Good day, and thank you for joining us. Welcome to the HighPeak Energy Third Quarter 2025 Earnings Conference Call. Please note that today's conference is being recorded. I will now turn the call over to our speaker, Steven Tholen, Chief Financial Officer. Please proceed.

Good morning, everyone, and welcome to HighPeak Energy's Third Quarter 2025 Earnings Call. Representing HighPeak today are President and CEO, Michael Hollis; Executive Vice President, Ryan Hightower; Executive Vice President, Daniel Silver; Senior Vice President, Chris Munday; and I am Steven Tholen, the Chief Financial Officer. During today's call, we may refer to our November investor presentation and our third quarter earnings 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. So 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, so please see the reconciliations in the earnings release and in our November 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 for HighPeak's third quarter conference call. I will begin with a brief overview of our third quarter results, followed by an update on our current development activities. More importantly, I want to provide insight into our future plans for the company. Let me start by reporting that we achieved solid third quarter results that met our internal expectations. Production levels remained consistent with the second quarter, even with a reduced level of development activity. We operated one rig throughout the third quarter, drilled six wells, and completed a total of nine wells. This is about two-thirds of our drilling activity from Q1 and Q2. Our capital expenditures decreased by 30% from Q2 due to our intentional cut in development activity and aligned perfectly with our internal estimates. We maintained our lease operating expense per barrel of oil equivalent at levels consistent with the first half of 2025. As we mentioned in last quarter's call, we successfully amended and extended our term loan, pushing back debt maturities to 2028 and significantly increasing our liquidity. Turning to current operations, due to ongoing weakness in commodity prices and market volatility, we've postponed bringing our second rig back into deployment until mid-October, which is about a 1.5-month delay from our initial plan. We now plan to operate both rigs through the fourth quarter and will evaluate the appropriate level of activity for 2026 based on oil prices, drilling and completion costs, and overall market conditions. Recently, we completed our second successful simul-frac operation on a six-well pad with an average lateral length of 15,000 feet. This operation was executed smoothly, with HighPeak realizing savings of over $400,000 per well compared to our traditional zipper frac technique, while also improving efficiencies over our first simul-frac job, achieving more lateral footage per day. We implemented continuous pumping operations and averaged over 4,700 feet of completed lateral footage per day. Our operations team continues to perform excellently, and we are optimistic about the results from the simul-frac operations, planning to incorporate this completion method more in our 2026 development program. In short, our operations and well performance are operating efficiently, and we will always seek new optimization opportunities while maintaining a strong focus on low-cost operations. Now, let's focus on the future. This is my first opportunity to address you as CEO, and I want to convey our vision for HighPeak moving ahead. With our new Chairman of the Board and our entire team aligned, we are moving forward purposefully and urgently. We are returning to the basics of operating a disciplined, focused operation based on efficiency and sound business principles. Our assets are robust, our workforce is capable, and we are committed to managing our cash flow and capital effectively. I won't soften the reality: our debt levels are high, and market sentiment reflects this fact. For a period, we lacked a clear long-term strategy, and it showed. That is changing now. We are committed to strengthening our balance sheet and rebuilding trust through consistent and steady results. We understand that in this business, results are paramount, and we are determined to deliver. The first step towards determining our future involves an honest assessment of our current position and how we arrived here. We have accomplished several things well, and I want to acknowledge our team's hard work and dedication. However, we also face challenges that we need to address directly. Ultimately, management, the Board, and all of us at HighPeak are accountable for our results, both good and bad. It is our duty to improve and build upon what we have achieved. Over the past five years, we have put together a high-quality asset base in a highly sought-after basin composed of two contiguous acreage positions with oil-rich inventory, enabling cost-effective extended lateral development and strong returns. We have also improved operational efficiency and maintained a lean cost structure, driving better economics. I believe our operational efficiency can compete with any public company in the