HighPeak Energy, Inc.

Welcome to the High Peak Energy 2023 first quarter earnings call. At this time, all participants are on listen-only mode. After the speaker's presentation, there will be a Q&A session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I will now hand it over to Stephen Tholen, Chief Financial Officer. Please go ahead.

Good morning, everyone, and welcome to High Peak Energy's first quarter 2023 earnings call. Representing High Peak today are Chairman and CEO Jack Hightower, President Michael Hollis, and I am Stephen Tholen, the Chief Financial Officer. During today's call, we will make reference to our May investor presentation and our first quarter earnings release, which can 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 and our May investor presentation. I will now turn the call over to our Chairman and CEO, Jack Hightower.

Thanks, Steve, and good morning, ladies and gentlemen. I'm going to start my prepared remarks on slide four of our May investor presentation. This is an important slide. Of course, I have the old adage, you can lead a horse to water, but you can't make them drink. But everything that we're doing relative to our plan going forward this year and next year can be synopsized on this slide. And I know that the market hadn't liked our stock today and our press release. But I think when I made the statement, you can lead a horse to water, you can't make them drink, it's really hard for me and for the management team not to be able to buy stock right now as low as it is because we're more excited about the company right now than we ever have been. And if we weren't restricted in our ability to buy because of strategic alternatives and because of all the things we have ongoing, we would be buying our stock profusely at the present stock price. Looking at this and the current economic environment and the volatility of commodity prices so far this year, we are taking proactive steps with our updated 23 development plan to strengthen our financial position and accelerate our transition to positive free cash flow with minimum effect on our growth trajectory. We plan to accomplish this through reducing our rig count from four rigs to two rigs for the remainder of the year. Previously, we reduced the number of frack crews from four to two. This has been our plan all along. You don't plan something like this overnight. It has nothing to do with liquidity or lack thereof. In fact, very shortly, you're gonna see that our short-term debt situation will be more than handled. The company could have continued on and relative to strategic alternatives, unquestionably more production is better. But we have to run the company with the long-term plan in mind with a 50% growth rate this year and another 30% growth rate next year, we still have plenty of growth. We are a growth story. The change will also reduce approximately 250 million from our original capital budget. We will, however, continue to maintain an average of two frac crews for the rest of the year. This will allow us to complete our inventory of operational ducts that were generated with our prior six-rig program. The two frac crew run rate will enable us to complete and add wells to production typical of a four-rig cadence. The reduction in drilling activity demonstrates our commitment to financial discipline. Nobody knew what was gonna happen relative to oil prices. We have a big decline today. We're perhaps going into a recession. So our attitude is to under-promise, over-perform, and be careful going forward. And relative to financial discipline, Doing this allows us to stay way below a one-time maximum leverage range, which has always been our philosophy. For 53 years, we never want to get out over our skis. It's why we've never had any losses on any transaction in 53 years. As a result of this new plan, we're now projected to reach positive pre-cash flow in the third quarter at current commodity prices. It's a testament to the high quality of our asset base that allows us to slow down our development cadence for the remainder of the year while keeping our production guidance very close to our initial range, approximately doubling last year's production. In addition, we plan to increase to a full-rig program in early 2024, and we anticipate funding this entirely through operating cash flow. This will allow us to simultaneously increase our production year over year by more than 30%. So almost 50% this year and a 30% increase next year, generating material free cash flow. As you can see from the slide, the 24 free cash flow sensitivity chart at the bottom under our four-week program we're projected to produce a large amount of free cash flow under any reasonable oil and gas price scenario next year. Generating significant free cash flow will provide us with a lot of optionality. We can use the cash flow to pay down debt, we can increase returns to shareholders, or we can further accelerate our development program. We are going to remain focused on our long-term development strategy to maximize value for our shareholders, either through sustained operations or strategic alternatives, and we believe this plan will accomplish that objective. Now, turning to slide five, this is a slide that you've seen many times showing our contiguous acreage position. Our first quarter production averaged 37,000 barrels a day, which is about even with our fourth quarter average. If you recall, our historic plateau growth pattern provides for flattish growth one quarter, followed by a large jump the next quarter. This is going to continue as we go forward. I'd like to point out that our first quarter average was an increase of over 200% year over year compared to first quarter of 2022. We continue to be a growth story. As of quarter end, we had another 64 wells in various stages of drilling and completion. Under our revised plan, we expect to turn in line 110 wells this year. This will allow us, and going back to the first slide, what our production numbers and guidance are showing. As shown in the operating statistics, it actually gives you On 23, high 50,000 barrel oil a day range, and then 24, an exit of over 70,000 barrels a day. On any kind of reasonable metric that you're looking at as a multiple of cash flow, considering the number of locations that we have, and it shows over 2,500 on this slide, and that's a conservative estimate on the number of locations that are commercial for this company, That's still great growth and great exit potential exit strategy relative to strategic alternatives. Now turning to slide six. This is also an important slide relative to our differentiated growth story, which will continue while simultaneously transitioning to free cash flow. We feel that it's important as we start reaching more of a plateau in production growth to maintain free cash flow and not to get out over our skis with too much debt in this environment. We have grown our production base to 40,000 barrels a day over the last few years while maintaining a conservative balance sheet. That philosophy is going to continue. There's no better way to prove high rock quality than by exhibiting substantial production growth through the drill bit. As shown in this slide, by executing our business plan, we will have an EBITDA run rate of about $1.2 billion and a flat $80 price tag. And you can see how that goes up with higher prices. In addition, we will be positioned to continue increasing our production next year at a four-rig funded 100% from cash flow from operations. And that's Not very many companies that are in growth mode can do that. Now turning to slide seven, this is perhaps one of the most important slides. We've talked about our operating margins, but we continue both historically and this year and into the future to have the highest margins of our Permian Pier. Our first quarter margin per BOE was 55% higher than our peer average. This theme will remain over the coming quarters as natural gas prices stay depressed. Higher margins give high peak cash flow generating capacity of much higher equivalent production volumes. The first quarter high peaks 37,000 barrel a day average would have been equivalent to almost 58,000 barrels a day on our peers. That's important relative to our price, important relative to strategic alternatives that we literally at year end will have almost 90,000 barrels compared to 60,000 barrels that we're producing is equal to 90,000 barrels that other people are producing to get that same cash flow and value. So our high oil cut, our low production operation, low cost operations, increasing production will continue to differentiate our barrel of oil equivalents relative to our peers. Mike, I'm going to now turn the call over to you for operational update. You bet. Thanks, Jack.