HighPeak Energy, Inc.

Hello, and welcome to High Peak Energy 2025 First Quarter Earnings Conference 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 the question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to turn the conference over to the CFO, Stephen Tholen. You may begin.

Good morning, everyone, and welcome to High Peak Energy's first quarter 2025 earnings call. Representing High Peak today are President Michael Hollis, Vice President of Business Development Ryan Hightower, and I am Stephen Tholen, the Chief Financial Officer. During today's call, we may refer 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 in our May investor presentation. I will now turn the call over to our president, Michael Hollis.

Thank you, Steve. Good morning, ladies and gentlemen, and thank you for joining us today for High Peak Energy's first quarter call. Our conference call will sound a little different today as Jack is at home recuperating. He's had a long, illustrious history of riding in cutting horse competitions, which is his other passion outside of work. For those who are not familiar with the sport, quarter horses are among the most athletic animals on the planet. And recently, one got the better of him during a practice session. The good news is he's going to be just fine. He's doing some physical therapy so that he can get back in the proverbial saddle as fast as possible. In the meantime, it's business as usual around here at Hy-P, as well as we all remain fully dedicated to guiding our company through this current volatile market. Also, we are changing from our historical precedent of referring to each slide as we go through this call. but our comments will stay generally consistent and follow our May investor presentation. With that housekeeping out of the way, let's talk IP. We're off to a strong start in 2025 as we delivered another very solid quarter. Our production averaged over 53,000 BOEs a day, beating guidance and consensus estimates. This is approximately a 6% increase versus Q4 while maintaining the same oil percentage per BOE. Our strong production rate allowed High Peak to generate almost $200 million of EBITDA during the quarter, which was an increase of approximately 10% compared to the fourth quarter at nearly the same weighted average oil price. Our cash margins remained healthy and were aided by roughly 3% drop in lease operating expenses quarter over quarter. This is a great time to give a shout out to the High Peak Field Organization. They are always finding new and innovative ways to reduce costs. This is an ongoing effort and I expect it will continue into the future. Another exciting thing that we will discuss is that we are realizing much higher levels of operating efficiencies in our development program compared to our historical averages. Given the strong start to the year, we are narrowing our production guide and raising the bottom end and increasing the midpoint, a beat and raise. Now for an operational update. As I previously mentioned, our operating team is continuing to realize more and more efficiencies, especially on the drilling side of the equation. Over the past two quarters, our spud to spud timing has dropped from an average of 14 days to about 11 days, which is over 20% faster than our previous expectations. So what does that mean for High Peak? This faster pace translates to a single rig drilling over 30 wells per year compared to our average over the past two years of about 25. As you would expect, there are some associated reductions to our daily variable drilling cost, which translates to lower cost per foot. These drilling efficiencies are sticky, and we expect them to continue on a go-forward basis. So let's talk about what we accomplished in our first quarter and walk you through our CapEx spend. I'm proud to report that our first quarter D&C costs were in line with our 2025 expectations, and further cost concessions are on the way. High Peak's drilling team has significantly outperformed expectations, increased drilling efficiencies have allowed High Peak to drill more wells than originally scheduled during the quarter. We actually spud 20 wells during the quarter while rig releasing 16 compared to our initial plan of 12. In addition, we outlined on our March conference call our 2025 infrastructure CapEx was heavily first half weighted with the majority coming in the first quarter. I'm also proud to report that the implementation of these projects went smoothly and within budget. This investment will continue to support our peer leading margins and will also provide us with operational flexibility and optionality. As one would expect, With our increased drilling efficiencies, we were starting to build additional drilled but uncompleted inventory as our two rig program was outpacing our one track crew. This is evidenced by the increase in our work in progress well count of 28 at the end of the first quarter. We typically manage the duck count to only have true operational ducks. High Peak does not like to let invested capital sit unproductive. We made the decision to accelerate the completion of a four well pad in the first quarter when oil was over $70 a barrel. One side note for those of you studying our first quarter turned in line numbers, these additional four wells were not online at the end of the quarter. So they will actually show up in our Q2 TIL numbers, but the completion dollars were spent in Q1. As we detailed in our 2025 capital budget guide, we planned on a heavy first quarter spend rate. In March, we estimated we would deploy roughly 35% of our yearly CapEx budget in Q1. We were able to do more work with the same equipment. We accomplished everything that we laid out to do, plus we drilled and completed the four additional wells. This equated to 38% of our full year budget. By accomplishing all of this in Q1, we have set high peak up for a great 2025 while still generating positive free cash flow during the quarter. In fact, if you remove the CapEx associated with the additional four well pad, we actually would have come in under our expected spend for the quarter. It's great that the high peak development machine is running more efficient than ever, but what does that mean looking forward? Effective immediately We are dropping one of our two rigs for a period of four months, May through August, while also modifying our completion schedule with occasional pauses to track our level of operational ducts. If we were to continue our two rig program at the current cadence, we would expect to drill approximately 65 wells this year. which is 30% more than our budgeted drilling activity. Given the current macro environment, now is not the time to lean in and drill more wells than our initial plan. We are going to take our foot off the gas, and like we've always said, we will be fast on the brake and slow on the accelerator. The overall effect of this updated development plan will allow us to stay within our original guided 2025 activity levels. Due to our increased operational efficiencies, we will still expect to complete the same number of wells as we originally guided to back in March. We also feel confident that this revised plan, we will stay within our capital budget guide for the year. Additionally, I do want to stress that if the current market environment worsens or commodity prices further weaken, we always have the ability to modify our development program. High Peak has total flexibility from a land and operations perspective to reduce the budget and leave a rig down for longer or make any other appropriate changes to slow our capital spending, depending on market conditions. So speaking of the current market environment, I'll talk a little bit about its effect on our current drilling and completion costs. Tariffs. Who knew that one tweet could move global markets and affect the business world to the extent it has over the past month? For high peak, the biggest effect tariffs have on our immediate cost is on OCTG products, i.e. casing and tubular goods, the steel products that we use in drilling and completing our wells. Our cost of tubular goods for the remainder of the year is up roughly 3%. OTCG goods make up approximately 8% of our typical AFE. So the effect of a 25% tariff on all of our tubular goods could increase our overall AFE by roughly 2% if it applied to all of our tubular goods. High Peak thankfully utilizes U.S. made steel products for the vast majority of our OTCG needs. Hence, they are not subject to import tariffs, and the effect on our cost is less than what many of our peers are facing. The good news, we are seeing savings across the board on all AFE items, except the OTCG products. Presently, we're seeing low single-digit overall declines in well cost, inclusive of those increased OTCG prices. Lastly, the prescribed completion pauses and the softness in the OFS market will make it possible for High Peak to implement some further efficiency changes to our 2025 plans. High Peak will begin simulfrac operations on some of our multi-well pads, further reducing our already peer-leading per-foot development cost. The operations team have done a fantastic job over the last couple years, incrementally getting more efficient. We have been picking up pennies and nickels everywhere we can. It's been quite some time since we had dollar bills worth of efficiencies to pick up. But simulfracking represents a dollar bill size set change in our cost structure. And for those of you updating your models, please note that we have not factored in any of these savings into our 2025 capital budget. This market continues to remain very volatile, and we like to operate with a conservative mindset. At this point, I would like to turn the call over to Ryan Hightower.