of us are selling shares.
330, 700 barrels up to 7500 barrels a day.
So again, we're extremely excited about it and I think you have to look none of us are selling shares.
I'm one of the largest shareholders and I'm looking to try to acquire more shares not sell shares.
One of the largest shareholders and I'm looking to try to acquire more shares not sell shares.
because the company is so undervalued relative to what we have going on.
Because the company is so undervalued relative to what we have going on.
I guess the best thing I can say the next thing to talk about is our operating margins and I'm going to turn that over to my colleague who's going to give you insights on operations insights on profitability and while we are still the peer leading best in the business.
You bet. Thanks, Jack if you'll turn now to slide eight Q.
Q1 2022 margins.
You know, everybody's heard me say this before, not all BOEs are created equal. We've got a much different commodity mix than most of our peers in the Midland Basin. But slide eight highlights High Peak's continued unhedged peer leading margins. Our Q1 margins.
Everybody has heard me say this before not all are created equal.
We've got a much different commodity mix than most of our peers in the Midland Basin. The slide eight highlights high peaks continued unhedged peer leading margins our Q1 margins were.
We're 21% above our closest peer and 33% higher than the peer average.
We are also positioned for further margin expansion with our LOE reduction initiatives and the dilution of fixed costs as our production continues to increase.
Our adjusted pro forma EBITDA margin of $73 per Boe.
our adjusted pro forma EBITDA margin of $73 for VUE based on our Q1
Based on our Q1 actual margin.
Plus estimated uplift from near-term power projects and GNA per BLE reduction is 39% higher compared to our Q1222 Pure App.
Plus estimated uplift from near term power projects and G&A per Boe reduction.
39% higher compared to our Q1 2022 peer average.
Further on an average peer equivalent margin basis.
Further on, an average peer equivalent margin base.
High Peak's current pro forma production is equivalent to 39,000 BOE per day.
High peaks current pro forma production is equivalent to 39000 Boe per day are.
Or said another way.
it would take the peers production of 39,000 BLEs per day to equal high peaks profit at our current pro forma production rate of over 28,000 BLE per day.
It would take the peers production of 39000 Boe per day to equal high peaks profit at our current pro forma production rate of over 28000 Boe per day.
Turning now to slide nine flat top activity.
Turning down to slide nine. Flat top activity.
We faced in the past about our acreage potential as we move to the east and flat to up.
We've faced turns in the past about our acreage potential as we move to the east and flat top.
All of our modeling had suggested that it would be similar across our entire block.
All of our modeling had suggested that it would be similar across our entire block.
But I'm pleased to share some well-result as we now have oil in the stock.
But I am pleased to share some well results as we now have oil in the stock tank.
As shown in the red outline on the east of the map, we have several wells that have IP'd above 1,000 barrels of oil per day.
As shown in the Red outline on the east of the map, we have several wells that have IP above 1000 barrels of oil per day.
and some that have reached up to 1,200 barrels of oil per day plus associated gas.
And some that have reached up to 1200 barrels of oil per day plus associated gas.
Similarly on the far north side of the flat top we again have wells that had demonstrated peak oil rates of over 1000 barrels of oil per day.
Similarly, on the far north side of the flat top, we again have wells that had demonstrated peak oil rates of over 1,000 barrels of oil per day with some reaching 13.
With some reaching 1300 barrels of oil per day.
These results speak to validate our newly acquired acreage in this area.
These results speak to validate our newly acquired acreage in this area.
To the far southern side of our acreage.
to the far southern side of our acreage. And all said operator has recently drilled a new Wolf Camp D well as in Delta with an exciting initial rate of 950 barrels of oil per day.
All said operator has recently drilled a new Wolfcamp D well as in Delta with.
With an exciting initial rate of 950 barrels of oil per day.
It is safe to assume that high peak will be testing the Wolf Camp D in this area.
It is safe to assume that high peak will be testing the wolfcamp b in this area.
