Q4 2024 HighPeak Energy Inc Earnings Call
Operator: Good day and thank you for standing by. Welcome to HighPeak Energy 2024 4th Quarter Earnings Call. At this time, all participants are in a listen-only mode.
Good day and thank you for standing by welcome to high Peak energy 2020 for fourth quarter earnings call.
This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.
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Operator: Please be advised that today's conference is being recorded.
Please be advised that today's conference is being recorded.
Operator: I would now like to hand the conference over to your speaker today, Steven Tholen, CFO. Please go ahead.
Speaker Change: I'd now like to hand, the conference over to your Speaker today, Steven Dolan CFO. Please go ahead.
Steven Tholen: Good morning, everyone, and welcome to HighPeak Energy's fourth quarter 2024 earnings call.
Speaker Change: Good morning, everyone and welcome to high peak Energy's fourth quarter 2024 earnings call representing.
Steven Tholen: Representing HighPeak today are Chairman and CEO Jack Hightower, President Michael Hollis, and I am Steven Tholen, the Chief Financial Officer. During today's call, we will make reference to our March investor presentation and our fourth quarter earnings release, which can be found on HighPeak's website.
Representing high peak today, our chairman and CEO, Jack High Tower, President, Michael Harvest, and I Am Stephen Sullivan, Chief Financial Officer.
Speaker Change: During today's call, we will make reference to our March investor presentation, and our fourth quarter earnings release, which can be found on high peaks website.
Steven Tholen: Today's call participants may make certain forward looking statements related 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 in the company's SEC filings, including the fact that actual results may differ materially from our expectations due to a variety of reasons, many of which are beyond our control.
Speaker Change: Today's call participants may make certain forward looking statements related to the company's financial condition results of operations expectations plans goals assumptions and future performance.
Speaker Change: 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 differ materially from our expectations due to a variety of reasons.
Speaker Change: Many of which are beyond our control.
Steven Tholen: We will also refer to certain non-GAAP financial measures on today's call, so please see the reconciliations in the earnings release and in our March investor presentation.
Speaker Change: We will also refer to certain non-GAAP financial measures on today's call. So please see the reconciliations in the earnings release and in our March Investor presentation.
Jack Hightower: I will now turn the call over to our chairman and CEO, Jack Hightower. Thank you, Steve. And good morning, ladies and gentlemen, and thank you for joining us today. My prepared remarks will begin on slide four of our March investor presentation. I hope everybody's had a chance to do that and hopefully everybody's had a chance to review our press release.
Speaker Change: I will now turn the call over to our chairman and CEO Jack High Tower.
Speaker Change: Thank you, Steve and good morning, ladies and gentlemen, and thank you for joining us today.
Speaker Change: My prepared remarks will begin on slide four of our March investor presentation.
Speaker Change: So hope everybody has had a chance to do that and hopefully everybody has had a chance to review our press release.
Jack Hightower: But before we turn the focus of today's call towards our 25 plans and gotten I want to take a few minutes to highlight the tremendous success that we realized during last year's business. As you recall, going into 24 calendar year, we laid out a set of core values, which included maintaining disciplined operations, strengthening our balance sheet and maximizing shareholder value. Maintaining discipline operations incorporated our plan of maintenance level CAPEX to hold production volumes flat while aggressively focusing our attention on reducing our cost structure, both on the CAPEX and OPEX side of the equation. Not only did we achieve our goals, we delivered significant improvements across the board.
Speaker Change: But before we turn the focus of today's call towards our 25 plans and guidance.
Speaker Change: I want to take a few minutes to highlight the tremendous success that we realized during last year's business.
Speaker Change: As youll recall going into 'twenty four calendar year, we laid out a set of core values, which included maintaining disciplined operations strengthening our balance sheet and maximizing shareholder value.
Speaker Change: Maintaining disciplined operations incorporated our plan of maintenance level capex to hold production volumes flat.
Speaker Change: We are aggressively focusing our attention on reducing our cost structure, both on the Capex and opex side of the equation equation.
Speaker Change: Not only did we achieve our goals we delivered significant improvements across the board alright.
Jack Hightower: Our efficient two rig program delivered a 10% increase in production year over year. This was a significant beat compared to our initial 24 expectations of flat production volume. we're continuing to realize strong production performance across the acreage position, which includes our extension areas. in the Middle Sprayberry Zone, and that is extremely exciting. We increased our approved reserves by almost 30% to year-end 23, and that considers utilizing lower SEC guideline prices for calendar year 24. We not only continue to organically increase our acreage position, but we've already drilled wells and have demonstrated proven results on our new acreage that is similar to the core areas of our field.
Alright patient two rig program delivered a 10% increase in production year over year.
Speaker Change: This was a significant beat compared to our initial 24 expectations of flat production volumes.
Speaker Change: We're continuing to realize strong production performance across the acreage position.
Speaker Change: Which includes our extension areas.
Speaker Change: In the Middle Sprayberry zone and that is extremely exciting.
Speaker Change: We increased our proved reserves by almost 30% to year end 'twenty, three and that considers utilizing lower SEC guideline process for calendar year 'twenty four.
Speaker Change: Not only continued to organically increase our acreage position, but we've already drilled wells and have demonstrated proven results on our new acreage that is similar to the core areas of our field.
Jack Hightower: Our operations team continued hard work and intense focus translated to a 17% decrease in our lease operating expenses on a BOE basis. This is impressive as we have added a lot of new acreage and are tying those areas into our efficient infrastructure. We lowered our absolute debt by $120 million during 24. We will pay down another $30 million of our term loan balance at the end of March. And we were able to achieve 10% production increase in conjunction with a capital spend that was 40% less than in 23.
Speaker Change: Our operations team continued hard work and intense focus translated to a 17% decrease in our lease operating expenses on a Boe basis.
Speaker Change: This is impressive we have added a lot of new acreage and are tying those areas into our efficient infrastructure.
