HighPeak Energy, Inc.

Good day, and thank you for standing by. Welcome to High Peak Energy's 2026 first 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 11 on your telephone. You'll 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 would now like to hand the conference over to your first speaker today, Stephen Solon, Chief Financial Officer. Please go ahead.

Thank you. Good morning, everyone, and welcome to High Peak Energy's first quarter 2026 earnings call. Representing High Peak today are President and CEO Michael Hollis, Executive Vice President Ryan Hightower, Executive Vice President Daniel Silver, Senior Vice President Chris Monday, and I'm Stephen Tholen, the Chief Financial Officer. During today's call, we may refer to our May investor presentation and press 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 managers on today's call, so please see the reconciliations in the earnings release and in our May investor presentation. I will now turn the call over to our President and CEO, Mike Hollis. Thank you, Steve.

Good morning, everyone, and thank you for joining us. We appreciate you taking the time to be with us today. I'm going to spend a few minutes walking through our first quarter results, how we're positioned today, and how we're thinking about the rest of 2026. And I'll tell you right up front, the business is doing exactly what we said it would do. We are executing, we're staying disciplined, and we're building a stronger company quarter by quarter. Let's start with the first quarter. We're off to a very strong start this year, and I'm proud of the way our team has performed across the board. We outperformed expectations on every major operational measure. Production averaged approximately 46,000 BOEs per day, which came in about 7.5% above the midpoint of our guidance range, which includes the effects of winter storm fervor. And with quarter-to-date production coming in as strong as or stronger than Q1 production. Now, oil production specifically was a 10% quarter over quarter, which is a meaningful step up and speaks to the quality of both our new wells and our base production. And that's important because it wasn't driven by just one thing. It was a balanced success. We saw strong performance from the new wells we brought on during the quarter. And at the same time, we continue to optimize and improve our base production. That combination is what drives consistency in the business. It's a direct result of the operational work our team has been focused on over the last several quarters, dialing in execution, tightening processes, and getting better in every aspect of the business. Now let's talk about cost because this is where we really separated ourselves this quarter. Our operations team delivered exceptional cost performance. Lease operating expense per BOE came in more than 17% below our guided range and roughly 22% below the fourth quarter level. That's a material improvement in a very short period of time. And just as importantly, it wasn't just a per unit story. On an absolute dollar basis, our operating costs declined by approximately $7.4 million quarter over quarter. So we spent meaningfully less money while producing more barrels. That's exactly what operational efficiency should look like. Now, what drove that? Three primary areas. First, continued optimization of our chemical program, making sure we're using the right treatments in the right places at the right cost. Second, more efficient use of field gas. Given the current dislocation between Waha pricing and Henry Hub, We're not making money on our gas at the moment. So we're putting it to work in our own operations wherever we can. That's a practical, economic decision and it's paying off. And third, continued electrification across our field operations. That's improving reliability, lowering costs, and positioning us well for the long term. Now put it all together, this is a structurally more efficient business than it was just a few quarters ago. Turning to our development program, we are exactly where we need to be. First quarter drilling and turn in line activity represents roughly one third of our planned 2026 program. Capital spending came in right in line with expectations at about 29% of our full year budget. We exited the quarter with 18 wells in progress, and that puts us in a strong position to execute the remainder of the year. Now as a reminder, we guided to deploying roughly 60% of our capital in the first half of the year, and we remain firmly on track with that plan. Execution is steady, predictable, and control. Now let's step back and talk about the bigger picture, capital discipline and efficiency, because that's really the core of our strategy. As you know, we made a deliberate shift heading into 2026. We reduced our capital program by roughly 50% compared to last year. And we moved into what we are calling maintenance mode development strategy. And the goal is simple. hold production roughly flat while maximizing free cash flow. And the early results are very encouraging. One key metric we track is net oil produced per dollar of capital invested. Quarter over quarter, that metric improved by more than 60%, moving from about 21 and