{"id":84860,"date":"2023-11-15T11:16:12","date_gmt":"2023-11-15T16:16:12","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/highpeak-energy-starts-generating-free-cash-flow-nasdaqhpk\/"},"modified":"2023-11-15T11:16:13","modified_gmt":"2023-11-15T16:16:13","slug":"highpeak-energy-starts-generating-free-cash-flow-nasdaqhpk","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=84860","title":{"rendered":"HighPeak Energy Starts Generating Free Cash Flow (NASDAQ:HPK)"},"content":{"rendered":"
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HighPeak Energy, Inc.<\/strong> (NASDAQ:HPK<\/span>) generated $75.7 million in free cash flow in Q3 2023 after significantly reducing its capex. It appears to be entering a new phase for the company where it has flat-to-modest sequential production growth and generates significant free cash flow.<\/span><\/p>\n

I am now modeling HighPeak’s 2024 volumes at 54,000 BOEPD, which should be similar to its 2H 2023 sales volumes. At current $77 WTI oil strip for 2024, I project HighPeak to generate $300 million in free cash flow. This would reduce its net debt to approximately $700 million at the end of 2024.<\/p>\n

HighPeak’s shares appear fairly priced for long-term high-$70s to $80 WTI oil (CL1:COM) now, although I have increased my estimate of its value by around $0.50 per share to account for slightly better capital efficiency than what I had modeled before.<\/span><\/p>\n

Q3 2023 Results<\/h2>\n

HighPeak averaged 52,708 BOEPD (84% oil) in Q3 2023 sale volumes. This was a 25% increase from its Q2 2023 sales volumes of 42,207 BOEPD (84% oil). HighPeak had mentioned that its Q3 volumes (up to early August) were over 50,000 BOEPD, so its growth has slowed since then with its reduction in capex.<\/p>\n

HighPeak reported $163 million in Q3 2023 capex, including $1.8 million for leasehold acquisitions. This is a substantial reduction from HighPeak’s $301.9 million in capex in Q2 2023, which included $2.3 million incurred for leasehold acquisitions.<\/p>\n

While production growth has slowed with the reduction in capex, the lowered spending has allowed HighPeak to generate positive $75.7 million in free cash flow during Q3 2023.<\/p>\n

HighPeak’s net debt ended up at around $1.05 billion at the end of Q3 2023 and it may be able to reduce this to around $1 billion (or slightly under) by the end of 2023.<\/p>\n

Notes On Hedging<\/h2>\n

HighPeak has now added a large amount of oil hedges until Q3 2025. HighPeak’s hedges consist of a mix of swaps, collars and puts. HighPeak’s hedging strategy still gives it a fair amount of exposure to oil price upside, but comes at the cost of around $43 million in future deferred premiums related to its hedges.<\/p>\n

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\"HighPeak's<\/span> <\/picture>
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HighPeak’s Hedges (highpeakenergy.com)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

HighPeak has just over 50% of its 2024 oil production hedged if production remains relatively close to 2H 2023 levels. I’ve modeled HighPeak’s 2024 production at 54,000 BOEPD (83% oil).<\/p>\n

HighPeak has swaps covering around 10% of its 2024 oil production at an average of $81.58 per barrel. It also has collars covering around 13% of its 2024 oil production with an average floor of $70.42 per barrel and an average ceiling of $94.13 per barrel.<\/p>\n

HighPeak’s puts cover 28% of its 2024 oil production with an average strike price of $62.69 per barrel.<\/p>\n

With around 41% of its 2024 oil production hedged with collars and puts with a floor\/strike price below current strip, HighPeak does still have some downside exposure to lower oil prices.<\/p>\n

Updated 2024 Outlook<\/h2>\n

I’ve increased my projection around HighPeak’s 2024 production to approximately 54,000 BOEPD (83% oil). This is around 1,000 BOEPD higher than what I had modeled HighPeak’s 2024 production at before. I have assumed that HighPeak spends around $600 million on capex in 2024.<\/p>\n

At the current roughly $77 WTI oil strip for 2024, HighPeak is projected to generate $1.323 billion in revenues before hedges. HighPeak’s 2024 hedges have negative $18 million in estimated value at current strip prices.<\/p>\n

<\/span><\/p>\n\n\n\n\n\n<\/colgroup>\n\n\n\n\n\n\n
Type<\/td>\nBarrels\/Mcf<\/td>\n$ Per Barrel\/Mcf<\/td>\n$ Million<\/td>\n<\/tr>\n
Oil<\/td>\n16,359,500<\/td>\n$77.00<\/td>\n$1,260<\/td>\n<\/tr>\n
NGLs<\/td>\n1,773,900<\/td>\n$21.00<\/td>\n$37<\/td>\n<\/tr>\n
Natural Gas<\/td>\n9,460,800<\/td>\n$2.70<\/td>\n$26<\/td>\n<\/tr>\n
Hedge Value<\/td>\n <\/td>\n <\/td>\n-$18<\/td>\n<\/tr>\n
Total<\/td>\n <\/td>\n <\/td>\n$1,305<\/td>\n<\/tr>\n<\/table>\n

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