We are in full manufacturing mode and flat top and plan to run an average of four rigs and two frack crews for the remainder of the year.
We are in full manufacturing mode, and flat top and plan to run an average of four rigs and two frac crews for the remainder of the year.
On the operational front I'm excited to say are flat top substation has recently been commission and that we are in the process of switching our wells over to high wind power.
On the operational front I'm excited to say our flat top stud station has recently been commissioned and that we are in the process of switching our wells over to Highline Power.
This will result in the removal of over 50 rental generators across the field and significantly reduce our LOE.
This will result in the removal of over 50 rental generators across the field and significantly reduce our LOE.
We are estimating that by the end of the second quarter, we will have removed roughly 39 of those 50 plus generators.
We are estimating that by the end of the second quarter, we'll have removed roughly 39 of those 50 plus generators.
The substation will also give us the ability to power our drilling rigs on electrical power, which factoring in today's diesel price.
The substation will also give us the ability to power our drilling rigs on electrical power.
Which factoring in today's diesel prices.
could provide savings of over $100,000 a week.
Could provide savings of over $100000 of well.
Our 13 megawatt solar farm project is still on track to be completed in the third quarter.
Our 13 megawatt solar farm project is still on track to be completed in the third quarter.
And I hope to be able to tell you later this year that we are actually drilling with sunshops.
And I hope to be able to tell you later this year that we are actually drilling with Sunshine.
Our contracted local sand mine project is estimated to be operational in June and is projected to provide savings of up to $300 per well.
Our contracted local sand mine project is estimated to be operational in June and is projected to provide savings of up to $300,000 per well. When factoring current sand cost and reduced round trip trucking cost.
When factoring in current sand cost and reduced round trip trucking cost.
Our flat top water infrastructure system, which includes recycling produced fluids and local non-potable water sources.
Our flat top water infrastructure system.
Which includes recycling produced fluids and local non potable water sources is.
is currently servicing 100% of stimulation fluid needs for our two frat crews in flat top.
As currently servicing 100% of stimulation fluid needs for our two frac crews and flat top.
I'm also excited to report the initial section of our crude oil infield gathering system is operational and the remainder of the system is nearing completion and is expected to be fully tied in by the third core.
Im also excited to report the initial section of our crude oil infield gathering system is operational and the remainder of this system is nearing completion and is expected to be fully tied in by the third quarter.
Also high Pes low pressure natural gas gathering system is operational.
Also, high-piece low-pressure natural gas gathering system is operational.
and look all of these initiatives enhance high peaks, operational and capital efficiency. Again, we are in manufacturing modes. Turning now to slide 10.
All of these initiatives.
The success of our recent well-results and signal peak are confirming all of our geological modeling interpretation for this area.
using 3D seismic, petrophysical models, cuttings analysis, geocam, side wall cores, whole cores. We need to...
But like I stated before, now we have all in the stock.
We couldn't be more excited about this area and increasing importance to our growth trajectory moving forward.
The fantastic well results from our delineation process in this region.
which includes wells in the lower spray area, Wolf Camp A, and Wolf Camp D is in Delta, are all meeting, are exceeding our expectations.
Looking at the map designations, bullet number one highlights the location of our 10,000 foot Martin Wolf campaign.
These wells were turned online in February and March respectively.
and are continuing to increase production with current rates of 1,000 barrels of oil per day and 800 barrels of oil per day, respected.
These wells are located in the center of our block and proof up formations across a wide area spanning from the far western side of our newly acquired acreage to the center of our legacy signal peak block.
shows the location of our 15,000 foot partying power ladders in the Wolf Camp D.
These wells were turned online in early April and are currently producing 800 and 900 barrels of oil a day respectively with significant associated gas.
This too well-paded represents a successful test of 30,000 lateral feet of the Wolfcam D reservoir across the center of our legacy acreage position.
provides a location of our 10,000-foot Powell Wolf Campy well on the very eastern side of our acreage block. This well,
and is currently producing 500 barrels of oil and associated gas and continuing to ramp up.