a half thousand barrels per million dollars of capital spent to approximately 35.4 thousand barrels per million. That's a significant step change in efficiency and again, it's coming from both sides of the business. Strong well performance on new capital and meaningful gains on the base asset. Now, let me spend a minute on that base optimization work because it's an important part of the story. During the quarter, we executed 16 targeted workover projects. These projects increased production from roughly 1,600 barrels of oil per day to about 2,600 barrels of oil per day. That's an add of about 1,000 barrels of oil per day, but importantly, an increase of 63% per well on average for those 16 wells. with relatively low capital intensity. That's exactly the type of work we want to be doing, especially in this current commodity price environment, where every incremental barrel we produce receives elevated spot pricing. These projects leverage infrastructure we already own, target opportunities we understand well, they generate extremely high margin barrels. This is what disciplined capital allocation looks like in practice. Now let's talk about the broader environment and how we're thinking about it here at Hy-Vee. There's obviously a lot going on in the world right now. We've seen significant volatility in commodity prices driven largely by geopolitical developments in the Middle East. Near-term oil prices have moved meaningfully higher. But when we look at the market, and more importantly, when we make decisions, we focus on the back end of the curve. And what we've seen there is a much more modest move, roughly a $10 to $12 increase from around $60 a barrel at the beginning of the year to the low 70s per barrel currently. Now that's constructive, but it's not something that fundamentally changes our strategy. We are not going to chase short-term price signals. We're not going to accelerate activity just because spot pricing has moved. We are going to stay disciplined and develop this asset at the right pace. And that's one that reflects sustainable pricing capital efficiency, and long-term value creation. Now, with that said, this geopolitical situation, if it persists, we do believe there will be increasing pressure on the back end of the curve over time. And if that happens, it creates a meaningful long-term opportunity for high P. More sustained pricing strength means higher incremental free cash flow for years to come. And that's where real value gets created. And importantly, we are positioned to benefit from that environment. We currently have approximately 40% average exposure to spot oil prices based on the midpoint of our production guided range and our current hedge book. Please note that current production is well above this level and given even more exposure. That gives us meaningful upside to stronger pricing. And at the same time, we've protected the downside. We've established a hedge floor in the mid $60 per barrel range that provides a reliable base level of cash flow to fund our development program and service our debt. So we've got both upside torque and downside protection. And you saw that show up in the first quarter. Excluding changes in working capital, we generated over $21 million of free cash flow. That's up from a negative $42 million last quarter, and that only reflects less than one month of elevated oil prices. If prices remain higher for longer, that free cash flow number moves up materially as we move through the year, and accelerates the timeframe needed to strengthen our balance sheet. Again, our priority for that free cash flow is very clear. We are going to strengthen the balance sheet. One additional item to touch on as we talk about strengthening the balance sheet, we recently put on an at-the-market or ATM program in place. This gives us the ability to issue up to $150 million of common stock. Now, just to be clear, there is no requirement for us to issue a single share under this program. This is about flexibility. It's a tool that allows us to be opportunistic if we see dislocations in the market. If we do choose to access the ATM, the use of proceeds is very straightforward. It's about reducing debt, increasing liquidity, and continuing to strengthen the balance sheet. Now let me close with our focus for the year. Look, nothing's changed, and that's by design. Our priorities are clear. First, strengthen the balance sheet through sustained free cash flow generation, debt reduction, and or increasing liquidity. Second, preserve high quality inventory, by developing our inventory at a disciplined pace and continuing to optimize both new wells and our base production. Third, improve corporate efficiency, focusing on returns, not volumes, and ultimately create long-term equity value and maximize net asset value. We are allocating capital where it drives the highest returns, and we are building a more durable, more resilient business that is built to thrive across commodity cycles. Now, stronger commodity prices are helpful. No question. But disciplined execution is what creates long-term value. And that's exactly what High Peak is delivering. With my comments now complete, operator, please open the call for questions.