• Production: Averaged approximately 49,100 BOE per day in the first half of 2024, an 8% increase compared to 2023 annual average.
• Free Cash Flow: Generated positive free cash flow for the fourth consecutive quarter.
• Lease Operating Expenses: Maintained sub-seven dollars per BOE cost level.
• Cash Margin: Net back for the quarter was over 80% of realized price on a BOE basis.
• Debt Reduction: Reduced long-term debt by $30 million at par.
• Share Buyback: Acquired over 413,000 shares during the second quarter.
• Production Guidance: Raised to 45,000 to 49,000 BOE a day, a 4.5% increase from initial 2024 range.
• Lease Operating Expenses Guidance: Lowered to $6.50 to $7.50 per BOE, a 12.5% reduction from initial expectations.
• Capital Budget: Narrowed from $85 million to $40 million due to additional infrastructure projects.
• EBITDAX Margin: Unhedged EBITDAX margin at $50.07 per BOE, over 65% higher than peer group average.
• Revenue: Generated over $2.7 billion of revenue since going public, on track to generate over $1 billion per year.

• Warning! GuruFocus has detected 2 Warning Signs with HPK.

Release Date: August 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• HighPeak Energy Inc (NASDAQ:HPK) reported positive free cash flow for the fourth consecutive quarter, even with high capital expenditures.
• The company achieved a significant reduction in lease operating expenses, maintaining a sub-seven dollars per BOE cost level.
• Production volumes exceeded expectations, with an average of over 52,000 barrels a day in the third quarter.
• HighPeak Energy Inc (NASDAQ:HPK) raised its production guidance for 2024, reflecting confidence in continued strong performance.
• The company successfully reduced long-term debt by $30 million and continued its share buyback program, acquiring over 413,000 shares.

Negative Points

• A delay in bringing a key pad online reduced expected second quarter production volumes.
• Higher workover expenses were incurred in the second quarter, impacting lease operating expenses.
• The company faces high interest payments on debt, which is 20% of EBITDA, affecting cash flow.
• There are Make-Whole provisions on debt that limit flexibility in refinancing until March.
• The capital budget was slightly increased due to additional infrastructure projects, impacting financial planning.

Q & A Highlights

Q: Can you explain the increase in lease operating expenses (LOE) this quarter and the impact of well workover expenses? A: Jack Hightower, CEO: The increase in LOE was due to a higher amount of well workover expenses. In Q1, we averaged about $0.39 per BOE for workover expenses, which increased to $0.68 in Q2. This was driven by the completion of 32% of our annual wells in Q2, which required additional workovers on offset wells. Normally, workover expenses range between $0.30 to $0.45 per BOE.

Q: How does your infrastructure investment impact capital efficiency and returns as you progress through your development program? A: Michael Hollis, President: Our infrastructure investments, particularly in the Northern area, initially have a low capital efficiency. However, as we develop more wells, the cost per completed lateral foot decreases significantly. We've built infrastructure to support life of field development, which allows us to maintain efficiency even if we increase our drilling activity.

Q: How are you prioritizing the use of cash between dividends, share repurchases, and debt reduction? A: Jack Hightower, CEO: Our priority is to pay down debt, but we are keeping cash on the balance sheet due to Make-Whole provisions that expire in March. Post-March, we may consider refinancing to reduce interest costs. Our strategy remains focused on debt reduction while maintaining optionality for increased drilling if oil prices rise.

Q: What were your expectations for the new wells in the Northern and Northeastern extension areas, and how do the results affect your inventory? A: Michael Hollis, President: We expected these wells to perform well based on petro-physical analysis and log data. The results have met or exceeded expectations, confirming the potential of these areas. This success supports our inventory estimates and may lead to additional drilling in new zones like the Middle Sprayberry.

Q: Can you provide more details on the strategic alternatives process and its potential impact on the company? A: Jack Hightower, CEO: While I can't provide specific details, our strategic process is making significant progress. We are optimistic about the future and believe our unique position in the Permian Basin, with a strong infrastructure and high-margin production, will create substantial value for shareholders.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.