Speaker Change: We lowered our absolute debt by $120 million during 'twenty four we will pay down another $30 million of our term loan balance at the end of March and we were able to achieve 10% production increase in conjunction with our capital spend that was 40% less than in 'twenty three.
Jack Hightower: All these positive achievements translate into HighPeak continuing to improve our overall corporate efficiency, which is a theme that I will come back to here in a few slides as we discuss our 25 Outlook. Now if you'll turn to Slide five. Our key objectives slide. and Pillars of Success. We're going to maintain capital discipline, especially in light of current market conditions, which remain volatile due to external factors. We will remain focused on continuing to improve our corporate efficiency, which is evidenced by our anticipated flat production volumes coupled with a two rig maintenance capital budget that is approximately 20% lower than in 24.
Speaker Change: All of these positive achievements translate into happy continuing to improve our overall corporate efficiency, which is a theme that I'll come back to here in a few slides as we discuss our 25 outlook.
Speaker Change: Now if youll turn to <unk>.
Speaker Change: Slide five.
Our key objective slide.
Speaker Change: And pillars of success, we're going to maintain capital discipline, especially in light of current market conditions, which remain volatile due to external factors.
Speaker Change: We will remain focused on continuing to improve our corporate efficiency, which is evidenced by our anticipated plant production volumes, coupled with a two rig maintenance capital budget.
Speaker Change: That is approximately 20% lower than in 'twenty four.
Jack Hightower: We will look to optimize our capital structure, which we anticipate will significantly reduce our interest expense burden, and consequently, increase our levered free cash flow.
Speaker Change: We will look to optimize our capital structure, which we anticipate will significantly reduce our interest expense burden and consequently increase our levered free cash flow.
Jack Hightower: And we will continue to pursue shareholder friendly initiatives, which include paying down absolute debt, maintaining our dividend, and opportunistically buying back shares.
Speaker Change: And we will continue to pursue shareholder friendly initiatives, which include paying down absolute debt.
Speaker Change: Maintaining our dividend and opportunistically buying back shares.
Jack Hightower: Now I'd like everyone to turn to slide six. And take a few minutes talking about the last quarter's results. The fourth quarter was another solid quarter for us on all fronts. Production continued to average over 50,000 BOEs per day. And as you can see on the slide, we're off to another strong start in the first quarter, as our volumes have averaged over 52,000 barrels a day. We are also able to reduce our lease operating expenses during the year and expect to remain steady in 2025. The value of our approved reserves increased by 17% to the prior year.
Speaker Change: Now I'd like everyone to turn to slide six.
And take a few minutes talking about the last quarter's results.
Speaker Change: Fourth quarter was another solid quarter for us on all fronts.
Speaker Change: <unk> continued to average over 50000 Boe per day and as you can see on the slide we're off to another strong start in the first quarter as our volumes have averaged over 52000 barrels a day.
Speaker Change: We were also able to reduce our lease operating expenses during the year and expect to remain steady in 2025.
Speaker Change: The value of our proved reserves increased by 17% to the prior year.
Jack Hightower: And again, that considers utilizing lower SEC guideline commodity prices. Our 2024 EBITDA was roughly flat. year over year, even though oil prices were lower on average during 2024. I'd also like to point out that our fourth quarter capex was a little higher than we originally anticipated. This was a result of some efficiency gains that we're realizing on the drilling and completion side of our business. that allowed us to pull forward some drilling and stimulation activities into late 24. and to a lesser extent was also a result of initiating a couple of our key 2025 infrastructure projects in the last year's business.
Speaker Change: And again that considers utilizing lower SEC guideline commodity process.
Speaker Change: Our 2024 EBITDA was roughly flat.
Speaker Change: Year over year, even though oil prices were lower on average during 2024.
Speaker Change: I'd also like to point out that our fourth quarter Capex was a little higher than we originally anticipated. This was a result of some efficiency gains that we're realizing on the drilling and completion side of our business.
Speaker Change: That allowed us to pull forward, some drilling and stimulation activities and delight 24.
And to a lesser extent was also a result.
Speaker Change: Of initiating a couple of our key 2025 infrastructure projects in the last year's business.
Jack Hightower: We ended the year at just over 1.2 times levered and we remain in a very healthy financial position, even in light of oil prices declining. On the shareholder value front, throughout 2024, we reduced our absolute debt by $120 million, paid out roughly $22 million in dividends, and repurchased approximately 2.4 million shares of stock, equating to shareholder-friendly initiatives of about $177 million.
Speaker Change: We ended the year at just over 1.2 times Levered and we remain in a very healthy financial position, even in light of oil prices declining.
Speaker Change: On the shareholder value front through out 2024, we reduced our absolute debt by $120 million paid out roughly $22 million in dividends and repurchased approximately two 4 million shares of stock equating to shareholder friendly initiatives of about 177.
Jack Hightower: Again, 2024 was a very successful year for HighPeak, and we expect to continue to build off of that positive momentum in 2025.
Speaker Change: Again, 2024 was a very successful year for IP and we expect to continue to build off of that positive momentum in 2025.
Michael Hollis: Now I'm going to turn the call over to Mike Hollis, our president, and he's going to walk you through the next exciting slide. Thanks Jack.
Speaker Change: Now I'm going to turn the call over to Mike Hollis, our president and he's going to walk you through the next exciting fives.
Michael Hollis: Now turning to slide seven. As Jack mentioned, we are continuing to see improved well results across our entire acreage. This helped translate to a 29% increase in our approved reserves year over year, which includes a 36% increase in our approved developed reserves. I would like to mention that our PUD reserves value is very conservative. It only includes roughly 200 of our remaining 700 wolf camp A and lower sprayberry locations and no material middle sprayberry putt. HighPeak has had an impressive CAGR of 72% on our net proved reserves from year-end 2020. especially considering that nearly 100% of our production growth has been through the drill bit.
Mike Hollis: Thanks, Jack now turning to slide seven.