exploration and production sector. Furthermore, we have identified significant multi-bench oily resources ready for efficient capital development. While these accomplishments are commendable, we must also confront areas where we have faltered. As a controlled company, we have received poor governance quality scores and faced risks from entities like ISS and Glass Lewis. At times, we adopted a growth-at-all-costs mentality, even amidst declining commodity prices. This approach is now behind us, as it led to excessive leverage and a high cost of capital. Additionally, we have heard your concerns that our short-term focus has hurt market confidence. We own these weaknesses and have a plan to rectify them. Addressing these challenges will require both immediate actions we have already begun, as well as long-term changes that will take time. We believe progress will come step by step. We have already revised our governance structure, providing a solid foundation for operating our company more effectively and responsibly. We are not attempting to reinvent the wheel; our core focus is on generating steady cash flow, responsibly reducing our debt, and maintaining organized finances. Fortunately, we possess a strong asset base that allows us to accomplish this. By executing our plan step by step, we expect to regain market confidence through concrete actions that align with our long-term goals. Let’s discuss these areas needing improvement. In evaluating any public company, there are three levels of control: first, the Board of Directors is responsible for oversight; second, management carries out daily operations; and third, shareholders provide accountability and real-time feedback. Previously, these groups were often under the control of a single individual, which contributed to poor governance scores from proxy advisory firms and credit agencies. However, in recent months, we have made significant changes in these areas. Effective immediately, I am proud to serve as the President and CEO of HighPeak Energy. I am glad to see our team stepping up, with several senior management members embracing this vision. We have made noteworthy changes in senior management, and I congratulate those who have taken on new roles. We are proud to welcome our new independent Chairman, Jason Edgeworth, who brings strong leadership and a shared commitment to our long-term success. With alignment among the Board, management, and shareholders, we will improve HighPeak with a focus on creating shareholder value. Additionally, we have fully independent Board committees in place, in line with best practices for non-controlled companies. This includes the Compensation, Nominating and Governance, and Audit Committees, which enhance our oversight and reinforce our dedication to transparency and accountability. I want to reiterate that both management and the Board share a unified focus on our shared goal of delivering long-term success and sustainable value for HighPeak and its investors. Speaking of shareholders, there are significant changes on the horizon. HighPeak, as a public company, is primarily owned by two private equity partnerships that control over 75 million of our 125 million outstanding common shares. These partnerships plan to begin a gradual distribution of shares over the next two years, starting with HighPeak II in 2026 and HighPeak I in 2027. It is worth noting that most limited partners have a long-term investment perspective. While many of these shares will likely remain held by limited partners, this situation may offer opportunities for larger institutions and investors to acquire HighPeak stock, which could help alleviate our low floating stock issue. With these changes, we are effectively separating management, Board, and shareholder control into independent yet aligned groups. Moving forward, management will operate under clearly defined, measurable goals, and our compensation will be directly tied to our performance against these objectives. We are finalizing our 2026 roadmap, which will detail these performance metrics and align our incentives with long-term value creation. You can expect this framework to be implemented in early 2026. Now, let's address sound business principles. As you know, commodity prices significantly influence profitability. Consequently, despite improvements in operational efficiency and cost management, commodity prices remain the most crucial factor impacting our cash flow. How will we navigate the volatile commodity market? In our slide deck, we have outlined a straightforward approach. I want to clarify that the oil prices mentioned are long-term projections. We are committed to a disciplined, long-term approach to capital management, avoiding impulsive reactions to fleeting price changes. Considering the bear case scenario, where long-term oil prices fall below $60 per barrel, our priority will be operating within cash flow. This focus translates to maintaining less than a two-rig development program, resulting in a moderate decline in overall production. In a weak market, there is no reason to pursue increased production. We have a long-term vision for value