This successful test well delineates and validates the productivity of the Wolfcamp D reservoir across our entire block.
Bullet four shows the location of our second. Two well, 15,000 foot Wolfgang D. Add. These wells have been drilled and are being completed as we speak, and we should have them online in June .
I'm also excited to announce that we are already utilizing recycled fluids on our current track job in signal piece.
Bullied five shows a location of a four well, 12,500 foot Wolf Camp D pad that is currently being drilled on the Hanathon block.
These wells are scheduled to commence completion in July and should be online by the end of the third quarter.
In conjunction with our updated guides, we plan to average one rig on legacy high-fee gakerage.
and continue hand-off on current one-rig drilling program on the acquired in the Reservoir for the remainder of 2022.
I'll spend a few minutes discussing the infrastructure picture at SignalP.
As you can see on the map, we will be inheriting a copper hynsic produced fluid system with our hand-ethane acquisition, which includes three-
and infield gathering pipelines covering the full-wage stand of their acreage position.
During the remainder of 2022, we will continue to build out of the water system on the legacy IP acreage to provide for increased recycling capability.
And as you can see on the map again, it will be almost effortless to integrate the high peak build out into Panathon's legacy system back to the west.
We're currently in discussions with multiple oil gathers to build out a gathering system across the acreage, and we plan to be in manufacturing mode very soon in Signal Peak as well. Now turning. We're currently in discussions with multiple oil gathers to build out a gathering system across the acreage, and we plan to be in manufacturing mode very soon in Signal Peak as well.
signal p Wolf camp d economics we get asked a lot about the wolf camp d again is in delta and if it'll compete for capital the answer is
Slide 12 details are single well. Signal peak Wolfkant D economics.
based on Tykurs from Collegiate Lestby from our year-end 2021 Reserve report for 15,000-foot ladder.
These wells achieve pay-up quickly and provide high net present value.
They deliver tremendous rates of return with today's commodity prices, but are still very economic.
They provide high recycle ratios. It's high as 6.2 times at $100 oil.
The signal peak, Wolf Camp D, brace even at a very low oil price. 30. 30.
The graph also shows payout sensitivities compared with capital cost and oil price. You turn down...
ESG at High Peak, our ESG initiatives are both environmentally and fiscally rewarding to all of our stakeholders.
as evidence throughout this entire investor presentation, ESG is inherent in everything we do.
The initiative is we put in place for a cost-cutting and efficiency F.
are not only fiscally rewarding, but are also the right thing to do from an environmental and social perspective.
We utilize recycle fluids for over 70% of our stimulation fluid needs in the first quarter in flat top and are currently providing 100% of our stimulation fluids in flat top from our recycling system and non-pottable water system
Our high peak substation will not only save us money on the op-x and cap-x side of the equation.
but will result in the removal of rental generators and allow us to power our rigs with electricity and solar power.
which will result in the reduction of carbony emissions and fuel consumption.
utilizing the local wet sand mine would not only cut down on sand calls, but will result in a material reduction of total truck miles and the associated natural gas combustion that's needed in standard dry sand operation.
Our new gathering systems not only increase our realized problems that we receive from our products, but will also reduce trucking.
Our flat top crude oil gathering system, once it's fully operational, will result in the removal of 160 trucks per day from local roads.
And I'm extremely proud to say that we still have had zero employee safety incidents today.
Turning now to slide 14, mitigating capital cost escalations. Again, inflationary pressures are real. It's what are you doing about it? So this slide details how management is constantly looking ahead to combat rising inflationary and supply chain pressures. We saw this.
and took serious preemptive steps to protect against costing.
We're attacking call savings from all sides of the equation. For instance, again, our wet sign mine project on the capital side has a potential saving $300,000 for well and again, reduces the cost for trucking, reducing a round trip from 150 miles round trip to less than 10, pre-purchasing equipment such as tubular goods, tanks, vessels, and ESP.