Speaker Change: As Jack mentioned, we are continuing to see improved well results across our entire acreage.
Speaker Change: This helped translate to a 29% increase in our proved reserves year over year, which includes a 36% increase in our proved developed reserves.
Speaker Change: I would like to mention that our pud reserves value is very conservative.
Speaker Change: It only includes roughly 200 of our remaining 700, wolfcamp, a and lower sprayberry locations.
Speaker Change: And no material middle Sprayberry pods.
Speaker Change: <unk> had an impressive CAGR of 72% on our net proved reserves from year end 2020.
Speaker Change: Especially considering that nearly 100% of our production growth has been through the drill bit.
Michael Hollis: Our reserve growth translated to a notable reserve replacement of 345%. This includes extensions of $45 million BOE and positive revisions of $18 million BOE. And that's another strong statement. In spite of lower SEC pricings in 2024, HighPeak had upward revisions that virtually offset the $18.3 million BOE we produced for the calendar year.
Our reserve growth translated to a notable reserve replacement of 345%.
Speaker Change: This includes extensions of 45 million Boe.
Speaker Change: And positive revisions of $18 million.
Speaker Change: And that's another strong statement in spite of lower SEC pricing in 2024.
Speaker Change: <unk> had upward revisions that virtually offset the include 3 million Boe.
Speaker Change: We produced for the calendar year now.
Michael Hollis: Now turning to slide eight.
Speaker Change: Now turning to slide eight.
Michael Hollis: Now for one of the most important slides in the deck. We continue to achieve improved well performance across the board. This chart on the right shows our average performance over certain time periods going back to 2023. And as you can see, our results have continued to steadily improve. I'll take this opportunity to counter the naysayers over the last several years that implied that HighPeak's ability to generate high returns would degrade quickly as they have already drilled all of their good locations. Well, the results speak for themselves. As you can see on the map, the stars represent our recent activity, and they are all representative of HighPeak's decade and a half of primary inventory.
Speaker Change: Now for one of the most important slides in the deck, we continue to achieve improved well performance across the board.
Speaker Change: This chart on the right shows our average performance over certain time periods going back to 2023 and.
Speaker Change: And as you can see our results have continued to steadily improve.
Speaker Change: I'll take this opportunity to counter the naysayers over the last several years that implied that high peaks ability to generate high returns would degrade quickly as they have already drilled all of their good locations well the results speak for themselves as you can see on the map.
Speaker Change: The stars represent our recent activity and they are all representatives of high peaks decade, and a half of primary inventory.
Michael Hollis: I look forward to helping folks understand what has been missed in the past. As I've already discussed in last quarter's call, the red stars on the map are the Judas A3H and the Callis Middle Springery Well. These wells, as well as what we and offset operators have drilled even further east of what is shown by the stars, have achieved IPs of over a thousand barrels of oil per day and associated gas. We now have our second middle sprayberry well on production. It's an early flowback producing approximately 400 barrels of oil a day and associated gas.
Speaker Change: I look forward to helping folks understand what has been missed in the past.
Speaker Change: As I've already discussed in last quarter's call. The Red stars on the map are the Judas 83, H and the catalyst middle Sprayberry well.
Speaker Change: These wells as well as what we and offset operators have drilled even further east of what is shown by the stars have achieved Ips of over 1000 barrels of oil per day and associated gas.
Speaker Change: We now have our second middle Sprayberry well on production.
Speaker Change: It's an early flowback producing approximately 400 barrels of oil a day and associated gas and we expect this well to match the production capability of our first middle Sprayberry well.
Michael Hollis: And we expect this well to match the production capability of our first middle sprayberry well. This delineates five miles north and south in the heart of Flattop and you may remember that I said virtually no middle sprayberry pods were in our 2024 reserve report. it would be reasonable to assume that this will change in our 2025 reserve report.
Speaker Change: This delineates five miles north and south in the heart of flat to up and you may remember that I said virtually no middle Sprayberry pods were in our 2024 Reserve report.
Speaker Change: It would be reasonable to assume that this will change and our 2025 reserve.
Michael Hollis: Now turning to slide nine.
Speaker Change: Now turning to slide nine.
Speaker Change: Yeah.
Michael Hollis: As we've discussed on previous calls, HighPeak is absolutely differentiated from our peers due to the depth of our high-quality, inventory-rich portfolio. Our technical and land teams have done a fantastic job of organically adding inventory to the extent that we have successfully replaced our inventory in our primary wolf camp A and lower sprayberry zones year over year These aren't just sticks on a map. Again, we have actively been drilling in our expansion areas and have proven results in both formations that meet or beat our previous core areas in the field. Our bread-and-butter Wolf Camp A and Lower Sprayberry Wells have almost 15 years of remaining inventory at our current two-rig development case.
Speaker Change: As we've discussed on previous calls.
Absolutely differentiate from our peers due to the depth of our high quality inventory rich portfolio.
Speaker Change: Our technical and land teams have done a fantastic job of organically, adding inventory to the extent that we have successfully replaced our inventory and our primary wolfcamp, a and lower sprayberry loans year over year.
Speaker Change: And these are just sticks on a map again, we have actively been drilling in our expansion areas and have proven results in both formations that meet or beat our previous core areas in the field.
Speaker Change: Our bread and butter Wolfcamp, a and lower sprayberry wells have almost 15 years of remaining inventory at our current two rig development cadence.
Michael Hollis: And as we've mentioned on last quarter's call, we continue to delineate the middle sprayberry zone and at our current call structure would potentially add more than 200 additional locations in our flat top area to our sub $50 breakeven inventory.
Speaker Change: And as we've mentioned on last quarter's call. We continued to delineate the middle Sprayberry zone and.
Speaker Change: At our current cost structure would potentially add more than 200 additional locations in our flat top area to our sub $50 breakeven inventory.
