Refocused on Development
HighPeak recapitalized its balance sheet with the proceeds from a new $1.2 billion term loan, which closed September 13, 2023. Proceeds were used to redeem $225 million of senior notes due February 2024, $250 million of senior notes due November 2024, and repay all outstanding borrowings under the company’s RBL facility. The remaining proceeds can be used for general corporate purposes. The 2020 RBL was subsequently terminated. The term loan is scheduled to mature September 30, 2026. Pro forma for the term loan financing and the July 2023 equity issuance, HighPeak’s liquidity on June 30, 2023, would have been ~$200 million. Flexibility provided by the term loan allows HighPeak to accelerate development of its Howard County acreage position in the Midland Basin. Management expects to increase its operated rig count to three from two during 4Q23. Depending on market conditions, a fourth rig could be added to the schedule sometime next year. In mid-September, 3Q23 production was averaging more than 50 MBOE/d. Our current 3Q23 estimate is 51 MBOE/d (Figure 4). Management’s latest development outlook issued in August pegged FY23 production in the 45-51 MBOE/d range, with an exit rate of 55-61 MBOE/d. HighPeak’s 2H23 capital program positions the company to generate free cash flow. Assuming an annual spending run rate of ~$225 million for one rig year, our model suggests HighPeak could generate free cash flow in 2H23 and FY24. A portion of free cash flow in 2024 could fund the $30-million quarterly amortization required by the term loan beginning March 31, 2024. As of August 1, 2023, HighPeak estimated its proved developed reserves totaled 90.6 MMBOE (78% oil/91% liquids) based on flat pricing of $80/bbl for oil and $3/Mcf for gas, representing a 48% increase from December 31, 2022. The PV-10 was ~$2.8 billion. At $90/bbl, management estimates the PV-10 is ~$3.2 billion. The streamlined capital structure with the nearest debt maturity in September 2026 allows management to refocus its attention on developing its Howard County acreage and pursuing strategic opportunities.
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