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Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

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<h2>KEY POINTS</h2>
<ul>
<li>The midpoint of HighPeak’s updated FY22E outlook implies production remains on a steep growth trajectory. Management forecast average FY22E production in the 27.0-32.5 MBOE/d range and a 2022 exit rate in the 40.0-45.0 MBOE/d range. The exit-rate midpoint represents a near tripling from 4Q21 volumes, which were estimated between 14.5-15.0 MBOE/d.</li>
<li>At the midpoints, the average FY22E production rate increased 4% and the 2022 exit rate increased 9%. On the cost side, total capital expenditures and cash cost estimates increased 15% and 9%, respectively. Increased cost estimates reflect more conservative oilfield inflation expectations, increased non-operated activity, and higher commodity prices affecting unit production taxes.</li>
<li>The FY22E capital program includes operating a minimum of four drilling rigs and two frac fleets. Activity will concentrate on developing the Flat Top area and continuing to delineate the Signal Peak area. A fifth rig could be added if the market outlook remains constructive.</li>
<li>HighPeak executed multiple transactions in 1Q22, adding ~9,500 net acres, ~2.5 MBOE/d of production, and ~40 operated drilling locations contiguous to the Flat Top area. Importantly the assets include infrastructure to increase HighPeak’s use of recycled produced water and non-potable water.</li>
<li>Year-end 2021 proved reserves were 64.2 MMBOE (45% proved developed). Total proved reserves grew 178% Y/Y.</li>
<li>Our updated FY22E EBITDAX estimate is ~$606 million. Annualized estimated EBITDAX based on the FY22E exit rate midpoint is ~$972 million.</li>
<li>HighPeak remains well positioned to generate substantial free cash moving into 2023.</li>
</ul>
<h2>COMPANY OVERVIEW</h2>
<p>HighPeak Energy is an independent oil and gas exploration and production company, headquartered in Fort Worth, Texas. The company is focused on the acquisition, development, exploration and exploitation of unconventional oil and gas reserves in the Midland Basin of West Texas. HighPeak currently owns interests in ~72,000 net acres in Howard and Borden Counties.</p>
<h2>FY22E OUTLOOK UPDATE</h2>
<h2>FY22E Guidance Update</h2>
<p>HighPeak provided an updated FY22E outlook on February 22, 2022. Figure 1 shows the variances between the updated outlook and the initial outlook provided in conjunction with 3Q21 earnings on November 8, 2021. The updated production estimates include the contribution from a series of acquisitions executed during 1Q22 that bring ~2.5 MBOE/d of production from the dates of their closings. The FY22E capital program is based on operating a minimum of four rigs and an average of two frac spreads. Management indicated a fifth rig could be added if conditions remain constructive.</p>
<p>Figure 1: 2022 Guidance Update</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/259/525/original/image_821250510361645752786663.png?1645752788" class="editor-image img-responsive" data-smartkarma-image-id="259525"></figure>
<p>Source: Highpeak Energy</p>
<p>HighPeak is a high-growth company. 4Q21 production averaged between 14.5-15.0 MBOE/d, an increase of 77%-90% over 3Q21. The production growth cadence is highly dependent on the timing of new well completions. The midpoint of the FY22E exit rate represents a near tripling of volumes from 4Q21. HighPeak entered 2022 with 27 gross (23 net) horizontal wells in various stages of drilling and completion that are expected to begin coming online late in 1Q22. Production from the new wells could cause a significant boost to volumes in 2Q22. HighPeak is currently operating four drilling rigs. Three are developing the Flat Top area and one is delineating the Signal Peak area. Higher expected capital outlays are based on increased non-operated activity and oilfield inflationary pressures. Production taxes are directly impacted by higher expected commodity prices versus November 2021.</p>
<p>Capital and lease operating costs pressures should be partially offset by higher production volumes and management’s fieldwide initiatives to manage water, power, and product gathering. HighPeak supplied approximately 58% of required stimulation fluid with recycled produced water during 4Q21. Recent acquisitions add three SWD wells, three SWD permits, oil and saltwater gathering systems, and access to a significant non-potable water source. The company can now fully supply the stimulation fluid for one frac crew operating in Flat Top with recycled and non-potable water. HighPeak expects to begin sourcing sand from a local wet-sand mine in June 2022, which along with its water supply could help offset capital cost pressures. Further, a new power substation and solar farm serving Flat Top are expected to come online during 2Q22, which should also lower capital and operating costs.</p>
<h2>Recent Acquisitions</h2>
<p>HighPeak executed a series of acquisitions during 1Q22 that are expected to close by early 2Q22 to acquire assets contiguous to its Flat Top area. In sum, the assets add ~9,500 net acres and existing production of ~2.5 MBOE/d. As noted earlier, the assets also include various SWD assets, in-field produced water gathering pipelines. The three active SWD wells have a current disposal capacity of 12,000 b/d. The company also gains access to ~35,000 b/d of local non-potable water sourcing capacity from local surface owners. The water supply arrangements should result in more than $3 million of annual cost savings. On top of the field infrastructure benefits, the acreage adds ~40 Wolfcamp A drilling locations to HighPeak’s Flat Top area inventory. The assets are adjacent to Flat Top and will be folded into HighPeak’s development plan.</p>
<p>Consideration for the acquisitions includes up to 7.73 million shares of HighPeak common stock and $4 million of cash. Management expects the assets could add more than $50 million of EBITDAX in 2022.</p>
<h2>Year-End 2021 Proved Reserves</h2>
<p>Proved reserves at year-end 2021, prepared by Cawley, Gillespie &amp; Associates, were 64.2 MMBOE. Proved reserves increased 185% year-over-year. The year-end 2021 reserve mix was 81% oil, 8% natural gas, and 11% NGLs. Proved developed reserves represented 45% of the total and increased 178% year-over-year. Under SEC pricing rules ($66.56/bl for oil / $3.598/MMBtu for natural gas / $29.76/bbl for NGLs), the PV-10 of year-end 2021 proved reserves was ~$1.34 billion. Using a flat pricing case ($72/bbl for oil / $3.75/MMBtu for natural gas / $32.18/bbl for NGLs), the PV-10 value would increase to ~$1.5 billion, including $815 million for proved developed reserves.</p>
<h2>Estimate Update</h2>
<p>Our updated FY22E operating and EBITDAX estimates are summarized in Figure 2. Our estimates include interest associated with HighPeak’s February 9 private placement of $225 million principal amount of 10.00% senior unsecured notes due 2024. Proceeds from the notes reduced then outstanding borrowings to zero and essentially help prefund a portion of the FY22E capital program. Our updated FY22 EBITDAX estimate of ~$606 million suggests a manageable funding gap in 1H22 that could close toward year end. Based on the midpoint of the 2022 exit rate (42.5 MBOE/d), and $80/bbl NYMEX pricing, we estimate that EBITDAX could annualize at ~$972 million. At $100/bbl NYMEX oil, that estimate climbs to ~$1.23 billion. The company’s growth profile could put it on a path to significant free cash generation in 2023. HighPeak is trading at 3.9x our FY22E EBITDAX estimate and 2.5x our year-end 2022 annualized EBITDAX estimate.</p>
<h2>4Q &amp; FY21 Earnings Release</h2>
<p>HighPeak is scheduled to release results for 4Q21 and FY21 after the market closes on Monday, March 7. A conference call is scheduled for 10:00 am CT on Tuesday, March 8.</p>
<p>Figure 2: Model Summary</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/259/526/original/image_374232982371645752822710.png?1645752823" class="editor-image img-responsive" data-smartkarma-image-id="259526"></figure>
<p>Source: Company reports and Water Tower Research estimates</p>
<p>Figure 3: Valuation</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/259/528/original/image_665751833381645752849016.png?1645752850" class="editor-image img-responsive" data-smartkarma-image-id="259528"></figure>
<p>(1) Estimate share count includes shares to be issued to close recently announced acquisitions.</p>
<p>(2)&nbsp;Implied EV includes estimated after-tax value of commodity hedge positions</p>
<p>Source: Company reports and Water Tower Research estimates</p>
<h2>DISCLOSURES</h2>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Jeff Robertson, who is the writer of this report, covers the Natural Resources sector for WTR. Mr. Robertson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS

The midpoint of HighPeak’s updated FY22E outlook implies production remains on a steep growth trajectory. Management forecast average FY22E production in the 27.0-32.5 MBOE/d range and a 2022 exit rate in the 40.0-45.0 MBOE/d range. The exit-rate midpoint represents a near tripling from 4Q21 volumes, which were estimated between 14.5-15.0 MBOE/d.
At the midpoints, the average FY22E production rate increased 4% and the 2022 exit rate increased 9%. On the cost side, total capital expenditures and cash cost estimates increased 15% and 9%, respectively. Increased cost estimates reflect more conservative oilfield inflation expectations, increased non-operated activity, and higher commodity prices affecting unit production taxes.
The FY22E capital program includes operating a minimum of four drilling rigs and two frac fleets. Activity will concentrate on developing the Flat Top area and continuing to delineate the Signal Peak area. A fifth rig could be added if the market outlook remains constructive.
HighPeak executed multiple transactions in 1Q22, adding ~9,500 net acres, ~2.5 MBOE/d of production, and ~40 operated drilling locations contiguous to the Flat Top area. Importantly the assets include infrastructure to increase HighPeak’s use of recycled produced water and non-potable water.
Year-end 2021 proved reserves were 64.2 MMBOE (45% proved developed). Total proved reserves grew 178% Y/Y.
Our updated FY22E EBITDAX estimate is ~$606 million. Annualized estimated EBITDAX based on the FY22E exit rate midpoint is ~$972 million.
HighPeak remains well positioned to generate substantial free cash moving into 2023.