Michael Hollis: Now turning to slide 10. The key themes of our 2025 development plan remain consistent. maintain capital discipline. prioritize what we can control, OPEX and CAPEX. and continue to increase our overall corporate efficiency by holding production flat with less café. We're going to continue our steady and efficient two-rig development program with a primary focus of co-developing our high return Wolf Camp A and lower sprayberry zones, in addition to continuing our thoughtful and strategic delineation of the middle sprayberry. This plan is level-loaded, meaning we'll stay steady with our two-rig and one-frac crew throughout the year, with the caveat that, as Jack mentioned earlier, we are continuing to realize some efficiency gains on the D&C side, which translates into more work being done with the same number of rigs.
Speaker Change: Now turning to slide 10.
Speaker Change: The key themes of our 2025 development plan remained consistent.
Speaker Change: Maintaining capital discipline.
Speaker Change: Prioritize what we can control opex and Capex and.
Speaker Change: And continue to increase our overall corporate efficiency by holding production flat with less capex.
Speaker Change: We're going to continue our steady inefficient two rig development program with a primary focus of co developing our high return Wolfcamp a lower sprayberry.
Speaker Change: In addition to continuing our thoughtful and strategic delineation of the middle Sprayberry.
Speaker Change: This plan is level loaded, meaning will stay steady with our two rig and one frac crew throughout the year.
Speaker Change: With the caveat that as Jack mentioned earlier, we are continuing to realize some efficiency gains on the D&C side, which translates into more work being done with the same number of rigs.
Michael Hollis: As noted on slide 10, we will realize about 33% of our annual budget in the first quarter. The majority of our 25 infrastructure projects are already in progress, causing our full year 2025 CapEx budget to be first half weighted. Also, during the first quarter, we picked up a second spot completion crew to complete a four-well pad. Again, drilling efficiencies outpacing original plans. As noted on our 2025 guidance, we have committed to some very important one-time infrastructure projects that are also weighted to the first half of the Over the past 15 months, we have added 30,000 net acres to our flat top position.
Speaker Change: As noted on slide 10, we will realize about 33% of our annual budget in the first quarter.
Speaker Change: The majority of our 25 infrastructure projects are already in progress, causing our full year 2025, capex budget to be first half weighted.
Speaker Change: Also during the first quarter, we picked up a second spot completion crews to complete a four well pad again drilling efficiencies outpacing original plans.
Speaker Change: As noted our 2025 guidance, we have committed to some very important one time infrastructure projects. There are also weighted to the first half of the year.
Speaker Change: Over the past 15 months, we have added 30000 net acres to our flat top position.
Michael Hollis: Our first priority was establishing commercial proven success on this newly acquired acreage which we have now demonstrated. Second step is to now connect all of these extension areas to our core life of field infrastructure system, which includes our company owned water system and our overhead electrical power distribution system. as well as we're doing some additional work on expanding our low pressure gas gathering system to all areas of our field. And we're also connecting our gathering system to additional takeaway outlets with other midstream partners. This will provide us with valuable redundancy in situations where our primary providers are down due to maintenance projects or experience capacity constraints.
Speaker Change: Our first priority was establishing commercial proven success on this newly acquired acreage, which we have now demonstrated.
Speaker Change: Second step is can now connect all of these extension areas through our core life of field infrastructure system, which includes our company owned water system and our overhead electrical power distribution system.
Speaker Change: As well as we're doing some additional work on expanding our low pressure gas gathering system to all areas of our field.
Speaker Change: And we're also connecting our gathering system to additional takeaway outlets with other midstream partners.
Speaker Change: This will provide us with valuable redundancy and situations, where our primary providers are down due to maintenance projects are experienced capacity constraints.
Michael Hollis: These projects are very important for the full development over the life of our field.
Speaker Change: These projects are very important for the full development over the life of our field.
Michael Hollis: now focusing on our improving corporate efficiency. A few key things I would like to draw your attention to. Our 2025 development plan is anticipated to deliver similar production volumes. coupled with a capital budget that's inclusive of these one-time infrastructure projects that I just detailed, that is over 20% lower than last.
Speaker Change: Now focusing on our improving corporate efficiency.
Speaker Change: A few key things I would like to draw your attention to.
Speaker Change: Our 2025 development plan is anticipated to deliver similar production volumes.
Speaker Change: Coupled with a capital budget, that's inclusive of these one time infrastructure projects that I just detailed.
Speaker Change: That is over 20% lower than last year.
Michael Hollis: And if we look ahead to the future. and factoring in not having these one-time 2025 projects but also taking into account that our base infrastructure budget will continue to decrease compared to years past. Assuming we don't continue to add new acreage at the same pace that we have, you could be looking at an all-in maintenance capex budget that could be close to 30 percent less in 2026 over our lower budget in 2025 that's 20 percent lower than our previous year of 24. thus providing a significant increase to our overall corporate efficiency and ultimately translating to more free cash flow for the company.
Speaker Change: If we look ahead to the future.
Speaker Change: And factoring in not having these one time 2025 projects, but also taking into account that our base infrastructure budget will continue to decrease compared to years past, assuming we don't continue to add new acreage at the same pace that we have you could be looking at.
Speaker Change: And all in maintenance Capex budget that could be close to 30% less in 2026 over our lower budget in 2025, that's 20% lower than our previous year of 24 thus.
Speaker Change: Thus, providing a significant increase to our overall corporate efficiency and ultimately translating to more free cash flow for the company.
Michael Hollis: Another item I would like to point out, even though our 2025 guided turn in line range is slightly less than last year, On a lateral footage basis, we are expecting to complete roughly 5% more lateral footage on a year-over-year basis, again, for a substantially lower all-in capital budget. The HighPeak team has built an extremely efficient machine designed for the long haul. We know there's always room for additional improvement, and we have the right team in place to realize those gains.
Speaker Change: Another item I would like to point out even though our 2025 guided turn in line range is slightly less than last year's.
Speaker Change: On a lateral footage basis, we are expecting to complete roughly 5% more lateral footage on a year over year basis again for a substantially lower all in capital budget.
