Search Icon
HighPeak Energy, Inc. (NASDAQ:HPK): Delivering Exceptional Operational Performance
Published on September 24, 2024 | Ticker: HPK

HighPeak Energy, Inc. (NASDAQ:HPK) is an independent crude oil and natural gas exploration and production company that explores for, develops, and produces crude oil, natural gas liquids (NGLs), and natural gas in the Permian Basin in West Texas. The company has delivered exceptional operational performance in the first quarter of 2024, showcasing its ability to generate significant free cash flow and maximize shareholder value.

Business Overview

HighPeak Energy's assets are primarily located in Howard and Borden Counties, Texas, with additional acreage in Scurry and Mitchell Counties. As of March 31, 2024, the company's assets consisted of approximately 143,414 gross (132,891 net) acres, with 63% held by production and an average working interest of 93%. The company's acreage is composed of two core areas: Flat Top in the northern portion of Howard County and Signal Peak in the southern portion of Howard County.

HighPeak Energy's operations are focused on horizontal drilling and completion activities, targeting the Wolfcamp and Lower Spraberry formations. The company's production is weighted heavily towards liquids, with approximately 91% of sales volumes attributable to crude oil and NGLs during the first quarter of 2024.

Operational Highlights

During the first quarter of 2024, HighPeak Energy maintained its average daily production at around 50,000 barrels of oil equivalent per day (Boepd), a 34% increase compared to the same period in 2023. This impressive production growth was driven by the company's successful horizontal drilling program, which saw the completion of 12 gross (12.0 net) wells in the Flat Top area.

The company's operational excellence was further demonstrated by its ability to reduce lease operating expenses (LOE) by 26% quarter-over-quarter, from $8.57 per Boe in the first quarter of 2023 to $6.30 per Boe in the first quarter of 2024. This significant cost reduction was achieved through various initiatives, including the optimization of the company's chemical program, the utilization of its world-class electrical and produced water infrastructure systems, and the commissioning of its Flat Top solar farm, which is expected to reduce the company's exposure to electrical spot prices and brownouts.

Financials

HighPeak Energy's financial performance in the first quarter of 2024 showed mixed results. The company reported net income of $6.4 million, or $0.05 per diluted share, compared to $50.3 million, or $0.39 per diluted share, in the same period of 2023. The decrease in net income was primarily due to a $56.2 million decrease in the company's net derivative instruments gain/loss, a $49.7 million increase in depletion, depreciation, and amortization (DD&A) expense, and a $16.7 million increase in interest expense, partially offset by a $64.0 million increase in crude oil, NGL, and natural gas revenues and a $12.2 million decrease in income tax expense.

The company's quarterly revenue increased by 28.6% to $287.8 million, compared to $223.8 million in the first quarter of 2023, driven by the 34% increase in daily sales volumes. Quarterly operating cash flow was $171.4 million, compared to $190.0 million in the same period of the prior year, while quarterly free cash flow was $23.2 million, compared to $-129.5 million in the first quarter of 2023.

Financial Ratios and Liquidity

HighPeak Energy's financial ratios remain strong, with a current ratio of 1.04, a quick ratio of 1.0, and a cash ratio of 0.6 as of March 31, 2024. The company's debt ratio stands at 0.37, and its debt-to-equity ratio is 0.73, indicating a healthy balance sheet.

Liquidity

As of March 31, 2024, HighPeak Energy had $173.4 million in cash and cash equivalents and $1.17 billion in total debt, including $1.17 billion outstanding under its Term Loan Credit Agreement and no outstanding balance under its $100 million Senior Credit Facility Agreement. The company's liquidity position is further strengthened by its ability to generate significant free cash flow, which it has used to reduce debt and return capital to shareholders.

Capital Allocation and Shareholder Returns

HighPeak Energy has demonstrated a strong commitment to capital discipline and shareholder value creation. In the first quarter of 2024, the company utilized its free cash flow to reduce long-term debt by $30 million, increase its quarterly dividend by 60%, and implement a $75 million share repurchase program, under which it acquired over 565,000 shares during the quarter.

