HighPeak Energy(HPK) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for the six months ended June 30, 2022, demonstrate significant growth in assets, revenues, and net income, primarily fueled by acquisitions and favorable commodity prices Condensed Consolidated Balance Sheets Total assets more than doubled to $1.75 billion by June 30, 2022, driven by increased crude oil and natural gas properties, while liabilities and equity also grew significantly Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $1,748,772 | $818,960 | | Total current assets | $145,983 | $86,954 | | Total crude oil and natural gas properties, net | $1,596,082 | $725,615 | | Total Liabilities | $848,384 | $265,907 | | Total current liabilities | $272,119 | $103,000 | | Long-term debt, net | $488,532 | $97,929 | | Total Stockholders' Equity | $900,388 | $553,063 | Condensed Consolidated Statements of Operations For Q2 2022, net income significantly increased to $77.6 million, driven by a fourfold surge in total operating revenues from higher commodity prices and production volumes Operating Results Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $201,428 | $48,270 | $293,657 | $73,987 | | Income from operations | $122,804 | $21,038 | $177,378 | $26,950 | | Net income | $77,561 | $5,743 | $61,051 | $10,487 | | Diluted net income per share | $0.64 | $0.06 | $0.52 | $0.10 | - The company declared a dividend of $0.025 per share in Q2 2022, totaling $0.05 for the first six months of the year. No dividends were declared in the comparable periods of 2021[33] Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $148.2 million for H1 2022, while investing activities surged to $549.1 million, primarily for acquisitions and property additions Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $148,186 | $47,280 | | Net cash used in investing activities | ($549,145) | ($76,867) | | Net cash provided by financing activities | $388,507 | $22,877 | | Net decrease in cash and cash equivalents | ($12,452) | ($6,710) | - A significant non-cash transaction during the period was the issuance of $265.0 million in stock for acquisitions[38] Notes to Condensed Consolidated Financial Statements The notes detail key accounting policies, significant acquisitions totaling $515.4 million, issuance of $225.0 million in senior notes, and amendments to the revolving credit facility - During the first six months of 2022, the company incurred $515.4 million in acquisition costs for properties in Howard and Borden counties, which included issuing 10,853,634 shares of common stock valued at $265.0 million[87] - In February 2022, the company issued $225.0 million of 10.00% senior unsecured notes due 2024. In June 2022, the borrowing base on its Revolving Credit Facility was increased to $400.0 million[103][107] - The company has a crude oil delivery commitment with a remaining monetary value of approximately $22.2 million and a sand purchase commitment of approximately $8.7 million as of June 30, 2022[121][126] Outstanding Derivative Contracts (as of June 30, 2022) | Contract Type | Period | Volume | Weighted Avg. Price | | :--- | :--- | :--- | :--- | | Crude Oil Swaps (WTI) | Rem. 2022 | 1,992.6 MBbls | $87.53 / Bbl | | Crude Oil Swaps (WTI) | 2023 | 641.2 MBbls | $66.04 / Bbl | | Natural Gas Swaps (HH) | Rem. 2022 | 920.0 MMBtu | $9.00 / MMBtu | | Natural Gas Swaps (HH) | 2023 | 450.0 MMBtu | $9.00 / MMBtu | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q2 2022 performance to increased sales volumes and commodity prices, with significant acquisitions and an expanded drilling program driving capital expenditures - The company's financial performance in Q2 2022 was driven by a 150% increase in daily sales volumes and a 67% increase in average realized commodity prices per Boe compared to Q2 2021[149] - The revised 2022 capital budget is approximately $790 to $860 million for drilling and completions, plus $35 to $40 million for infrastructure, assuming a six-rig program[184] EBITDAX Reconciliation (Non-GAAP, in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income | $77,561 | $5,743 | $61,051 | $10,487 | | EBITDAX | $135,434 | $38,380 | $186,510 | $58,447 | Results of Operations Q2 2022 operating results show significant growth in production volumes and realized prices, leading to surging revenues, though operating costs also rose due to increased activity Average Daily Sales Volumes Comparison | Commodity | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Oil (Bbls) | 18,858 | 7,951 | 137% | | NGL (Bbls) | 1,939 | 502 | 286% | | Natural Gas (Mcf) | 7,190 | 1,973 | 264% | | Total (Boe) | 21,995 | 8,783 | 150% | Weighted Average Realized Prices (excluding derivatives) | Commodity | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Oil per Bbl | $111.26 | $64.93 | 71% | | Gas per Mcf | $6.99 | $2.81 | 149% | | Total per Boe | $100.63 | $60.40 | 67% | - Stock-based compensation expense increased significantly to $14.6 million in Q2 2022 from $1.0 million in Q2 2021, primarily due to equity awards granted in May 2022 and late 2021[176][177] - Interest expense surged to $9.3 million in Q2 2022 from $152,000 in Q2 2021, driven by increased borrowings and the issuance of $225.0 million in 10.00% senior unsecured notes in February 2022[178] Liquidity and Capital Resources The company's liquidity is supported by cash from operations, a $400 million revolving credit facility, and senior notes, with a 2022 capital budget of $790 to $860 million for drilling and completions - As of June 30, 2022, the company had $285.0 million in borrowings under its Revolving Credit Facility, with approximately $111.1 million available to borrow[182] - Capital expenditures for the first six months of 2022 were $403.2 million, excluding acquisitions[184] Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $148,186 | $47,280 | | Net cash used in investing activities | ($549,145) | ($76,867) | | Net cash provided by financing activities | $388,507 | $22,877 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is commodity price volatility, mitigated by derivatives, with sensitivity to crude oil prices and interest rate risk on variable-rate debt - The company's main market risk is commodity price volatility. A $1.00 per barrel change in crude oil price would impact annualized revenues by approximately $5.5 million, while a $0.10 per Mcf change in natural gas price would impact revenues by $218,000[198] - The company uses commodity derivative instruments to reduce cash flow variability and support its drilling program, but does not use them for speculative purposes[199] - The company is subject to interest rate risk on its variable rate debt. A 1% increase in interest rates would increase annual interest expense by approximately $2.9 million based on debt levels at June 30, 2022[204] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during Q2 2022 - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[205] - There were no material changes in the company's internal control over financial reporting during the three months ended June 30, 2022[206] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company does not believe any current legal proceedings will have a material adverse effect on its financial position, liquidity, or results of operations - The company is not currently involved in any legal proceedings that are expected to have a material adverse effect on its financial condition or operations[208] Item 1A. Risk Factors Geopolitical instability, particularly the Russia-Ukraine war, poses risks of supply chain disruptions, commodity price volatility, and capital raising challenges, potentially impacting the business - A key business risk is political instability or armed conflict in oil and gas producing regions, such as the war between Russia and Ukraine[210] - The conflict could elevate the likelihood of supply chain disruptions, heighten volatility in commodity prices, and negatively affect the company's ability to raise capital[211] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including acquisition agreements, debt instruments, and required officer certifications - This section lists the exhibits filed with the quarterly report, including acquisition agreements, debt agreements, and required officer certifications[214][215]