HighPeak Energy, Inc.

Thank you for standing by, and welcome to the first quarter 2022 High Peak Energy Conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program may be recorded. And now I'd like to introduce your host for today's program, Mr. Stephen Dolan, Chief Financial Officer. Please go ahead, sir.

Thank you, and good morning, everyone, and welcome to High Peak Energy's first quarter 2022 conference call. Representing High Peak today are Chairman and CEO Jack Hightower, President Michael Hollis, Vice President of Business Development Ryan Hightower, and I am Stephen Tholan, the Chief Financial Officer. During today's call, we will make reference to our main investor presentation, and our first quarter 2022 earnings release and form 10-Q, which can all be found on High Peak's website. Today's call participants may make certain forward-looking statements relating to the company's financial condition, results of operations, expectations, plans, goals, assumptions, and future performance. So please refer to the cautionary information regarding forward-looking statements and related risks in the company's SEC filings, including the fact that actual results may differ materially from our expectations due to a variety of reasons, many of which are beyond our control. We will also refer to certain non-GAAP financial measures on today's call, so please see the reconciliations in the earnings release, which was issued Monday afternoon. Our prepared remarks will begin on slide four of our May investor presentation. I will now turn the call over to our chairman and CEO, Jack Hightower.

Thank you, Steve, and good morning to everyone. our investors and stakeholders, as well as analysts and other interested parties. This is by far the most exciting presentation that we've given to date in IP. We are pleased to announce and update our shareholders on the progress of the company and provide additional details on our recently announced Hanathon properties as well as other acquisitions that we have consolidated over the last quarter. We are substantially a different company today compared to a year ago, and this will be obvious from the information we're going to discuss throughout the presentation. We're going to try to spend as much time as we can in updating you on current prices, production rates, We're approaching cash flow neutrality and expect to transition to positive free cash flow in the second half of this year. And this is all while maintaining our trajectory on production and current growth. If prices continue at these levels during 2023, we expect to be one of the few, if not the only, U.S. company which is substantially increasing production and generating significant free cash flow. As I've stated before, High Peak is definitely a differentiated growth story. If you'll turn to slide four in the presentation, there's many interesting things. And I want to refer everybody to the press release recently because our stock's down right now quite a bit. And this is a super buying opportunity. In fact, when you look at the press release, it's easy to say, well, if our production went from 15,000 barrels at the first quarter to 12,000 barrels, and now High Peak Legacy is at 25,000 barrels, with Hanathon, we're over 28,000 barrels, 30,000 barrels a day. You might say, well, what about missing your first quarter production? We've added almost three additional drilling rigs. We've added multiple frack crews. We are approaching the guidance that we said that we were going to maintain throughout the year. We're actually ahead of our guidance in terms of of where our production is today, and we have almost 30 wells that are still in progress being completed and coming online. We have an unhedged cash operating margin of $71.71, which is the highest in the industry, our profit margin. Another thing that people don't realize is What is the operational and land group accomplished in addition to production relative to our overall viewpoint? And that is we've gone from 63,000 to 91,000 acres. And that's almost a 45% increase in four months in acreage positions. increasing our scale, increasing our exposure. And as we go through the presentation, you're going to see a lot more interesting things conceptually with that increase in acreage. We also announced the Hanathon acquisition, which is a large acquisition, $255 million in cash and 3.78 million shares of high peak. This gave us, along with what we call the Alamo acquisition to the north, almost 150 net locations at a three times EBITDA multiple. Very, very accretive transaction. Also increasing our flow and increasing our leverage in terms of liquidity for the shareholders. And it had a $70 million plus economic value in terms of present value synergies in that acquisition. If you'll now turn to slide five, this is probably the most important slide in the entire presentation. It shows you our history from when we went public of 50-something hundred barrels a day, going up in the second part of that, and then going back down again. And that going back down again is very similar of what happened