The company's focus on maintaining a strong balance sheet and returning capital to shareholders is a testament to its dedication to maximizing shareholder value. HighPeak Energy's management team has stated that it will continue to prioritize debt reduction and shareholder returns, while also evaluating strategic alternatives to further enhance the company's value proposition.

Guidance and Outlook

For the full year 2024, HighPeak Energy has guided for a capital budget of $450 to $525 million for drilling, completion, facilities, and equipping, plus an additional $50 to $60 million for field infrastructure buildout and other costs. The company expects to fund these capital expenditures using cash on its balance sheet, cash generated from operations, and borrowing capacity available under its Senior Credit Facility Agreement.

Despite the continued uncertainty surrounding global macroeconomic conditions, HighPeak Energy remains cautiously optimistic about its future prospects. The company's extensive inventory of high-quality, liquids-rich assets, coupled with its focus on operational and financial discipline, positions it well to navigate the current market environment and continue delivering value to its shareholders.

Risks and Challenges

As with any exploration and production company, HighPeak Energy is exposed to various risks, including commodity price volatility, regulatory changes, and operational challenges. The company's financial performance is heavily dependent on crude oil, NGL, and natural gas prices, which can be subject to significant fluctuations due to global supply and demand dynamics, geopolitical tensions, and macroeconomic factors.

Additionally, the company's operations are subject to various environmental, health, and safety regulations, which could result in increased compliance costs or operational disruptions. HighPeak Energy also faces the risk of cost inflation, particularly in the areas of oilfield services and equipment, which could impact its profitability and capital expenditure plans.

Conclusion

HighPeak Energy's exceptional operational performance in the first quarter of 2024 underscores the company's ability to generate significant free cash flow and maximize shareholder value. The company's focus on cost control, capital discipline, and strategic capital allocation has positioned it as a leader in the Permian Basin. With its extensive inventory of high-quality, liquids-rich assets and a strong balance sheet, HighPeak Energy is well-positioned to navigate the current market environment and continue delivering value to its shareholders.

You may be interested in...
Permian Resources Corporation (PR): Driving Growth Through Disciplined Execution
Permian Resources Corporation (PR) has firmly established itself as a leading independent oil and natural gas company, with a relentless focus on responsible acquisition, optimization, and development of high-return assets in the prolific Permian Basin. The company's unwavering commitment to operational excellence, financial discipline, and strategic growth has propelled it to the forefront of the industry.
Read More
Range Resources Corporation (RRC): Powering the Future with Appalachian Dominance
Range Resources Corporation (RRC) is an independent natural gas, natural gas liquids (NGLs), and crude oil company that has been at the forefront of the Appalachian energy revolution for over two decades. Headquartered in Fort Worth, Texas, Range Resources has established itself as a leading player in the region, leveraging its vast acreage position and operational expertise to deliver consistent, efficient, and environmentally responsible energy production.
Read More
HighPeak Energy, Inc. (HPK): Unlocking Midland Basin's Untapped Potential
HighPeak Energy, Inc. (HPK) is an independent crude oil and natural gas exploration and production company that has firmly established its footprint in the prolific Permian Basin, specifically the Midland Basin region of West Texas. With a keen focus on maximizing shareholder value, HighPeak Energy has navigated the industry's challenges with strategic precision, delivering robust operational and financial performance.
Read More
Mexco Energy Corporation (MXC): Delivering Sustainable Growth in the Permian Basin
Mexco Energy Corporation (MXC) is a Colorado-based independent oil and gas exploration and production company that has been actively involved in the energy industry for over four decades. The company's focus is on the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids, with a primary emphasis on the prolific Permian Basin region of West Texas and Southeastern New Mexico.
Read More
Vital Energy, Inc. (VTLE): Building a Strong Foundation for Sustainable Growth
Vital Energy, Inc. (VTLE) is an independent energy company focused on the acquisition, exploration, and development of oil and natural gas properties in the Permian Basin of West Texas. With a history spanning over two decades, Vital Energy has established itself as a prominent player in the industry, navigating the ebbs and flows of the energy market with resilience and strategic vision.
Read More