creation and will avoid over-developing our high-value inventory in a low-price environment. We will also prioritize liquidity preservation in such situations. In the base case scenario, with long-term oil prices between $60 and $70 per barrel, our focus will shift towards generating free cash flow and responsibly reducing our debt. This would likely align with a two-rig development program, which would maintain current production levels. Under these conditions, we would sustain our dividend and apply the additional free cash flow to a modest debt reduction strategy. In a bull case scenario, where oil prices exceed $70, our focus would still be on generating free cash flow and hastening debt repayment, possibly supporting a slightly larger development program. This environment would enable us to expedite debt repayment initiatives. However, let me stress that this bull case must be sustained over time, reaching a reasonable leverage ratio before we consider additional initiatives that create shareholder value. We will prioritize getting our financial situation in order first. As I mentioned earlier, these principles of sound business management are fundamental, and it's important to present them clearly as our high-level roadmap for 2026 and beyond. We have heard feedback from shareholders, creditors, rating agencies, and industry peers. We compiled common concerns raised and addressed them in our company presentation. We recognize the challenges facing us, from the geographical positioning of our assets and the cost of capital to questions about strategic options for the company. The pivotal question remains: how can we rebuild and maintain market confidence? We are confronting our realities head-on. Let’s address several frequent concerns directly. First, regarding the Eastern Midland Basin, it is often viewed as unproven. However, HighPeak has successfully drilled over 350 horizontal wells, producing over 90 million barrels of oil equivalent from those wells. Third-party organizations are now acknowledging our well performance, profitability, and the scale of our inventory, undermining this claim. Second, there is a perception that we have a growth-at-all-costs mentality. While that may have been true in the past, HighPeak has consistently focused on maintaining production levels lately and demonstrating that we will operate within our cash flow. Third, it is true that we are overleveraged relative to our current scale, and this remains a primary focus moving forward. We are addressing this issue thoughtfully and methodically, emphasizing our commitment to operating within cash flow and reducing debt. Fourth, concerns about gas-to-oil ratio as our percentage of gas production increases are valid. However, this is mainly due to past takeaway issues that have since been resolved. Our midstream partners have expanded their capacity, and our central tank batteries are integrated with our gathering systems, resulting in more gas and liquids being transported to sales. Our oil percentage may fluctuate due to the timing of our completion activities, but generally, it should trend towards approximately 70%. Fifth, claims of HighPeak’s lack of stock float have been persistent. This has been a challenge that we've faced, made worse in certain instances by previous actions but we are diligently working towards resolution. Our gradual share distribution plan aims to remedy this, but it will take time. Sixth, there are assertions that HighPeak has been for sale for years. As a public entity, we are always open to exploring opportunities that enhance value. Nonetheless, I want to clarify that management and the Board are fully committed to our long-term strategy focused on cash flow, disciplined decision-making, and controlled operations. Our determination remains fixed on creating sustainable shareholder value. Lastly, we are recognized as a controlled company with insufficient oversight. I have already highlighted our recent progress in establishing independent Board committees, appointing an independent chairman, and instituting a clear plan starting in 2026 to transition away from being a controlled firm. These measures enhance oversight, accountability, and position HighPeak for long-term value creation. In conclusion, our company is undergoing a significant transformation centered on improved governance, accountability, and a focus on creating value for our shareholders. We are applying discipline in capital allocation, precision in cost management, and an unwavering emphasis on efficiency. Our asset portfolio enables us to operate within our cash flow, produce sustainable free cash, reduce debt, and build value the right way. We are dedicated to developing a strong enterprise that utilizes sound business principles and maximizes every dollar's return. Through disciplined execution, clear guidance, and teamwork, we are positioning HighPeak to thrive in any market condition. We take pride in what we have accomplished, are confident in our direction, and remain focused on delivering enduring value for our shareholders, employees, and partners. Thank you. Now, we welcome your questions.

