HighPeak Energy, Inc. Q3 FY2025 earnings call

Key Points

• Third Quarter Results: Production consistent with Q2, 1 rig used in Q3, drilled 6 wells, turned in 9 wells. CapEx down 30% from Q2, LOE per BOE consistent with H1 2025. Successfully amended and extended term loan, increasing liquidity.
• Current Operations: Delayed second rig start until mid-October due to commodity price weakness; plan to run both rigs in Q4. Completed successful simul-frac completion with $400,000+ cost savings per well, aiming to incorporate this technique more in 2026.
• Future Road Map: Reset governance, added independent chairman and board committees. Focus on generating steady cash flow, paying down debt, and rebuilding market confidence. Highlighted strong asset base, operational efficiency, but identified areas like poor governance, growth at all cost mentality, overleveraging, and low float as areas to improve.
• Operational Efficiencies: Assembled high-quality asset base in desired basin, maximized efficiencies, and delineated economic oily inventory.

No detailed breakdown of product segments by revenue contribution provided. Overall, third quarter production levels were consistent with Q2, CapEx was down 30% from Q2, LOE per BOE was consistent with H1 2025 levels.

Forward-Looking Statements

• Rig Activity: Plan to run both rigs in Q4; determine 2026 activity based on oil prices, D&C costs. Bull case (oil >$70) could lead to 2 rigs or more, moderate production growth. Bear case (oil <$60) would involve less than 2 rigs, moderate production decline.
• Debt Paydown: Focus on operating within cash flow, using free cash flow to pay down debt at par, reducing leverage ratio. Corporate decline rate expected to come down over time, improving credit profile.
• Hedging: Methodical hedging program, layering on small hedges based on price movements, protecting capital budget and dividend.

Risks Identified

• Governance Issues: Controlled company status led to poor governance quality scores and high risk from rating agencies.
• Overleveraged: High leverage for company size, a primary focus to address through cash flow management and debt paydown.
• Market Confidence: Short-term focus eroded market confidence, needing to rebuild through disciplined execution.
• GOR Concerns: Increases in gas/NGL production due to historical takeaway issues, but working to address as midstream capacity improves.
• Low Float: Stock has low float, addressed through methodical distribution plan of HighPeak partnerships over 2 years.

Q: Talk in the context of your leverage plan, how you think that unfolds over 2026 under, say, your $65 scenario and how much flexibility that might give you or give the company to address the term loan?

A: Free cash flow generation is dictated by oil price. HighPeak is focused on cost management and capital deployment. In base case, can generate significant free cash flow to pay down debt at par, reducing absolute debt and leverage ratio. Future, corporate decline rate expected to come down, improving credit profile.

Q: How do hedges fit into those goals, Mike? I know you've got, I think, an average swap price on some of your production for '26 at about $63 a barrel.

A: We want a much more systematic and methodical hedging program. Will layer on small slices of hedges based on price movements, protecting capital budget and dividend. Will be opportunistic with gas hedges, but methodical in lower price ranges.

Q: Curious, as you kind of look at this plan and you look at the flex that you have with different -- at different oil kind of environments, you brought that second rig back. Curious if there's changes in how you're thinking about where kind of within the acreage footprint you're going to be drilling or what you're going to be drilling?

A: The split of drilling between Flat Top and Signal Peak is based on inventory, returns similar between the 2 areas. Whether running 1.5 or 2 rigs, the split of what we drill won't change, but where we drill is based on inventory split.

Q: Curious, as you kind of look at the base, I mean, the lease operating expenses have been, I mean, almost flat the last 6 quarters. I'm curious if there's opportunities for going back into wells, seeing an uptick in workovers, field maintenance type work as you're maybe shifting a little bit away from a more active drilling program.

A: We've done expense workovers with high return. Optimized production by changing pump points, moving down in the hole to lower pressure, seeing great results from these optimizations.

Q: You guys yesterday filed an S-3. Could you maybe just talk about what the reasoning behind that was and if you had any plans with that moving forward?

A: The sole reason for filing the S-3 was to refresh the stale and expired previous shelf registration statement. We have no intention of issuing any new shares anytime soon.

Q: For my first question here, you guys yesterday filed an S-3. Could you maybe just talk about what the reasoning behind that was and if you had any plans with that moving forward?

A: The sole reason for filing the S-3 was to refresh the stale and expired previous shelf registration statement. We have no intention of issuing any new shares anytime soon.

Q: Given that we're kind of on the border here of your base and bear case. How long do you need to see prices kind of either sub-60 to drop activity or between that $60 to $70 to move into that base case?

A: It's a multivariate problem. Can be a few days to a month. If in bear case, would run less than 2 rigs, determined by oil price trends, drilling and completion timing affecting production throughout the year.

Q: Could you maybe just talk about the distribution plan for HighPeak Energy Partners II?

A: The plan is to be very methodical, meter out the shares to the different LPs throughout the calendar year. Most limited partners have a long-term investment mindset, so it's done strategically without causing share overhang.