in the last quarter, then up to almost 15,000 barrels a day, then down to 12,100 barrels. It begs the question, why does the production go up and why does it go down? There's not anything wrong fundamentally with the reservoirs. There's not anything fundamentally wrong with anything we're doing. When you add that many rigs, and reemphasizing again, frack crews, and you can look down at the bottom of the page and see, when do you get contribution from these rigs? Because initially, you actually get negative contribution. You are in a block situation where you can't frack. We literally shut in almost 12 wells at different points in time during that quarter to go up to the next level. Now, on a pro-pharma basis, you look at the star and see where our production is going straight up. In the first star you see, pro-pharma with Hanathon, our production without Hanathon is still higher than what we projected. But our production with Hanathon is actually even higher And we have increased our guidance from 32,000 to 37,000 barrels a day for the year as an average. And then when we go to our exit this year, between 47,000 and 53,000 barrels a day. And we don't even start getting impact from our fourth, fifth, and sixth rig now with Hanathon until later in the year. And then at the end of the year, we're going to exit at an average of almost 67,000 barrels a day, if you take the midpoint of that. I'm going to spend more time talking about that throughout the presentation. But this slide shows you this was not anomalous. It isn't like we put on a lot of locations and past sites that are coming on temporarily and going down. This is just part of our growth profile, and we are hitting our numbers. Personally, I am so excited about what's taking place. When you think about doubling your production in four and a half months and showing that same growth profile through the rest of the year, it's phenomenal for our company. Now, going to slide... six, this also gives you a sense of our full weighted growth profile. And it's going to continue as we go on. We mentioned about going into an average of 67,000 barrels a day at the end of 2023. This is in keeping with our plan to run the six rigs, but going beyond that and looking at exit production of almost 80,000 barrels a day in 2023. These aren't hypothetical numbers. We are hitting these numbers as we drill, and we're having the success that we had planned on. We have had to increase our capital budget. Our exit rate is already accretive, and we go forward from where we are right now today with oil prices where they are. We are not outspending anymore as we go forward and count the roughly 30 wells that are in progress that will be pretty continuous now for the rest of the time. So on an average basis, almost $1,200,000,000 a year in exit. And at the end of 2023, we expect to be above $2 billion, which gives us tremendous free cash flow and opportunity. And that's still just maintaining six rigs as we go forward. which gives us almost 150 to 175 new locations with the excess. Very, very successful, very, very repetitive, and we are in process drilling now. If you'll look on page seven, which is adding cash flow scale and development opportunity, the first part of that on the left-hand side of the page is flat top. It shows our bolt-on acquisitions which we divide into basically three now. Our area we call Alamo to the north is north of the block line. And that's kind of a circle showing what we're doing in that area. And a lot of it is because this is well performance. And we're going to talk more about that. But all that acreage to the north up there in Borden County, that's the county line. It's the dark black line almost in the middle of the page. We've added over 10,000 net acres there and continuing to bolt on and put together lump areas where we have 15,000 foot opportunities to drill those wells. You're going to be extremely excited when Mike talks about the operational excellence and what's happening to those wells. But that's adding to our area. We added infrastructure to the area. I'm not going to talk much about that at this stage in this But moving from 63,000 to 91,000 acres, as you go into the Hanathon area, it's almost the whole western part of that area now that we control 100% of, adding 18,600 acres to that particular acquisition. Buying it at a three times multiple on where present production is and being able to almost double that production is in a period of between now and year-end, from 3,700 barrels up to 7,500 barrels a day. So again, we're extremely excited about it. And I think you have to look. None of us are selling shares. I'm one of the largest shareholders, and I'm looking to try to acquire more shares, not sell shares. The company is so undervalued relative to what we have going on. And I guess the best thing I can say, the next thing to talk about is our operating margins, and I'm going to turn that over to Mike Hollis, who's going to give you insights on operations, insights on profitability, and why we are still the peer-leading best in the business. Mike? You bet.