Our first question comes from Jeff Robertson with Water Tower Research.

Mike, can you talk in the context of your leverage plan, how you think that unfolds over 2026 under, say, your $65 scenario and how much flexibility that might give you or give the company to address the term loan?

Absolutely, Jeff. No, great question. Obviously, the free cash flow generation is going to be dictated mostly by the oil price that we garner from the market. HighPeak is doing all the things we can control, from cost management to capital deployment. But again, as you've pointed out, in that kind of base case scenario, we can generate significant free cash flow. Our term loan debt that we have today, we can pay down debt at par with no penalty. So as we generate free cash flow in that scenario, look for us to do that again, which will reduce absolute debt as well as reduce our leverage ratio. Now, if you look further into the future, again, could be a year, could be more, as we continue to delever the company and as we continue to progress and our production base ages, what you'll see is our corporate decline rate will come down, call it, 1.5% to 2% a year. Today, we sit kind of mid- to high 30% decline rate. That changes your credit profile and again, opens you up to potentially more normal financing into the future. But again, Jeff, today and into the very near future, our goal is capital management and paying down debt.

How do hedges fit into those goals, Mike? I know you've got, I think, an average swap price on some of your production for '26 at about $63 a barrel.

Yes. And could you repeat that? Our speaker was cutting out a little bit there, Jeff, I'm sorry.

Sure. Just basically, how do you think about hedging in the context of managing cash flows in a $60, $65 per barrel price environment to work towards your leverage goals? I know you have some, I think, minimum requirements, but I'm just curious how you think about that as you go forward.

You bet. Great question, Jeff. From HighPeak, you'll observe a much more systematic and methodical hedging program. We do have some minimum requirements and will need to hedge a bit each quarter moving forward, though those will be small amounts. We'll remain opportunistic if a good opportunity arises. A couple of quarters ago, we layered on some gas hedges at fantastic prices around $4.43. We've also hedged some basis differentials. As prices remain in this lower range, we will take a very methodical approach and make small incremental hedges. Typically, you'll see less activity when prices are low, and as prices increase slightly, we might layer on a bit more. We aim to protect our capital budget and the current dividend in this base case price range of $60 to $70. Looking ahead, you can expect HighPeak to be about 55% to 65% hedged at these price levels. Of course, if commodity prices spike, we might increase that hedge percentage moving forward.

Our next question comes from the line of Noah Hungness with Bank of America. Our next question comes from the line of Nicholas Pope with ROTH Capital.

I'm interested in your plan and the flexibility you have in different oil environments, especially since you brought that second rig back. Are there any changes in your approach to drilling within your acreage footprint or what you're drilling? Does your focus shift in different scenarios, like between Flat Top, Single Peak, or even various formations? How flexible are you, and how significantly does pricing influence your drilling decisions in these different scenarios?

No. Great question, Nick. The good thing is we're drilling Wolfcamp A, Lower Spraberry codeveloped. I think 5% to 10% that we will drill in the Middle Spraberry zone, whether we run 1.5 rigs or two rigs, that split will not change in what we drill. Now where we drill, if you look at the split of the capital deployment that we've had in the recent kind of year or so, it's about 70% up at Flat Top and 25%, 30% in Signal Peak. That also fits with what our inventory in each one of those zones are between Flat Top and Signal Peak. Returns are very similar between the two areas in all these zones. So again, we approach it as a co-development program, and the split between Flat Top and Signal Peak is more based on the split of inventory, which is about 70-30.

Got it. That makes sense. As you kind of look at the base, I mean, the lease operating expenses have been almost flat the last six quarters. I'm curious if there's opportunities for going back into wells, seeing an uptick in workovers, field maintenance type work as you're maybe shifting a little bit away from a more active drilling program, the field optimization kind of you talked about 350 wells that have been drilled in this Eastern extension of the Midland. Curious how that might change with kind of maybe a slower development program.

No. Great question, and we're ahead of you on that. So if you look at the last kind of two quarters, you'll see some expense workover spend that was a little higher than what it had been kind of Q1 of this year or Q4 of the previous year. So where we were normally running kind of $0.80 per BOE, somewhere in that range, we've been $1 or a little bit more in the last two quarters. So as we pulled back on that capital program, now there are some capital workovers that we have done as well, but think very, very high rate of return work. So we've gone into some of our wells and done some expense workovers and have seen very good results from that. So again, while we've pulled back activity on the drilling complete side, we have gone back and optimized our production base. And we'll continue at a little bit lower pace going forward because we hit all of the large items that we had on our list in the last quarter or so. But there will be additional work every quarter that we will continue to focus on to keep that efficiency high.

And those expense workovers that you kind of highlighted, I know you break out somewhat, is that production optimization? Or is that kind of remediation-type work? What's the kind of mix of...