Again, high peak substation will allow us to run our flat top rigs, off of the electricity and solar power, which will save on diesel costs.
As we mentioned before, water system provides increased recycling capabilities in both flat top and signal p.
The main takeaway from this slide is that due to the preemptive measures that high-peak, put, and play.
We expect to stay within our guided cat-x budget.
despite the serious inflationary and supply chain cost pressures that are affecting our entire industry. And with that, I'll turn the call back over to Jack. Thanks.
And it'll give you a sense again in terms of what we talked about. I want to emphasize our 2022 guidance that we're right on track for, our 2023 guidance to our right on track for showing us to exit at an average midpoint of 80,000 barrels a day.
Think about going basically from 12,000 barrels a day at the end of the first quarter to end the next year at 80,000 barrels a day.
still maintaining the capital expenditure budget because of the pre-planning that we did that so many companies didn't see coming.
having total cash costs of very low-finding and development cost and being able to divide our activities between two great areas that are showing complete performance success that we're tremendously excited about and doing it with realized pricing that is among the highest in the industry.
So when you look at that and you see that growth and that's what I want everybody to focus on is looking at our growth. And now turning to the slide 16.
There is no question that our growth story is going to continue on. And it's a responsible story. We are now approaching complete.
not any overspend but complete success within our own budget. We have definitely operational excellence thanks to Mike and his team.
We have a strong balance sheet even post closing this in terms of borrowing money and utilizing our reserve borrowing base. We are going to be in great shape from a debt to equity. We've always said we're going to maintain one year debt to equity.
Our goal is to maintain our pure leading margins also. And actually with the implementation of the things that Mike talked about, our margins are actually going up instead of going down like most companies are.
We believe in basically under promise and over perform. We are not running our...
which you could look at and say, well, maybe we didn't hit our numbers. Well, those were our numbers. Our guidance is based on a yearly guidance basis.
and not quarter to quarter. Our goal is to make you money and making sure that we do things responsibly and take the necessary time to put our wells on, to produce our wells properly and to maximize the profit for everybody. And now we're running our company on the basis of all 10 fingers.
That includes a great proactive drilling program, as well as the three acquisitions we made, making sure that when we do consolidation opportunities, we do it on on the creative basis to make the shareholders money. We're gonna continue doing that, and this is truly the best quarter.
that we've ever had relative to where we are today versus where we were at the end of the year. And that is going to continue forward. So we're excited about it and now open up the presentation to any questions and anybody else has. Certainly, ladies and gentlemen.
Press Star than one if your question has been answered and'd you like to remove yourself from the queue, please press a H key. Our first question comes the line of John whitefrom.
I appreciate spending a lot of time on the guidance and where production is. The wells being knocked off line by all set for action doesn't concern me. It people that follow the industry know that happens to everybody from time to time. On, I'm glad to see slide four has been updated to include.
the new eight-inch to the north of flat top and you're not going to tie home me like you did on the last hole.
So you've expanded the flat top mainly to the north and you've expanded signal peak mainly with the handathon mainly to the south and the west. Is that correct?
Yes, that's correct. And then on a slide.
Slide nine at flat top. The circles are indicating.
activity going forward is going to be focused on the northwest part of the block and on the southeast part of
Yes, we'll have other activity all the way across the block in terms of drilling and development, but we were just showing that since it was new to the Northwest and since there had been questions regarding moving ease to the South.
We wanted to demonstrate what the success has been in our northern area.
in terms of why we made that acquisition and the results of the wells that are being drilled there and then moving down to the southeast to show that we now have wells in the 1,200 barrel a day range.
and even two more zones down there that are coming in. So it's just showing that the entire acreage block is now perspective and we will be in process mode to start developing the whole block.
