HighPeak Energy, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The filing is an annual report, not a standalone fourth-quarter filing. HighPeak is an independent exploration and production company focused on crude oil, NGL and natural gas assets in the Midland Basin of West Texas.
Business context and operating footprint
- Year-end acreage totaled approximately 143,187 gross acres and 131,636 net acres, with an average working interest of approximately 92%; about 64% of net acreage was held by production.
- The Company operates approximately 98% of its net acreage and ended 2023 with three drilling rigs and one frac crew.
- Average daily sales volumes increased 86% to 45,577 Boepd, including 38,041 barrels of crude oil, 4,239 barrels of NGL and 19,777 Mcf of natural gas per day. Liquids represented approximately 93% of production on a Boe basis.
- Proved reserves increased to 154,162 MBoe from 122,958 MBoe in 2022; 52% were developed and 91% were crude oil and NGL.
Financial and operating metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Operating revenues | $1,111.3 million | $755.7 million | +$355.6 million |
| Income from operations | $426.5 million | $422.6 million | +$3.9 million |
| Net income | $215.9 million | $236.9 million | -$21.0 million |
| Diluted earnings per share | $1.58 | $1.93 | Down |
| Cash flow from operations | $756.4 million | $504.0 million | +$252.4 million |
| EBITDAX | $866.7 million | $577.1 million | +$289.6 million |
| Capital additions to oil and gas properties | $1,009.9 million | $1,046.7 million | -$36.9 million |
| Cash and cash equivalents | $194.5 million | $30.5 million | +$164.0 million |
| Total debt, net of discounts and issuance costs | $1,150.3 million | $704.3 million | +$446.0 million |
- Derived operating margin was approximately 38.4%, compared with 55.9% in 2022; derived net margin was approximately 19.4%, compared with 31.3%.
- Average realized prices, excluding derivatives, declined to $78.26 per crude oil barrel, $21.51 per NGL barrel and $1.56 per Mcf of natural gas, versus $94.61, $35.67 and $5.36, respectively, in 2022.
- Production costs increased 71% to $145.4 million, while production costs per Boe increased to $8.74 from $7.79. DD&A increased 139% to $424.4 million, and DD&A per Boe increased 28% to $25.51.
- Net derivative gain was $27.6 million, compared with a $60.0 million net derivative loss in 2022.
- Interest expense increased to $147.9 million from $50.6 million, reflecting higher borrowings, higher rates and debt issuance cost amortization. The effective income tax rate was 23.4%.
Material changes versus the prior comparable period
- Production growth from the horizontal drilling program drove an 86% increase in volumes and a 47% increase in revenue, but lower commodity prices and sharply higher DD&A, lease operating and interest costs reduced net income by 9%.
- In September 2023, the Company refinanced its existing debt with a $1.2 billion term loan due September 30, 2026. The term loan bears interest at Adjusted Term SOFR plus 7.50%, is secured by substantially all assets and requires quarterly principal installments of $30.0 million beginning March 31, 2024, plus other mandatory prepayments.
- The prior credit facility and the $225.0 million 10.000% Senior Notes and $250.0 million 10.625% Senior Notes were repaid in full. The refinancing produced a $27.3 million loss on extinguishment of debt.
- The Company established a senior revolving facility with $100.0 million of maximum commitments, $75.0 million of current commitments and approximately $68.9 million of availability at year-end; no borrowings were outstanding.
- In July 2023, HighPeak issued 14.835 million common shares at $10.50 per share, generating approximately $150.4 million of net proceeds. Year-end shares outstanding were 128.4 million, up from 113.2 million.
- Proved reserves increased 25% year over year, but included downward revisions of 16,093 MBoe, primarily from technical revisions, lower prices and higher operating cost assumptions.
Guidance, outlook, commentary and risks
- Management expects 2024 capital expenditures of approximately $450 million to $525 million for drilling, completion, facilities and equipping, plus $50 million to $60 million for infrastructure, land and other costs. The plan assumes an average of two drilling rigs and one frac crew.
- Management expects to fund the 2024 program with cash on hand, operating cash flow and, if needed, borrowings under the senior revolving facility. The filing states that future activity will be assessed monthly and may be adjusted based on commodity prices, liquidity and operating conditions.
- The Company is evaluating strategic alternatives, including a possible sale, refinancing, asset divestitures or other transactions. The process remained exploratory as of the filing date, with no transaction approved or assured.
- A February 2024 program authorizes up to $75 million of common-stock repurchases through December 31, 2024. Repurchases are discretionary and subject to liquidity, debt covenants and other factors.
- Key risks include commodity-price volatility, floating-rate debt, leverage and mandatory amortization, limited liquidity, capital-intensive development, reserve estimation uncertainty, drilling and production risks, transportation and processing constraints, customer concentration, lease expirations, inflation, supply-chain constraints, environmental and methane regulation, hydraulic fracturing and induced-seismicity restrictions, climate-related risks and cybersecurity.
- Two customers accounted for approximately 96% of 2023 revenue: Delek at approximately 82% and Energy Transfer Crude Marketing at approximately 14%.
- Approximately 27,424 net undeveloped acres were scheduled to expire in 2024 and 18,201 net acres in 2025 unless retained through production, drilling, renewal or extension. Management intends to retain substantially all of this acreage.
- The filing reports approximately $1.5 billion of estimated future development costs for the 74,569 MBoe of proved undeveloped reserves over five years.
- The independent auditor issued an unqualified opinion on the financial statements. Management concluded that disclosure controls and internal control over financial reporting were effective; the Company is not required to obtain an auditor attestation under its emerging growth company status.
Most important facts for investors to verify
- Ability to satisfy the term loan’s $30.0 million quarterly amortization, interest burden and leverage and asset-coverage covenants.
- Actual 2024 production, capital spending and cash flow relative to the $500 million to $585 million stated capital program.
- Commodity-price sensitivity, hedge settlements and the effect of required crude oil hedges on realized prices and liquidity.
- Progress in converting proved undeveloped reserves while retaining acreage subject to 2024–2026 lease expirations.
- Whether technical reserve revisions, well performance and operating-cost inflation alter reserve values or future development economics.
- Outcome and potential disruption from the strategic-alternatives review.
- Exposure to customer concentration, gas-processing interruptions, transportation capacity and minimum-volume or sand commitments.
- Impact of methane fees, environmental rules, induced-seismicity restrictions and other regulatory developments on operating and capital costs.