Speaker Change: The hygiene team has built an extremely efficient machine designed for the long haul we know theres always room for additional improvement and we have the right team in place to realize those gains.
Jack Hightower: With my comments now complete, I'll turn the call back over to Jack to discuss HighPeak's current capitalization. Thanks, Mike, and congratulations on a very successful 2024 and what we expect to be an even more efficient program this year. Now turning to slide 11.
Speaker Change: With my comments now complete I'll turn the call back over to Jack to discuss Cerner capitalization.
Jack: Thanks, Mike and congratulations on a very successful 2024, and what we expect to be an even more efficient program. This year.
Jack: Now turning to slide 11.
Jack Hightower: Ladies and gentlemen, we wanted to include a slide highlighting our current capitalization for a few reasons. First, as everyone is aware, our current term loan carries a very high cost of capital at SOFR plus 750 basis points. Last year, this equated to roughly a 13% average interest rate. very high, which translated into about $150 million of annual cash interest expense.
Jack: Ladies and gentlemen, we wanted to include a slide highlighting our current capitalization for a few reasons first as everyone is aware our current term loan carries a very high cost of capital and so per plus 750 basis points.
Jack: Last year this equated to roughly a 13% average interest rate.
Jack: Very high which translated into about $150 million of annual cash interest expense.
Jack Hightower: One of our primary 2025 objectives is to transition to a more traditional capital structure. We anticipate this would lead to significant cash interest expense savings, materially extend our debt maturities, and further increase our liquidity. remove the mandatory amortization associated with our term loan, providing HighPeak with more flexibility in paying down debt at par. We have the freedom to navigate and choose our own path as HighPeak is currently in a very healthy financial position with a reasonable amount of leverage, ample liquidity, no near-term debt maturities, and a demonstrated track of operating within cash flow and paying down absolute debt.
Jack: One of our primary 2025 objectives is to transition to a more traditional capital structure. We anticipate this would lead to significant cash interest expense savings materially extend our debt maturities and further increase our liquidity.
Jack: Move the mandatory amortization associated with our term loan providing half peak with more flexibility and paying down debt at par we have the freedom to navigate and choose our own path is half peak is currently in a very healthy financial position with a reasonable amount of leverage ample liquidity.
Jack: No near term debt maturities.
Jack: And a demonstrated track record of operating within cash flow and paying down absolute debt.
Jack Hightower: However, normal way financing would materially improve our corporate structure and our financial position even further. This is something we're going to work on.
Jack: However, no, Norway financing would materially improve our corporate structure and our financial position even further.
Jack: This is something we're going to work on.
Jack Hightower: of those great men, and thank you so very, so very much for joining us today. Our May co-provision expires March the 12th.
Jack: When our.
Speaker Change: Our make whole provision expires March 12.
Jack Hightower: The key takeaways, if you turn now to slide 12. The key takeaways that I'd like to leave everyone with today are we've built a very efficient machine here at HighPeak. We expect to continue to build off of our 2024 improvement. We've successfully continued to expand our large contiguous acreage position and have demonstrated strong well results in our expansion areas and some of our upside zones. We expect to continue that success going forward. Our well performance has continued to improve across acreage, across our entire acreage block while we have simultaneously lowered our drilling and completion costs, which translate into better overall returns for the company.
Jack: The key takeaways, if you turn now to slide 12.
Jack: The key takeaways that I'd like to leave everyone. With today are we built a very efficient machine here at high peak, we expect to continue to build off of our 2020 for improvements.
Jack: Successfully continued to expand our large contiguous acreage position and have demonstrated strong well results in our expansion areas and some of our upside zones.
Jack: We expect to continue that success going forward.
Jack: Our well performance has continued to improve across acreage across our entire acreage block, while we are simultaneously lowered our drilling and completion costs.
Jack: Which translate into better overall returns for the company.
Jack Hightower: We have a long runway of oily high value inventory which is underpinned by roughly 15 years of location. and our bread-and-butter Wolf Camp A and lower Sprayberry Formation. Our intense focus on operational efficiency, covered with our advantageous life of field infrastructure system, continue to deliver peer leading mark we're in a very healthy financial position, which we expect will be further enhanced as we look to optimize our capital structure. Our corporate efficiency is projected to continue to improve, highlighted by flat production volumes, combined with a 20% lower capital budget this year. All these things ultimately lead to HighPeak being positioned for sustainable long term success.
Jack: We have a long runway of oily high value inventory, which is underpinned by roughly 15 years of locations and our bread and butter wolfcamp, a and lower sprayberry formations, our intense focus on operational efficiency covered with our advantageous slap a field infrastructure system.
Jack: <unk> to deliver pure leading margins.
Jack: We're in a very healthy financial position, which we expect will be further enhanced as we look to optimize our capital structure. Our core pretty efficiency is projected to continue to improve highlighted about flat production volumes combined with a 20% lower capital budget. This year all of these.
Jack: Things ultimately lead to happening being positioned for sustainable long term success.
Jack Hightower: And with that, we'd like to open up the call. questions and And we will answer any questions that you have. Thank you.
Jack: And with that.
Jack: We'd like to open up the call to <unk>.
Jack: <unk> and <unk>.
Jack: And we will.
Jack: Answer any questions that you have thank you.
Operator: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
Jack: Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw to withdraw. Your question. Please press star one one again.
Jack: Please standby, while we compile the Q&A roster.
John White: Our first question comes from the line of John White from Roth MKM Capital. Good morning and congratulations on the nice result. especially your approach reports. Can you hear me OK? John, if you could speak up a little bit, we can barely hear you, buddy. Yeah, I said congratulations on the nice results, especially your approved reserve report. Thank you.
Speaker Change: Our first question comes from the line of John White from Roth.
Jack: Capital.
John White: Good morning, and congratulations on the nice results.
Jack: Especially your brute force.
Jack: Okay.
Jack: Can you hear me okay.
Jack: Yes.