Okay, thanks for that clarification, and I'll pass it along and get back in the queue. Thanks, Joe. Thank you, Aaron.
i was uh... i was going to talk a little bit of signal peak you got a bunch of new data here uh... it looks like the wolf camp d i mean kind of confirming what you all thought about being fairly extensive across acreage position i guess what did you all learn with uh... the new with campaign in the lower spray berry in the signal peak in in kind of like how extensive
you know the potential could be on the asset or I had the change or is it kind of just kind of confirming what y'all been thinking about that, that those different
You bet, Nick. No, and you're exactly right. It confirmed our initial estimate that the Wolf Camp A in lower spray vary. We're going to be very productive and prospective on our Signal P Gakerage. Now, obviously, we kind of step out. If you look into Wolf Camp A, the closest Wolf Camp A production is over to the west of the Hanathon block.
So again, part of this strategy of drilling the wool campaign here in the Thousand Barrel of the Day production and associate gas that we have today helps prove up from the western side of Hanathon. It's leased over to where we have a Thousand Barrel of the Day well. And we expect it to move over into the middle part or more of our legacy signal peak block. So again, it was just more of a confirmatory.
you know, delineation well. The lower spray berry, there was a little bit of well control in the area a little closer, but again, met and exceeded our expectation. The Wolf Camp D, as you mentioned, it's...
It's perspective all the way from the west to the east, north and to the south of our acreage block. So again, we're very excited about the runway of those three zones, as well as Panathon has done some delineation in the Wolf Camp B as well.
If you had anything else you wanted to add, Jack? No, the only thing I would add in here can add to it.
We do a lot of technical work that even the majors don't do.
We've done a lot of additional petrophysic analysis, core analysis, sidewall cores.
all the way across and analyzing this area. And we've talked about the huddle of zones, so I'm not gonna add too much there, but we think we understand it much better now as a result of this drilling and further evaluation.
and that we perhaps will have some really exciting things happening in that particular formation also as we go forward. But undoubtedly our goal was to delineate the Wuk-D all the way across, make sure it's commercial, and add those roughly four to 500 locations to our inventory. And you've seen the economics of it, so we're really excited about it.
Great and as you kind of think about the hierarchy of like wells both comparing, you know
what's at flat top and kind of what, you know, where we are at kind of in kind of delineating signal peak.
i guess i guess that anything change in terms of like where you think priorities are or like what what the economics look like and how did the economics i guess compare in single peak with what you've seen with camp d versus kind of the lower spray barian yeah
You have the economics and the presentation on what to do. And a great comparison is to go to the appendix and then the appendix you'll see the economics on the wolf eye.
and overall, which includes, it's basically the same in the flat top area and in the signal peak area in terms of those economics. They're so closed.
There's no doubt that it's a little bit better in the Wolf A, but they're both very competitive.
Our break even costs is 29 on the WFA. It's 34 in the WPB, but our returns at $100 oil are an excess of 200% in both areas.
It's very comfortable, it's very good, and anybody would put these in the top tier of their investment profile on any acreage anybody has in the Delaware or in the Midland Basin. Awesome, that's great, I appreciate the time everyone.
Good morning. As you all look at flat top, you micr jacks, you have a lot of densely spaced wells on the western side of your block where you initially moved into development mode. As you move away from there.
and go out either to the east or north into Alamo. Will you, is it fair to assume you will not have the same type of impact from having to curtail offset production as you bring?
Yeah, Jeff, as you mentioned, we had to go in and infill some of our kind of delineation wells, kind of had some book end drilling that had production on either side. So, yes, the amount of wells that we had to shut in for protection as well as some water out effect was a little higher over the last couple quarters than what you'll see going forward. But also, when you go to
manufacturing mode you tend to drill more wells off of the pad and again you're only going to be on one side of a set of wells so the amount of
Disruption to that production will become smaller over time overall.
as well as the growth profile that we have, the base is getting large enough now, as well as the growth is accelerating. So to have
a couple hundred barrels a day per well off for four or five wells on and off throughout a quarter will become less and less apparent in the growth room file as we go forward. Just know every company everywhere in the basin turns well off and sees water out effect. It's just how big of an effect you see in the daily production. It will become less and less of a percentage for us going forward.
