HighPeak Energy, Inc. Q3 FY2024 earnings call

Operational Success - Production

• Third quarter production averaged over 51,000 barrels of oil per day, outperforming initial expectations, and fourth quarter started strong with over 50,000 barrels of oil per day average.
• Raised full year 2024 production guidance to 48,000 - 51,000 BOEs per day, a over 5% increase from prior August and 10% from initial guide due to strong well performance and production optimization.

Well Results

• Kallus well, HighPeak's first operated Middle Spraberry well, achieved a Max Oil IP of roughly 1,500 barrels of oil per day from a 2-mile lateral, outperforming Wolfcamp A type curve.
• Judith well, HighPeak's furthest east operated Wolfcamp A well, reached an oil IP of 1,700 barrels of oil per day and produced over 135,000 barrels of oil in first five months.
• Wells in northern and northeastern extension areas of Flat Top and upside target zones continue to show strong early performance.

Cost Reduction

• Drilling and completions costs are currently 9% below Q1 2024 levels, driven by rig rates, stimulation cost per pumping hour, OTCG pricing, fuel cost, and incremental performance improvements.

ESG Initiatives

• ESG is ingrained in operations and strategic planning, including use of 100% ultra-local wet sand, recycled stimulation fluid, electrified field-wide, solar farm supplanting 10,000 metric tons of CO2 per year, and expanding low-pressure gas gathering system to eliminate flaring.

In the third quarter, HighPeak's production volumes averaged over 51,000 barrels of oil per day. The fourth quarter has started strongly with production averaging over 50,000 barrels of oil per day thus far. For the full year 2024, the production guidance has been raised to a range of 48,000 to 51,000 BOEs per day, which is over a 5% increase compared to prior August and a 10% increase compared to initial 2024 guidance. HighPeak's EBITDAX per BOE is a commanding lead among peers. HighPeak's BOE is 75% oil and 88% liquids versus peer average of 45% oil. HighPeak converts 80% of its realized price per BOE to EBITDAX compared to peers' 70%, resulting in a substantially higher EBITDAX per BOE.

Production Guidance

• Raised full year 2024 production guidance to a range of 48,000 to 51,000 BOEs per day, a over 5% increase from prior August and 10% from initial guide.

Expenses Guidance

• Reaffirmed 2024 lease operating expense and CapEx guidance. Capital expenditures are expected to fall within $540 million to $580 million. The bulk of 2024 infrastructure projects are completed, so fourth quarter capital expenses will be mainly for drilling and completing wells. Drilling and completions team continues to achieve cost savings even lower than earlier this year.

Hurricane Impact

• A major storm akin to a 100-year flood in early September affected production volumes, causing some offline and increasing lease operating expenses due to remedial work associated with storm damage. However, the operations team and robust infrastructure system minimized shut-in volumes and operational issues.

Q: Focusing on Slide 8 and your Kallus 34-39 Spraberry Well, do you plan to offset that and if so, to what direction and what would be the timing on offsetting this Middle Spraberry Well?

A: John, this is Mike. We're extremely excited about the Middle Spraberry results. There's offset data out a little bit farther west. We would like to look for the right place to delineate. Typically, we would walk away from this well a couple miles, either north, south or east to draw more credence to a larger swath of our acreage. It would be reasonable to expect to do a test sometime in the next quarter or two.

Q: To further that conversation with respect to Slide 8, on both the Kallus well and the Judith well, what can you take from the log penetrations and the data you got, while the well was drilling and now the performance, and use that to help de-risk the locations that you have?

A: You bet, Jeff. The great news is while we were drilling the wells, they acted very similar operationally. We gather log data and cutting samples through every one of these wells. The real test is the commerciality of the well and how much oil shows up. We have proved that all the way out to the east and to the north that substantiates our large inventory. Every day we are tweaking our completion, landing, perforation scheme. We don't suspect the rock is any different here than what we have back to the west. Our operations team is constantly optimizing, and over time these wells will continue to get incrementally better from day-to-day changes. Also, looking backwards in the Permian Basin, you realize you improve performance with time. Our operations, drilling, and completion guys are up to speed, and we're excited about the basic rock and what we can recover from it.

Q: Mike, does the performance of the Judith well so far versus your type curve reflect any kind of a change in the way the well was drilled and the way that actually the well was stimulated, or is that geology and petrophysics?

A: So a couple things there. It is a parent well by itself. If we had drilled 12 wells around it all at the same time, there might be a small difference in performance. What I will say is every day we are tweaking our completion, landing, perforation scheme. We don't suspect the rock is any different here than what we have back to the west. It's an evolution over time. Our production guys are doing a fantastic job on keeping well up time and reducing LOE. All these things come together to build the efficiency of our machine. Over time these wells will continue to get incrementally better from day-to-day changes.

Q: Mike, your acreage block on Page 8 is a little bit - it's filled in a little bit more than it was like in one of your previous presentations. Are you still I guess that one, it reflects your confidence in the northern part of this acreage position. Excuse me. But are you still seeing opportunities to pick up offset acreage at reasonable prices?

A: You know, Jeff, our land department does a great job. With the well results we have, our land guys are picking up acreage around it. We have enough data in the area to know where we want to have that acreage, and they're doing a great job picking it up. So it's reasonable to expect over time you'll see a little bit more on this chart as we pick up and fill in additional ownership in some of those blocks.