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HighPeak Energy(HPK) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company averaged over 52,000 barrels of oil equivalent (Boe) per day for the quarter, representing a 25% increase compared to the second quarter and over 100% increase compared to the third quarter of 2022 [28][60] - Third quarter EBITDAX increased by 44% compared to the second quarter, translating to an annual run rate of over $1 billion [60][2] - The company generated significant free cash flow of over $75 million during the third quarter, marking a major achievement [60][2] - The net debt level is now below one turn, with expectations to continue decreasing as free cash flow is generated [3][8] Business Line Data and Key Metrics Changes - HighPeak's margin was approximately 60% higher than the peer average during the second quarter, with expectations for further expansion in the third quarter due to a high oil cut [5][30] - The company plans to maintain a three-rig program throughout the remainder of the year, with 41 wells expected to be turned in line in the second half of 2023 [68][90] Market Data and Key Metrics Changes - The company has seen a significant increase in production while maintaining a reasonable amount of leverage, which is now back below one turn [29][28] - The average oil prices increased by approximately $8.50 per barrel compared to the second quarter, contributing to an increase in margins [92] Company Strategy and Development Direction - The company aims to focus on responsible growth while maintaining capital discipline, with plans to potentially increase dividends and consider share buybacks if share prices remain dislocated [35][36] - HighPeak is positioned to capitalize on its prime oil-weighted Permian Basin asset base, with a long runway of Tier 1 inventory to develop [9][72] - The company has successfully completed a transformative debt refinancing, extending all debt maturities to September 2026, which strengthens its financial position [7][95] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving the exit production rate of 57,000 barrels per day, with potential for upside due to strong well results [23][86] - The company anticipates continued improvement in financial metrics and free cash flow generation, provided commodity prices remain stable [71][60] - Management highlighted the importance of maintaining capital discipline and controlling working capital to avoid overextending in the future [52][35] Other Important Information - The company has implemented initiatives to reduce operating costs, with expectations for lower dollar per Boe in the range of $7.50 for the upcoming year [19][82] - HighPeak's electrical build-out and solar farm are expected to reduce lifting costs and provide protection from high spot pricing during peak demand [6][81] Q&A Session Summary Question: What is the expectation for production exit rate in the near term? - Management confirmed that they are not changing their guidance and expect to achieve the exit rate of 57,000 barrels per day, with potential for upside [23] Question: Can you discuss the impact of operating costs and where they might go in 2024? - Management indicated that operating costs have come down and expect to see a lower dollar per Boe, estimating around $7.50, while emphasizing the benefits of a high oil mix [19][17] Question: How does the company plan to balance debt repayment and return of capital to shareholders? - Management stated that they will utilize cash flow for debt repayment while also considering dividends and share repurchases, depending on market conditions [83][20]