Mike, have those wells generally come back as you've returned wells to production? Have they generally returned to their FETCLE profile? Absolutely. Between shutting wells in for fracking, shutting wells in for weather events, COVID.
A number of events that happen, these wells get turned off and returned to production many times through their lifetime. We've got wells almost three and a half years old that have went through those cycles, have had wells.
a fracked on either side of them at different times. And through every one of those events, just like they do in the center part of the base and in the rest of the permeate in general, the wells come back on. You get a little flush production and then they come right back onto their types.
question and signal peak I think when you all announced the hand-up on deal you referenced that they had a 3d survey I think you all have a 3d survey over your side of the acreage.
Can you merge those two surveys together and maybe use them to high grade landing zones within the Wolf Camp D?
Absolutely. So of course, once we close the transaction, we'll be able to integrate the 3D size McDithanathon as and be able to utilize it in the same kind of 3D Earth modeling and trajectory pathways that we're utilizing now in all of our legacy S.
If I remember right, the Wolf Camp D is a pretty thick formation in signal peak. Is that, am I remembering that correctly? You are remembering that correctly, yes, or it's pre-fig, roughly 450 foot thick. So again, a lot of resource in place. Are you testing?
We've got a, we've got to have got our
preferred landing zone as we sit today and again just being pragmatic kind of scientists we are engineers we like to we like to do what works now does that leave some room in the future for Chevroning into different landing zones within the Wolf Camp D It does but our preferred development plan right now is to stick with what we know for forms and produces these kind of results
One thing I would add, Nick, to that, and what Mike's talking about, when you look at this area from a macro perspective, and I've been doing this now 52 years, and one thing Mike says is, all in the stock tank.
This area now from a process perspective.
Looks to have recoverable oil from these zones, these thick zones, they're all in place and the ability to recover this.
could be approaching now a net to high peak of a billion and a half barrels plus of oil. It's a tremendous reservoir, tremendous opportunity, and like every reservoir, in fact, our team managed over 27% of the tertiary recovery floods in the lower 48.
which are the biggest oil fields in the lower 48 in the United States.
And in every case over time, we will improve the recovery.
and we don't expect that to be different here. We're getting better and better of picking the landing zone and figuring out how to complete the wells and how to maximize the recovery. So.
The fact that we have such a tremendous amount of oil in place, it's going to get better and better as time goes on.
Thanks, Jack. One last question on infrastructure. Can you highlight the water disposal system that Hannathon has and that you all have existing on your legacy signal P.J.
Mike, can you talk about how you can leverage this bigger acreage block into cost saving measures, whether it's discussions with crew gatherers or as you start to think about a manufacturing mode here and are there power solutions that you can provide across a bigger acreage that will deliver on the operational cost energies you all cited when you announce the deal?
If you look at what we did up in flat top and how we've integrated everything together, which again works on that efficiency equation from call-stone off-ex, capex as well as realize price, having a big consolidated block like we now have in our signal peak area once performed a handathon.
It definitely gives you better ability to work with partners on the gathering side.
The existing water infrastructure that Hanathon has, we are currently connecting with Hanathon and sending water to some of their SWDs. So again, there's some synergies, date one, that we'll be able to accelerate.
Having more production from the wells that we have across this entire block allows us to have a higher recycle percentage from stimulation fluid both from an ESG standpoint as well as from a call saving standpoint So all in all whether it's oil gas water power Having a big consolidated block absolutely helps its one corridor across all of it that allows you to efficiently develop your wells and produce your product
Thank you. Our next question.
Yeah, thanks again. On slide 10 and referencing the previous...
I think Jack, you mentioned that you think the economics for the Wolf Camp A and the Wolf Camp B are gonna be neck and neck.
That sounds good. Congratulations on getting that Powell well out there to the far east. That's a real nice control point for your Wolf Camp B on Signal Peak.