So the answer there, Nick, will be yes and yes. So usually, what you have is you'll have a well that may be struggling with a pump that's two years old. And again, the fact that we are able to get run lives of two-plus years out of these pumps is almost unheard of in the Permian Basin. But for instance, when that happens, obviously, you would have an expense cost to go replace that or change the artificial lift. We'll take the opportunity at that point to go in, do a little bit of cleanout on the well, maybe a little bit of what I call small pump job, nothing like a frac job, a little asset and things like that to be able to optimize that production. And then we typically lower where we pump the well from. So we will move down in the hole so that we can pull down the pressure we're pumping these wells at to a lower point, i.e., giving more drive from the reservoir into our well, and we're seeing great results from that. Some of these wells we're actually pumping deep into the curve, lowering our point that we're drawing that fluid from by as much as 250 to 300 feet. And with the reservoir we have with a little bit higher permeability, we're seeing great results from that. So you don't see it day one. It takes time, but you're going to start seeing better and better recoveries from these wells.

Our next question comes from Jeff Robertson with Water Tower Research.

Just a follow-up, you said you're going to keep the second rig at least through the end of December. Can you just talk about how the carryover inventory will impact production at least in the first half or maybe first three quarters of 2026?

Yes, sir, absolutely. So we picked up the second rig on October 15. Just kind of a rule of thumb for where we're at in the basin, we typically drill two wells a month per rig. So that will get us an additional five to six wells that we've drilled, a little more than two per month now. So call it, five to six wells that we will have drilled in the fourth quarter in addition to the one rig program that will carry into 2026. Again, we're not talking about 2026 activity per se. Obviously, we laid out in the prepared remarks, a kind of high-level overview of bear, base, and bull case that will flow through our decisions on how we guide for 2026. Again, it's a little early. We'd like to see where oil prices kind of level out over the next month or so. But to your point, bringing over those five wells because, again, anything you drill in the fourth quarter typically doesn't come online until the first quarter or early second quarter. So as we look into 2026, we will have somewhere in the range of 16 to 18 DUCs or wells in some form of completion that roll into 2026, again, supporting that kind of Q1 and Q2 production forecast.

Our next question comes from the line of Noah Hungness with Bank of America.

For my first question here, you guys yesterday filed an S-3. Could you maybe just talk about what the reasoning behind that was and if you had any plans with that moving forward?

Yes. Noah, this is Ryan. Great question. The sole reason for filing the S-3 was our previous shelf registration statement that we had on file went stale and expired. So all we were doing was refreshing it. We have absolutely no intention of issuing any new shares anytime soon.

Great. And then given that we're kind of on the border of your base and bear case. How long do you need to see prices kind of either sub-60 to drop activity or between that $60 to $70 to move into that base case? Is it a month? Is it a few weeks? Just how are you thinking about that?

We are considering a few factors, Noah. It's a complex situation. You could have fluctuations over a few days or even a month. This year, we’ve seen an average around $63 to $64. This places us somewhere between the bear and base scenarios. These are not rigid boundaries; there's some flexibility involved. Looking ahead to 2026, if we fall into the bear scenario, we could operate with fewer than two rigs. When you bring in a rig, it’s like a switch being turned on; taking one out turns it off. To maintain an average of less than two rigs suggests we’d need to operate at around 1.5 rigs, which would involve drilling with two rigs for part of the year and then scaling back. In response to Jeff's question about timing, the timing of drilling and production greatly affects output throughout the year. If we decide, with Board approval, to deploy more than one rig next year based on the oil prices by the year's end, we would likely keep that second rig for at least part of the year. The continuation of that second rig into 2026 would depend on oil prices and the longer-term market outlook, which is quite unstable right now. It's crucial for us to maintain a long-term perspective regarding market conditions.

Got you. And just one more question. Could you maybe add some details around the distribution plan for '26 just regarding HighPeak Energy Partners II? Is this going to be just a single drop down to the LPs in one go? And then just a rough idea on timing within the year, if you could give that.

Yes. Noah, this is Ryan again. Really good question. At this point, I don't think we're prepared to lay out the exact plan, but the plan, like Mike said during his prepared remarks, is to be very methodical, which most likely translates to us slowly metering them out to the different LPs throughout the calendar year. Again, most of the limited partners have a very long-term investment mindset here. So it's nothing that causes us any concern from any kind of share overhang. We don't expect anybody to rush to sell by any means, especially at current share prices. But we will be very strategic and methodical about it, and it will most likely start early in the year but will last throughout the calendar year.

And I'm currently showing no further questions at this time. This does conclude today's call. Thank you all for your participation, and you may now disconnect.