John White: John if you could speak up a little bit we could fulfill here your body.
Speaker Change: Yes, I said congratulations on the nice results, especially your proved reserve report.
John White: Thank you.
Jack Hightower: For 2025, how many middle sprayberry wells are you planning? John, that's a great question. We've had fantastic results from our first two middle sprayberry tests, the first being a couple quarters ago that we announced. Our second middle sprayberry well is in early flow back today and looks very similar to the first well. I think it would be reasonable to expect us to be prudent and cautious as we step out and delineate the middle sprayberry. The great thing is we have 200 locations up just in Flattop that we suspect will be as good as what we're seeing here.
Speaker Change: For 2025, how many middle Sprayberry wells are you planning.
John White: Okay.
John White: John Thats a great question, we've had fantastic results from our first two middle Sprayberry SaaS that first being a couple of quarters ago that we announced.
John White: On our second Middle Sprayberry wells in early flow back today, it looks very similar to the first well I think it would be reasonable to expect us to be prudent and cautious as we step out and delineate the middle Sprayberry. The great thing is we have 200 locations up Justin.
John White: Flat top that we suspect will be as good as what we're seeing here.
Jack Hightower: Again, through 2025, I would think the number would be two to three additional wells this year would be reasonable.
John White: Again through 2025, I would say the number would be two to three additional wells this year would be reasonable.
Jack Hightower: In CapEx kind of breakout, we get this question a lot between Flattop and Signal Peak. Almost. follows the acreage distribution between Flat Top and Signal Peak, kind of 70-30-70% of that capex being kind of co-developed lower Sprayberry and Wolf Campaign mostly in Flat Top with again that kind of two to three middle Sprayberry wells that we would expect to do later in the year and the remaining kind of 30% being spent down in Signal Peak. Okay, so all the middle sprayberry wells for 2025 are going to be in flat top and none in signal peak.
John White: Capex kind of breakout we get this question a lot between flat to up in signal peak almost.
John White: Follows the acreage distribution between flat to up in signal peak kind of 70 30, 70% of that Capex being.
John White: Conoco develop lower sprayberry and Wolfcamp, a mostly in flat to up with again that kind of two to three middle Sprayberry wells that we would expect to do later in the year.
John White: <unk>.
John White: The remaining kind of 30% being scanned down in signal peak.
John White: Okay. So all of the Middle Sprayberry wells for 2025 are going to be in flat.
Jack Hightower: Is that right? That's what we're anticipating today. Again, there's some metal sprayberry wells that offset operators have drilled near our signal peak area, so we're watching that obviously. But as we sit today, we're looking to delineate up and flat top is our main priority.
John White: None in signal peak is that right.
John White: That's what we're anticipating today.
John White: Again, there are some middle sprayberry wells that offset operators.
John White: <unk>.
John White: Grilled near our signal peak area. So we're watching that obviously.
John White: But as we sit today, we're looking to delineate up and flat top is our main priority yes.
John White: Okay, well, thanks very much and good luck in 2025. All right. Thank you, John. Thank you.
John White: Okay.
John White: Okay, well, thanks, very much and good luck in 2025.
John White: Alright, Thank you John.
Operator: One moment for our next question.
Speaker Change: Thank you one moment for our next question.
Jeff Robertson: Our next question comes from the line of Jeff Robertson from Water Tower Research. Thanks. Good morning. Mike, when you spoke about infrastructure improvements, you talked about improving HighPeak's ability to handle gas volumes and deliver those to more potential outlets. Does that also have an impact on your ability to move more oil barrels by being able to effectively? capture and sell gas. You bet, Jeff. No, that's a great question. And to that point, yes, we have made great strides in improving our infrastructure out to some of these newly acquired acreage positions that we've tested. Again, your first well or two, you don't have your entire infrastructure built out.
Speaker Change: Our next question comes from the line of Jeff Robertson from water Tower research.
Jeff Robertson: Thanks, Good morning, Mike when you spoke about infrastructure improvements you talked about improving <unk> ability to handle gas volumes and deliver those to more.
Speaker Change: Potential outlets.
Speaker Change: Does that also have an impact on your ability to move more oil barrels by being able to.
Speaker Change: Actively.
Speaker Change: Capture and sell gas.
Speaker Change: You bet Jeff.
Speaker Change: Great question.
Speaker Change: And to that point, yes, we have made great strides in improving our infrastructure out to some of these <unk>.
Speaker Change: Nearly acquired acreage positions that we've tested again your first well or two you don't have your entire infrastructure built out. So we did have some gas volumes that had had to go to flare early on that are all now pie and so thats increased some of it to Europe.
Michael Hollis: So we did have some gas volumes that had to go to flare early on that are all now tied in. So that's increased some of it. To your point, had you not built out the infrastructure, there is a time limit to how long you could test an area before you have to have a solution for moving those gas molecules. And there's obviously value associated with those gas molecules. And, you know, on our hedge position, you can see that we layered on some additional gas hedges. We layered in about 30,000 MMBTU a day from March of 25 to February of 26 at about $4.43 per MMBTU.
Speaker Change: Had you not built out the infrastructure there is a time limit to how long you could test an area before you have to have a solution for moving those gas molecules and there is obviously value associated with those gas molecules.
Speaker Change: One of them on our hedge position.
Speaker Change: Position you can see that we layered on some additional gas hedges.
Speaker Change: We learned at about 30000 Btu of days from March of 25% February up 26 at about $4.43 per <unk>.
Michael Hollis: Again, Gas will never be a huge part of HighPeak's production with our current acreage position, again because we do have such an oily mixture of our BOE. So we're a very low API gravity oil barrel as well. We run about 36, 37 gravity on average. So when you look at our reserve report and you see that our oil percentage for the life of all these wells that are in that report moved from about 70 percent at 2023 year-end to about 68 percent in year-end 24. That's more of what I think you're going to see for the next decade or so from HighPeak.
Speaker Change: Again.
