HighPeak Energy(HPK) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) HighPeak Energy's unaudited financial statements for Q3 2022 reflect substantial asset growth to $2.04 billion, fueled by acquisitions and increased long-term debt, resulting in $169.0 million net income for the nine months Condensed Consolidated Balance Sheets Total assets surged 150% to $2.04 billion by September 30, 2022, driven by crude oil and natural gas properties, funded by increased long-term debt and equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $2,042,262 | $818,960 | | Total current assets | $148,677 | $86,954 | | Total crude oil and natural gas properties, net | $1,883,381 | $725,615 | | Total Liabilities and Stockholders' Equity | $2,042,262 | $818,960 | | Total current liabilities | $260,350 | $103,000 | | Long-term debt, net | $561,756 | $97,929 | | Total stockholders' equity | $1,100,745 | $553,063 | Condensed Consolidated Statements of Operations Q3 2022 operating revenues soared to $204.1 million, yielding $107.9 million net income, while nine-month revenues reached $497.8 million with $169.0 million net income Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $204,114 | $47,472 | $497,771 | $121,459 | | Income from operations | $118,310 | $21,959 | $295,688 | $48,909 | | Net income | $107,904 | $8,047 | $168,955 | $18,534 | | Diluted EPS | $0.85 | $0.08 | $1.40 | $0.18 | Condensed Consolidated Statements of Cash Flows Nine-month operating cash flow significantly increased to $302.8 million, while investing activities used $843.4 million, largely funded by $540.0 million from financing activities Cash Flow Summary for Nine Months Ended September 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $302,806 | $87,737 | | Net cash used in investing activities | ($843,351) | ($189,099) | | Net cash provided by financing activities | $540,024 | $93,776 | | Net decrease in cash | ($521) | ($7,586) | - Non-cash investing activities included the issuance of $265.0 million in stock for acquisitions during the first nine months of 2022[37][82] Notes to Condensed Consolidated Financial Statements Notes detail $523.4 million in property acquisitions, increased debt facilities including $225.0 million Senior Notes, an amended $550 million revolving credit facility, and significant operational commitments - During the nine months ended September 30, 2022, the Company acquired crude oil and natural gas properties for a total of $523.4 million, consisting of approximately 42,855 net acres, including the issuance of 10.85 million shares of common stock valued at $265.0 million[82] - The company's long-term debt increased to $561.8 million, primarily due to borrowings under its Revolving Credit Facility and the issuance of $225.0 million in 10.000% Senior Notes in February 2022[97][103] - Subsequent to the quarter end, in October 2022, the company amended its Revolving Credit Facility, increasing the elected commitments to $525 million and the borrowing base to $550 million[143] - The company has a crude oil delivery commitment with a remaining monetary value of approximately $20.7 million and a sand purchase commitment with a remaining value of approximately $6.4 million as of September 30, 2022[117][122] Management's Discussion and Analysis of Financial Condition and Results of Operations Strong Q3 2022 performance, driven by 221% sales volume growth and 34% higher commodity prices, was supported by $523.4 million in acquisitions and robust liquidity, with a Q4 capital budget of $285-$295 million - The company's financial performance in Q3 2022 was highlighted by a $99.9 million increase in net income year-over-year, driven by a 221% increase in daily sales volumes and a 34% increase in average realized commodity prices[151] - As of September 30, 2022, the company was operating six drilling rigs and three frac fleets, with plans to maintain this activity level for the remainder of the year[149][166] - The capital budget for the fourth quarter of 2022 is estimated to be between $285 million and $295 million, primarily for drilling, completion, and infrastructure, excluding acquisitions[185] EBITDAX Reconciliation (Non-GAAP, in thousands) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net income | $107,904 | $8,047 | $168,955 | $18,534 | | EBITDAX | $169,704 | $33,337 | $356,214 | $91,784 | Results of Operations Q3 2022 operating results showed significant growth, with total production volume up 221% to 26,247 Boe/d and average realized price per Boe increasing 34% to $84.53, while production costs per Boe decreased Average Daily Sales Volumes | Product | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Crude oil (Bbls) | 21,857 | 6,970 | 214% | | NGL (Bbls) | 2,530 | 673 | 276% | | Natural gas (Mcf) | 11,162 | 3,147 | 255% | | Total (Boe) | 26,247 | 8,168 | 221% | Weighted Average Realized Prices (excluding derivatives) | Product | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Crude oil per Bbl | $94.21 | $69.84 | 35% | | NGL per Bbl | $36.59 | $35.83 | 2% | | Natural gas per Mcf | $7.73 | $3.69 | 109% | | Total per Boe | $84.53 | $63.18 | 34% | Operating Costs per Boe | Cost Category | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Production costs | $8.16 | $8.93 | (9)% | | Production taxes | $4.08 | $3.06 | 33% | | DD&A expense | $17.65 | $18.52 | (5)% | | G&A expense | $0.78 | $2.22 | (65)% | Quantitative and Qualitative Disclosures About Market Risk The company manages commodity price volatility through derivatives and faces interest rate risk on variable-rate debt, with a 1% rate increase impacting annual interest expense by $5.8 million - A $1.00 per barrel change in crude oil prices would impact annualized revenues by approximately $6.5 million, while a $0.10 per Mcf change in natural gas prices would impact annualized revenues by about $282,000, excluding derivative effects[199] - The company is exposed to interest rate risk on its Revolving Credit Facility; a 1% increase in interest rates on outstanding debt as of September 30, 2022, would increase annual interest expense by approximately $5.8 million[205] - The company uses commodity derivative instruments to reduce price volatility and support its capital program, not for speculative purposes[200] Controls and Procedures As of September 30, 2022, disclosure controls and procedures were deemed effective, with no material changes to internal control over financial reporting during Q3 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[206] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[207] PART II. OTHER INFORMATION Legal Proceedings Management anticipates no material adverse financial impact from ongoing legal proceedings or claims incidental to the company's business - The company does not expect any ongoing legal proceedings or claims to have a material adverse effect on its financial condition or results[209] Risk Factors Key risks include geopolitical instability, significant indebtedness of $605 million, potential new costs from the Inflation Reduction Act, and increased capital and operating costs due to inflation and rising interest rates - Political instability, particularly the war between Russia and Ukraine, creates uncertainty in commodity markets, elevates supply chain disruption risks, and could materially impact business results[211][212] - The company's significant indebtedness could make it difficult to satisfy obligations, increase vulnerability to adverse economic conditions, and limit flexibility for strategic actions[214][216] - The Inflation Reduction Act of 2022 introduces a methane emissions fee starting in 2024 and provides incentives for clean energy, which could increase operating costs and decrease long-term demand for crude oil and natural gas[220] - Ongoing inflation and rising interest rates may increase the cost of goods, services, and capital, potentially hurting financial and operating results[221][223] Unregistered Sales of Equity Securities and Use of Proceeds The company issued unregistered equity securities, including 3,522,117 shares for the Hannathon Acquisition and 3,933,376 shares in an $85.0 million private placement for general corporate purposes - On June 27, 2022, the company issued 3,522,117 shares of common stock in connection with the Hannathon Acquisition[226] - The company completed an $85.0 million private placement, issuing 3,933,376 shares of common stock at $21.61 per share, with final closings on September 2, 2022[227] Exhibits This section lists all exhibits filed with the Form 10-Q, including acquisition agreements, debt instruments, credit facility amendments, and required certifications - Key exhibits filed include the Fifth and Sixth Amendments to the Credit Agreement, indentures for senior notes, and various registration rights and purchase agreements[229]