HighPeak Energy(US:HPK)2024-05-08 20:03PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) Unaudited Q1 2024 financials reflect a decline in total assets, a sharp drop in net income, and reduced operating cash flow Condensed Consolidated Balance Sheets The balance sheet shows a slight decrease in total assets to $3.05 billion, stable liabilities, and a minor reduction in equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $298,975 | $328,833 | | Total Crude Oil and Natural Gas Properties, net | $2,745,658 | $2,726,643 | | Total Assets | $3,054,692 | $3,080,791 | | Total Current Liabilities | $287,961 | $287,393 | | Long-term Debt, net | $1,004,798 | $1,030,299 | | Total Liabilities | $1,506,255 | $1,528,070 | | Total Stockholders' Equity | $1,548,437 | $1,552,721 | Condensed Consolidated Statements of Operations Q1 2024 operating revenues increased to $287.8 million, but net income plummeted to $6.4 million due to derivative losses Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Total Operating Revenues | $287,764 | $223,794 | | Income from Operations | $103,020 | $88,586 | | Gain (loss) on derivative instruments, net | $(53,043) | $3,120 | | Net Income | $6,438 | $50,257 | | Basic Net Income per Share | $0.05 | $0.41 | | Diluted Net Income per Share | $0.05 | $0.39 | Condensed Consolidated Statements of Cash Flows Q1 2024 saw net cash from operations decrease to $171.4 million, while investing outflows significantly reduced to $148.2 million Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $171,439 | $190,006 | | Net cash used in investing activities | $(148,223) | $(319,522) | | Net cash (used in) provided by financing activities | $(44,351) | $146,548 | | Net (decrease) increase in cash | $(21,135) | $17,032 | | Cash and cash equivalents, end of period | $173,380 | $47,536 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, derivative losses, $1.2 billion long-term debt, commodity commitments, and a $75 million stock repurchase program - The company utilizes commodity swaps, deferred premium put options, and enhanced collars to manage price volatility. As of March 31, 2024, the fair value of these instruments was a net liability of $13.5 million85154 - The company's long-term debt is primarily composed of a $1.2 billion Term Loan Credit Agreement entered into in September 2023, which matures in September 2026 and requires quarterly principal payments of $30.0 million starting March 31, 2024919395 - In February 2024, the Board approved a stock repurchase program to acquire up to $75.0 million of common stock. During Q1 2024, the company repurchased approximately $8.8 million of its common stock133 - The company has a crude oil marketing contract with a minimum volume commitment, which increases to 10,000 Bopd for the final eight years of the contract. As of March 31, 2024, the company has delivered approximately 81% of the total contracted volume for the life of the contract116 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 production growth, revenue increase, and sharp net income decline due to derivative losses and higher expenses - The Board initiated a process to evaluate strategic alternatives, including a potential sale of the company, on January 23, 2023. The process remains in a preliminary, exploratory stage151 - The 2024 capital budget is projected to be between $450 million and $525 million for drilling and completions, plus $50 million to $60 million for infrastructure. This will be funded by cash on hand, operating cash flow, and borrowings174 EBITDAX Reconciliation (Non-GAAP, in thousands) | Line Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net Income | $6,438 | $50,257 | | Interest Expense | $43,634 | $26,972 | | Income Tax Expense | $2,297 | $14,507 | | Depletion, Depreciation and Amortization | $130,850 | $81,131 | | Derivative related noncash activity | $47,895 | $(5,314) | | EBITDAX | $233,258 | $173,859 | Operations and Drilling Highlights Q1 2024 average daily sales volumes increased 34% to 49,729 Boe/d, with 91% liquids, supported by active drilling and completion programs Average Daily Sales Volumes | Product | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Crude Oil (Bbls) | 39,959 | 31,507 | 27% | | NGL (Bbls) | 5,147 | 3,280 | 57% | | Natural Gas (Mcf) | 27,733 | 14,611 | 90% | | Total (Boe) | 49,729 | 37,222 | 34% | - During Q1 2024, the company drilled 25 gross (18.1 net) wells and completed 12 gross (12.0 net) horizontal wells. As of quarter-end, 28 gross wells were in various stages of completion156158 Results of Operations Analysis Q1 2024 operating revenues rose due to higher volumes, while production costs decreased, but DD&A, G&A, and interest expenses increased Key Operating Metrics per Boe | Metric per Boe | Q1 2024 | Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | Average Realized Price (ex-derivatives) | $63.59 | $66.80 | (5)% | | Production Costs (ex-workovers) | $6.30 | $8.57 | (26)% | | DD&A Expense | $28.92 | $24.22 | 19% | | General & Administrative Expense | $1.04 | $0.75 | 39% | - Interest expense increased by 62% to $43.6 million in Q1 2024, driven by a higher debt balance from the new Term Loan Credit Agreement and higher prevailing interest rates168169 - The company recorded a net loss on derivative instruments of $53.0 million in Q1 2024, compared to a $3.1 million gain in Q1 2023, marking a significant negative impact on net income170 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity price volatility and interest rate fluctuations, using derivatives to mitigate price risk - A $1.00/Bbl change in crude oil price would impact annualized revenues by approximately $15.1 million, excluding derivative effects193 - A 1% increase in interest rates would increase annual interest expense by approximately $11.7 million based on debt levels at March 31, 2024201 - The company uses derivative instruments to hedge a portion of its production to reduce cash flow volatility and support its capital program, as required by its credit agreements194 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls in Q1 2024 - 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 report202 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls203 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not party to any legal proceedings expected to materially adversely affect its financial position or operations - The company believes that the liability from any current incidental proceedings and claims will not have a material adverse effect on its consolidated financial position205 Item 1A. Risk Factors No material changes to the company's risk factors have occurred since the last Annual Report on Form 10-K - The report states there has been no material change in the Company's risk factors from those described in its Annual Report206 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details of the company's stock repurchase activity, including the $75.0 million program approved in February 2024 Issuer Purchases of Equity Securities (March 2024) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet to Be Purchased (in thousands) | | :--- | :--- | :--- | :--- | | March 1, 2024 - March 31, 2024 | 565,540 | $15.50 | $66,236 | - The board of directors approved a stock repurchase program for up to $75.0 million in February 2024, which expires on December 31, 2024208 Item 5. Other Information No director or officer adopted or terminated Rule 10b5-1 trading arrangements during Q1 2024 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended March 31, 2024209 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents and material contracts