HighPeak Energy, Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. Good morning, everyone, and welcome to HighPeak Energy second quarter 2026 earnings call.

Representing HighPeak today are President and CEO, Michael Hollis, Executive Vice President, Daniel Silver, Senior Vice President, Chris M. Mundy, and I am Steven Tholen, the Chief Financial Officer. During today's call, we may refer to our August investor presentation and press release, which can be found on HighPeak'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. 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. Please see the reconciliations in the earnings release and in our August 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 today to discuss our second quarter 2026 results. It was another strong quarter for HighPeak. Our team continued to do what they have consistently done, execute the development plan, operate efficiently, spend capital responsibly, and focus on creating long-term value for our shareholders. Production during the quarter was essentially flat with the first quarter, and once again, came in above the high end of our guidance range. That performance reflects the quality of our assets and more importantly, the ability of our operations team to consistently deliver results. From a capital spending perspective, the second quarter was expected to be our highest spending quarter of the year when we built our 2026 plan. During the quarter, we also chose to pull forward some completion activity that was originally scheduled later in the year.

We saw an opportunity to lock in attractive frac pricing and continue working with a simul-frac crew that has been generating meaningful efficiency gains, faster cycle times, and lower costs. When we see opportunities to improve returns and create additional value, we're going to take advantage of them. Advancing that work allowed us to do exactly that while staying within the disciplined framework we've used throughout the year. As a result, we expect capital spending to decline meaningfully during the second half of 2026, which is consistent with our original plan and reflects the amount of development work completed during the first six months of the year. On the cost side, our team continued to make solid progress. Drill, complete, and equip cost remained in line with expectations, and we continued to drive operational improvements across the field.

Lease operating expense performance was particularly strong with the first half unit LOE coming in approximately 13% below the midpoint of our full year guidance. It's worth noting that these results include the impact of an expanded workover program that we intentionally pursued during the quarter. As commodity prices improved, we identified opportunities to invest modest amounts of capital into low cost, high return workovers that brought meaningful production back online, as well as enhanced the productivity capability of those wells, all while generating attractive economics. We'll discuss that program in more detail later because it highlights the kind of practical return-focused decision-making that drives value at HighPeak. Financially, stronger realized oil prices, combined with consistent production, drove sequential growth in both adjusted EBITDA and free cash flow. We achieved those results despite absorbing approximately $55 million of net cash hedge losses during the quarter.

Looking ahead, a larger percentage of our expected production remains exposed to spot prices, which positions us to benefit if commodity prices remain supported by the ongoing uncertainty in the global supply market. Bottom line, we are pleased with where the company stands today. Our priorities have not changed. We're going to continue developing our assets safely and efficiently, allocating capital with discipline, keeping a close eye on cost, and building a stronger business quarter over quarter. That's how we've operated for multiple years now, and that's how we'll continue creating value for our shareholders. Turning to slide 5 and 6 of our investor presentation. These slides highlight the progress we've made against our 2026 development plan throughout the first half of the year. The operations team continues to execute at a high level across the board.

On the drilling side, we kept driving efficiencies and drilled 17 of our planned 29 wells during the first six months of the year. On the completion side, we completed 24 of our planned 33 wells for the year, reflecting the decision to pull forward a portion of our second-half completion activity and take advantage of favorable market conditions. As we've discussed, the accelerated completion schedule allowed us to capitalize on attractive service costs and continue working with a high-performing simul-frac crew that has consistently delivered strong results. Despite some additional fully expected frac impact oil volumes, production was supported in the quarter by the success of our workover program and the associated oil volumes from that work. We've already turned 20 wells into cells this year, which puts us in a strong position to achieve our full-year target of 37 turn-in-lives.

When we built our 2026 development plan, we expected roughly 60% of the year's capital to be spent in the first half. Because we elected to accelerate a portion of our completion activity, first half spending ultimately moved into the mid to upper 60% range of our annual budget. That wasn't unplanned spending. It was capital deployed against productive work that generated value and advanced our development program ahead of schedule. The benefit of that strategy is that a significant amount of this year's development work is now behind us. We've put ourselves in a position to maintain strong production levels while materially reducing capital spending in the second half of the year. That's exactly the kind of setup we like.

We get the benefit of the work completed earlier in the year, lower capital requirements going forward, and the opportunity to generate stronger free cash flow through the balance of 2026. Most importantly, we're accomplishing that while staying disciplined, executing the plan, and continuing to focus on long-term value creation for our shareholders. Turning to the base production optimization. One of the best examples of value creation during the quarter was the successful work of our workover program. As commodity prices improved, we saw an opportunity to put additional capital to work in parts of the business where the returns were compelling and the risk was low. Our team went well by well across the asset base and identified opportunities where a relatively small investment could bring meaningful production back online, as well as enhance the productive capability of those wells. Again, all while generating attractive economics.

We like these projects because they're straightforward, capital efficient, pay back quickly. In many cases, we're investing a fraction of what it costs to drill a new well while getting production back online in a much shorter timeframe. From a returns perspective, these are some of the highest value opportunities we have available. The workover program is not a replacement for our development program, it's a complement to it. We're continuing to develop our inventory, but we're also making sure we maximize the value of every asset that we already own. That's just good oil field management. At HighPeak, we've always believed capital should go where it can generate the strongest returns, whether that's drilling a new well, completing a DUC, putting capital into a workover, we're going to evaluate every opportunity the same way. The goal is simple. Invest wisely, increase production, generate more free cash flow, and create long-term value.

This quarter's workover results are another example of our team's operational focus and disciplined approach to capital allocation. We identified an opportunity, moved quickly to capture it, and delivered strong return on that investment. Now, looking ahead to the rest of 2026, we're in a good position. A large portion of our expected oil production is exposed to market pricing, which gives us a greater participation if commodity prices remain strong. At the same time, we're not in the business of speculating. We're in the business of generating cash flow and protecting returns. That's why we continue to maintain a solid hedge position with the majority of our oil hedges sitting in the mid-$60 per barrel range. Those hedges provide meaningful downside protection while still allowing us to benefit from a stronger price environment.

We take a practical and disciplined approach to risk management. During the quarter, we added a number of positions designed to reduce volatility and protect cash flow where we saw the opportunity to do so at attractive levels. Specifically, we added NYMEX WTI roll swaps to manage calendar spread exposure and Waha basis swaps to help reduce our exposure to fluctuations in West Texas natural gas pricing. The objective is pretty simple. We want to protect the balance sheet, preserve cash flow, and maintain the financial flexibility to continue executing our development plan regardless of where commodity prices move in the near term. We believe that's the right approach for our shareholders. We want meaningful upside when markets are strong, but we also want to make sure that we're protecting the business during periods of volatility. This approach positions HighPeak to continue generating value for shareholders in any market environment.