Speaker Change: Gas will never be a huge part of high teens production with our current acreage position again, because we do have such an oily mixture of RVO.
Speaker Change: So we're very low API gravity oil.
Speaker Change: Oil better oil barrel as well we wrote about 36 37 gravity on average so.
Speaker Change: When you look at our reserve report and you see that our oil percentage for the life of all of these wells that are in that report move from about 70% at 2023 year end to about 68% and year end 24, that's more of what I think youre going to see for the next decade.
Speaker Change: Peter So from Hi, Pete we've been in maintenance mode for about a year and a half now we were drilling with six rigs back in 2023, So I think what you've seen as things level out and if I was looking from a modeling standpoint, I would say kind of low to mid 70.
Jeff Robertson: We've been in maintenance mode for about a year and a half now. You know we were drilling with six rigs back in 2023. So I think what you've seen is things level out. And if I was looking from a modeling standpoint, I would think kind of low to mid 70 percent oil range and kind of that 85-ish percent liquids as a go forward for HighPeak. Thanks.
Speaker Change: <unk> oil range and kind of that 85 ish percent liquids as a go forward for IP.
Michael Hollis: And when you think about corporate efficiency over the next several years, you've talked about being a or 2024, growing production with less cash flow, and expect that to be the case, I'm sorry, less CapEx and expect that to be the case in 2025. And likely in 2026, how does the infrastructure build out support? your efficiency goals for the company. You bet, Jeff. No, great, great questions. Again, this infrastructure, you see that in our LOE, this infrastructure also helps us on the CAPEX side to a lesser degree. For instance, we can run rigs off a high line power.
Speaker Change: And when you think about.
Speaker Change: Corporate efficiency over the next several years, you've talked about being a 2024.
Speaker Change: Growing production with less cash flow and expect that to be the case I'm, sorry, less capex I would expect that to be the case in 2025.
Speaker Change: Likely in 2026, how does the infrastructure build out support.
Speaker Change: Your efficiency goals for the company.
Speaker Change: You bet, Jeff No Greg Great question.
Speaker Change: Again this infrastructure do you see that in our <unk>.
Speaker Change: This infrastructure also helps us on the Capex side to a lesser degree for instance, we can run rigs off of high line power, we get it all.
Michael Hollis: We have ample recycled fluid that we can utilize for our frack crews. We run as high as 100% recycled fluid on our frack jobs, again, helping CAPEX and OPEX. So as we build this infrastructure and tie everything together, it definitely improves the things we like to be able to control, again, drilling OPEX, CAPEX stalls. Now, whenever we look forward into 2025 and 2026, I think you hit on a very important point. We talk about being 20% less CapEx as a maintenance mode inclusive of some one-time, and we tried to break this out on the guidance slide, the one-time infrastructure that we have to put in.
Speaker Change: Recycled.
Speaker Change: <unk> that we can utilize for our frac crews, we'd run as high as 100% recycled fluid our frac jobs again, helping capex and Opex. So as we built this infrastructure and tie everything together it definitely improves the things we like to be able to control again drilling opex capex cost.
Speaker Change: No.
Speaker Change: We look forward into 2025 and 2026 I think you hit on a very important point, we talk about being 20% less capex as a maintenance mode inclusive of some one time, we tried to break this out on the guidance slide.
Speaker Change: One time infrastructure that we have to put in once it's there it's there for the life of field.
Michael Hollis: Once it's there, it's there for the life of field. But then if you also look at the line that breaks out the kind of midpoint of $45 million for infrastructure. Again, for just a little bit of clarity from HighPeak, it's a little different than our peers. Again, I always like to call it blood, guts, and feathers. When we give our DNC CAPEX, if you notice, we know that it's drilling, completion, equipping the facilities for those wells, as well as a little bit of capitalized flow back water. So all in blood, guts, and feathers is the DNC portion of the guidance.
Speaker Change: But then if you also look at the line that breaks out the kind of midpoint of $45 million for infrastructure.
Speaker Change: Again, just a little bit of clarity from high teens, that's a little different than our peers again, I always like to call it blood guts and feathers, when we give our D&C capex.
Speaker Change: Notice, we noted that its drilling completion and equipping the <unk>.
Speaker Change: Philippines for those wells as well as a little bit of capitalized flowback water. So all in blood and guts and feathers. The D&C portion of the guidance now the $45 million that anything that is not on the well pad so thats pipelines overhead electric.
Michael Hollis: Now the $45 million, that's anything that is not on the well pad. So that's pipelines, overhead, electric that tie in some of these new areas. So again, assuming that we don't go and put on another 30,000 acres in 2026, what you will see is that $45 million line will also decrease. If I was a betting guy, I would say it would be about half or less of that $45 million. And of course, the one-time piece goes away. All else being equal, that would reduce our 2026 budget by roughly 30%. Again, being in a maintenance mode, relatively flat.
Speaker Change: Tie in some of these new areas. So again, assuming that we don't want to go in put on another 30000 acres in 2026, what you'll see is that $45 million line will also decrease if I was a betting guy I would say it would be about half or less of.
Speaker Change: Of that $45 million.
Speaker Change: And of course, a one time piece goes away.
Speaker Change: All else being equal that would reduce our 2026 budget by roughly 30% again being a maintenance mode relatively flat.
Michael Hollis: Now I mentioned that in 23 we were running six rigs. We've been kind of in maintenance mode for a year and a half. What you're starting to see with HighPeak is a maturity, right, of our asset. Our corporate decline is beginning to come down. So again, when you look into the future, it's going to take less wells and completed feed to hold that production flat, which might translate into a couple percentage gain each year, even while we're staying at a maintenance CapEx mode, because again, we can't fine tune down to the exact number of completed lateral feed to stay perfectly flat.
Speaker Change: Now I'll mention that in 'twenty, three and we were running six rigs we've been kind of in maintenance mode for a year and a half what youre starting to see with IP gives them the churn rate of our asset our corporate decline is beginning to come down. So again, when you look into the future it's going to take less.
