HighPeak Energy, Inc.

Good day and thank you for standing by and welcome to the High Peak Energy 2023 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the 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 answer a question, please press star 1-1 again. And please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Stephen Tholen, CFO. Please go ahead.

Good morning, everyone, and welcome to High Peak Energy's second quarter 2023 earnings 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 Tholen, the Chief Financial Officer. During today's call, we will make reference to our August investor presentation and our second 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 language 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 in our August investor presentation. I will now turn the call over to our Chairman and CEO, Jack Hightower.

Thank you, Steve, and good morning, ladies and gentlemen. We want to thank you for joining our call today regarding our second quarter earnings. My prepared remarks will begin on page four of our presentation. This is perhaps one of the most exciting presentations in the history of IP. As you can see, we are substantially a different company today than we were just a few short months ago. Not only is this an exciting time, but we have also recently achieved two very important company milestones. Number one, Our production is averaged over 50,000 barrels a day, DOE equivalent per day, thus far in the third quarter. That's an 18% increase over our second quarter average and a 35% increase compared to our first quarter average. This increase is in accordance with our projections and continues to track our internal expectations. Number two, going forward, we are now delivering policy-free cash flow from operations. And at current prices and our two-rig cadence, we expect to generate excess cash flow over our capex spend this quarter. This is a major achievement for the company and for our long-term strategic plan. From this point forward, we intend to finance all of our drilling activity through operational cash flow. and generate significant free cash and reduce our outstanding debt over the course of the next 12 months. I would say that leads to capital discipline. In accordance with our updated development plan, we're currently running two rigs and one frac crew. We'll maintain a two-rig program and utilize one to two frac crews throughout the remainder of this year. And until our debt refinance has been completed, it's too early to discuss our 24 development program. However, it's still our intention to finance 100% of our drilling program through operational cash flow while generating material free cash for debt reduction. We'll talk more about that as we go through the presentation. Coming off a more active drilling program in the first half of the year, we had an additional 42 gross wells in various stages of drilling and completion at the end of the second quarter. These wells will be turned online throughout the second half of the year and will translate to additional production growth throughout the remainder of the year. At current prices, we are approximately one times debt to EBITDA leverage ratio today. And as you can see from tables on this slide, by the end of this year, we should be under one turn of leverage and generating roughly 1.1 billion of cash flow on an annual run rate basis. utilizing $80 oil. Now turning to the next page, slide five, this slide is really showing the rock in our area, the growth of our production. If you think about just a few years ago, we were at 3,000 barrels of oil equivalent per day. And today, after 175%, compound annual growth rate We're up to over 50,000 barrels a day. Keep in mind that comes out of 200 producing horizontal wells with almost 50 more wells coming online between now and the end of the year. And we also continue to maintain our sustained peer leading profit margin, which differentiates us from other companies. So if you look at this, you have to make the assumption that this rock in this area is very, very good. It's very profitable and it meets anybody's tier one asset base. Eastern Howard County is fantastic. And as we look at the accomplishment of this level of growth while staying at around one turn of leverage, even while considering volatile commodity prices over the last three years. Now, if you'll turn to slide six, I'm gonna talk a little bit about the margins to continue outpacing the peers. We stated that we actually were improving on our profit margin, and this is a good example. In fact, today, our production volume of 50,000 barrels a day compared to our peers is worth the equivalent of 80,000 VOE per day, and that is just phenomenal. That's almost a 60%, 59% increase compared to our peers. So as mentioned on our first quarter earnings score, our margin will continue to expand, and the reason is because of our oil cut. We have tremendous oil cut, and that compared to our peers that end up with almost 50% gas after a year, we continue having 93% liquids. We also expect to expand and continue expanding our margins on our forecasted production growth and our LOE reduction initiatives further kick in. I'm going to turn the call over to Mike Hollis, and he's going to spend even a little bit more time explaining these margins to you as he goes forward in talking about operations.