And my congratulations on getting your sub station commissioned.
Jack, you mentioned the formation. You called it Hutto. Is there a more conventional name for that?
What's a part of the Wolf Camp C zone? It's a specific zone in that. And the reason it's called Hutto is there is a vertical field in the northwest part of our block that produced approximately 15 million barrels out of that zone. And so we're just moving across just like we did on the Wolf Camp D.
The one like we moved out and drilled a wildcat well, we had a tremendous amount of well control, we had a lot of data, we had samples in the area, we had core analysis, the same with the HUTO, there's enough vertical production in the area, we pretty well know what that zone's gonna, how much oil is in place, and it's simply getting in the right location and landing the well properly to get the oil out of the ground.
again, some real-knife control points there. And thanks for that. Mike, did you mention dry sand and wet sand? Yes.
Well, it's typically the sand that we use in our completion operations is dry. It would look like sand from a sand dune, but typically how you recover that is it's mine from a service mine. I mean it's
cleaned and it's wet and then they typically have to use natural gas burners.
to drive the sand, which makes it easier to transport and to all float at the front.
utilizing wet sand, you take a step out of that and a lot of
BTUs have to be burned and utilized to drive it.
and the industry has gotten, the technology has gotten a lot better lately to where wet sand utilization no longer causes the usual headaches of having kind of clumpy wet sand. They've got all that figured out and are able to all float it for the fracked jobs very efficiently. So that's really the difference.
Okay, I appreciate that explanation and I'll pass it on. Thank you. Thank you. You are next. Listen comes in the line of.
Can you talk about the timing of the bank redeterminate?
It gives us a general idea of what you expect the amount of the line to be.
How much cash you think you'll have in excess, you know, what you have to draw in order to pay for handathons.
Yeah, that's a good question. We are working that process.
We're about midway through working with the banks and looking at all alternatives because we want to get the cheapest financing possible and the best financing possible. So we don't have an idea yet as to what the amount will be. We know it will be an excess of the 200 million and it'll be enough to go ahead and close the hand-off on transaction. We already have commitments for the bank's expectations.
In combination with that we're looking at all the alternatives available in the marketplace right now and We should have that outline probably within the next 15 to 20 days and know exactly the direction
helpful. I just kind of does make me wonder when you say cheapest and best.
or something other than a bank line that you're considering.
We're always looking for the best alternative from bonds, convertible bonds. You know, we did an equity, I mean, a debt offering earlier this year that was very attractive financing. The RVL is a very attractive financing, but it does have a lot of restrictions on it in terms of hedging.
We're very bullish right now on what all processes are going to do over the course of the next 12 to 18 months and so we're just going to cautiously go into this and make sure that our other dead is absolutely secure and that we have the best financing available for the strategy that we have going forward.
Then could you just switch gears? Could you put a number on the number of barrels that you feel were contained?
Yeah, off and on, I would say at one time we had 12 wells offline, but on a maverage it would probably be in the neighborhood of 5 to 6,000 barrels a day or a curtail during the Florida. No, that's helpful because it's probably more than I thought. And I suspect maybe others maybe.
This does conclude the question and answer session of today's program. I'd like to hand the program back to Jack Coytower, chief executive.
Well, I've been doing this for a long time, 50 something years of multiple public companies and executive committee and consulting for public companies. And honestly, this is one of the most exciting periods of time that I've had to report on. It's disappointing that our stock...
has gone down and I think it's the nature of algorithms and people looking at it and had their internal thoughts on where our production should be.
But when you're new and young in the equation to accomplish what we've accomplished going forward and getting our production where it is, it's a tremendous accomplishment.
We are very excited about what's going on with the company, with the delineation of our production and reserves and consolidation. We're going to continue this activity and you're going to see 80 plus thousand barrels a day exit in 2023.
Hopefully you'll understand my job is to make sure everybody makes money and that's what we're going to be doing for you. Thank you very much.
Let's conclude the program. You may now disconnect. Good.
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