Speaker Change: Wells and completed feet to hold that production flat.
Speaker Change: Which month translate into a couple of percentage gain in each year at even while were saying, adding maintenance capex mode. Because again we're.
Speaker Change: Fine tuned down to the exact number of completed lateral feet to say perfectly flat, but as our production base ages and corporate decline goes down you'll see a slight build in production EBIT at the two rig program.
Michael Hollis: But as our production base ages and corporate decline goes down, you'll see a slight build in production, even at the two rig program. Again, all growing corporate efficiency, increasing free cash flow, again allowing us to pay down debt. Again, at par, we assume if in the future we had normal way financing, we would be able to do that at par.
Speaker Change: Again, all growing.
Speaker Change: For efficiency, introducing free cash flow again, allowing us to pay down debt.
Speaker Change: Again at par, we assume within the future we had normal way financing, we would be able to do that at par.
Michael Hollis: And operationally, Mike, is it fair to think then that the infrastructure that will be in place with the current plan essentially sets the asset base up such that you could scale capital depending on the amount of cash flow you have and just the prevailing economic conditions. Great question. You know, HighPeak is, again, uniquely positioned with our asset base and our land position. to have the flexibility to go either way. If you remember, we were running six rigs back in 2023. This life of field infrastructure was built such that we could flex upwards to six, eight rigs.
Speaker Change: Operationally Mike is it fair to think then that the infrastructure that will be in place with the current plan.
Speaker Change: Essentially sets the asset base up such that you could.
Speaker Change: Gail capital bid depending on the amount of cash flow you have in <unk>.
Speaker Change: Just the prevailing economic conditions.
Speaker Change: Great question.
Speaker Change: Again uniquely positioned with our asset base and our land position.
Speaker Change: To do or to have the flexibility to go either way. If you remember we're running six rigs back in 2023.
Speaker Change: This LIFO heeled infrastructure was built such that we could flex upwards to six to eight rigs if needed we have the capacity through all of these lines to move that type of volume.
Michael Hollis: If needed, we have the capacity through all these lines to move that type of volume. But also this land position, if, for instance, oil prices were to drop precipitously lower than they are today and we had to slow down activity, we can hold through the drill bit all of the acreage that HighPeak has, the 143,000 acres, with less than one rig running. So again, it gives HighPeak the flexibility to take advantage of any kind of pricing environment that we have either now or in the future.
Speaker Change: But also this land position.
Speaker Change: If for instance, oil prices were to drop precipitously lower than they are today, and we had to slow down activity.
Speaker Change: We can hold through the drill bit all of the acreage that Hy Tech has the 143000 acres with less than one rig running so again it gives <unk> the.
Speaker Change: The flexibility to take advantage of any kind of pricing environment that we have either now or in the future.
Jack Hightower: If I could switch gears quickly to the capitalization, if you reduce the borrowing costs on the term loan by 100 basis points, I think it would be about $10 million that would fall straight to free cash flow. How do you weigh the merits of reducing debt? under a new capital structure and buying back share. Actually, I'll answer that question, Jeff. If you look at what our borrowing base, our rate is on our term loan. with Fitch. And of course, we'd have new rating agency numbers as we go forward with a potential bond transaction or normalized capital structure.
Speaker Change: If I can switch gears quickly to the capitalization if you reduce the borrowing cost on the term loan by 1% by 100 basis points.
Speaker Change: It would be about $10 million that would fall straight to free cash flow.
Can you talk about.
Jeff Robertson: I'm sorry go ahead, Jeff how do you weigh the.
Speaker Change: Merits.
Speaker Change: Reducing debt.
Speaker Change: Under our new capital structure and buying back shares.
Speaker Change: Okay.
Speaker Change: Actually.
Speaker Change: I'll answer that question Jeff.
Speaker Change: If you look at what our borrowing base our rate is on our term loan.
Speaker Change: With Fitch and of course, we have new rating agency.
Speaker Change: Numbers as we go forward with a potential bond transaction, our normalized capital structure.
Speaker Change: And.
Jack Hightower: Based on that right now, you would expect, as you say, roughly $10 million per basis point. But if you go from, let's say, hypothetically, 8% down from 13%, that's almost $50 million. And then if you eliminate the amortization on that, you've got almost $170 million. As Mike said earlier, in terms of negative... with oil prices going down. The flip side is if they go up. and we decided to increase drilling, we have that flexibility too. So we have a lot of variability in our plan to do that. And with corporate efficiency improving also, we are going to be adding to our free cash flow.
Speaker Change: Based on that right now you would expect.
Speaker Change: You say roughly $10 million per basis point, but if you go from let's say hypothetically 8%.
Speaker Change: And from 13%, that's almost $50 million and then if you eliminate the amortization on that.
Speaker Change: <unk> got almost a $170 million.
Speaker Change: As Mike said earlier in terms of negative with.
Speaker Change: With oil prices going down the flip side is if they go up and.
Speaker Change: And we decided to increase drilling we have that flexibility to so we have a lot of variability in our and our plan to do that and with corporate efficiency improving also.
Speaker Change: We are going to be adding to our free cash flow and by adding to our free cash flow, that's where we would be able to reduce debt.
Jeff Robertson: And by adding to our free cash flow, that's where we would be able to reduce debt and do it very quickly should we choose to do so. And in fact, internally, when we model it, we can literally pay off a large RVL and a corporate bond in less than five years. if we want to just maintain where we are today. Okay, thank you very much. Thank you, Jeff. Thank you.
Speaker Change: And do it very quickly should we choose to do so in fact internally when we model. It we can literally pay off.
Speaker Change: A large RVO and <unk>.
Speaker Change: A corporate bond and less than five years.
Speaker Change: If we want to maintain where we are today okay.
Speaker Change: Okay. Thank you very much.
Jeff Robertson: Thank you Jeff.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Speaker Change: Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].