COMPANY OVERVIEW
HighPeak Energy is an independent oil and gas exploration and production company, headquartered in Fort Worth, Texas. The company is focused on the acquisition, development, exploration and exploitation of unconventional oil and gas reserves in the Midland Basin of West Texas. HighPeak currently owns interests in ~72,000 net acres in Howard and Borden Counties.
FY22E OUTLOOK UPDATE
FY22E Guidance Update
HighPeak provided an updated FY22E outlook on February 22, 2022. Figure 1 shows the variances between the updated outlook and the initial outlook provided in conjunction with 3Q21 earnings on November 8, 2021. The updated production estimates include the contribution from a series of acquisitions executed during 1Q22 that bring ~2.5 MBOE/d of production from the dates of their closings. The FY22E capital program is based on operating a minimum of four rigs and an average of two frac spreads. Management indicated a fifth rig could be added if conditions remain constructive.
Figure 1: 2022 Guidance Update

Source: Highpeak Energy
HighPeak is a high-growth company. 4Q21 production averaged between 14.5-15.0 MBOE/d, an increase of 77%-90% over 3Q21. The production growth cadence is highly dependent on the timing of new well completions. The midpoint of the FY22E exit rate represents a near tripling of volumes from 4Q21. HighPeak entered 2022 with 27 gross (23 net) horizontal wells in various stages of drilling and completion that are expected to begin coming online late in 1Q22. Production from the new wells could cause a significant boost to volumes in 2Q22. HighPeak is currently operating four drilling rigs. Three are developing the Flat Top area and one is delineating the Signal Peak area. Higher expected capital outlays are based on increased non-operated activity and oilfield inflationary pressures. Production taxes are directly impacted by higher expected commodity prices versus November 2021.
Capital and lease operating costs pressures should be partially offset by higher production volumes and management’s fieldwide initiatives to manage water, power, and product gathering. HighPeak supplied approximately 58% of required stimulation fluid with recycled produced water during 4Q21. Recent acquisitions add three SWD wells, three SWD permits, oil and saltwater gathering systems, and access to a significant non-potable water source. The company can now fully supply the stimulation fluid for one frac crew operating in Flat Top with recycled and non-potable water. HighPeak expects to begin sourcing sand from a local wet-sand mine in June 2022, which along with its water supply could help offset capital cost pressures. Further, a new power substation and solar farm serving Flat Top are expected to come online during 2Q22, which should also lower capital and operating costs.
Recent Acquisitions
HighPeak executed a series of acquisitions during 1Q22 that are expected to close by early 2Q22 to acquire assets contiguous to its Flat Top area. In sum, the assets add ~9,500 net acres and existing production of ~2.5 MBOE/d. As noted earlier, the assets also include various SWD assets, in-field produced water gathering pipelines. The three active SWD wells have a current disposal capacity of 12,000 b/d. The company also gains access to ~35,000 b/d of local non-potable water sourcing capacity from local surface owners. The water supply arrangements should result in more than $3 million of annual cost savings. On top of the field infrastructure benefits, the acreage adds ~40 Wolfcamp A drilling locations to HighPeak’s Flat Top area inventory. The assets are adjacent to Flat Top and will be folded into HighPeak’s development plan.
Consideration for the acquisitions includes up to 7.73 million shares of HighPeak common stock and $4 million of cash. Management expects the assets could add more than $50 million of EBITDAX in 2022.
Year-End 2021 Proved Reserves
Proved reserves at year-end 2021, prepared by Cawley, Gillespie &amp; Associates, were 64.2 MMBOE. Proved reserves increased 185% year-over-year. The year-end 2021 reserve mix was 81% oil, 8% natural gas, and 11% NGLs. Proved developed reserves represented 45% of the total and increased 178% year-over-year. Under SEC pricing rules ($66.56/bl for oil / $3.598/MMBtu for natural gas / $29.76/bbl for NGLs), the PV-10 of year-end 2021 proved reserves was ~$1.34 billion. Using a flat pricing case ($72/bbl for oil / $3.75/MMBtu for natural gas / $32.18/bbl for NGLs), the PV-10 value would increase to ~$1.5 billion, including $815 million for proved developed reserves.
Estimate Update
Our updated FY22E operating and EBITDAX estimates are summarized in Figure 2. Our estimates include interest associated with HighPeak’s February 9 private placement of $225 million principal amount of 10.00% senior unsecured notes due 2024. Proceeds from the notes reduced then outstanding borrowings to zero and essentially help prefund a portion of the FY22E capital program. Our updated FY22 EBITDAX estimate of ~$606 million suggests a manageable funding gap in 1H22 that could close toward year end. Based on the midpoint of the 2022 exit rate (42.5 MBOE/d), and $80/bbl NYMEX pricing, we estimate that EBITDAX could annualize at ~$972 million. At $100/bbl NYMEX oil, that estimate climbs to ~$1.23 billion. The company’s growth profile could put it on a path to significant free cash generation in 2023. HighPeak is trading at 3.9x our FY22E EBITDAX estimate and 2.5x our year-end 2022 annualized EBITDAX estimate.
4Q &amp; FY21 Earnings Release
HighPeak is scheduled to release results for 4Q21 and FY21 after the market closes on Monday, March 7. A conference call is scheduled for 10:00 am CT on Tuesday, March 8.
Figure 2: Model Summary

Source: Company reports and Water Tower Research estimates
Figure 3: Valuation

(1) Estimate share count includes shares to be issued to close recently announced acquisitions.
(2)&nbsp;Implied EV includes estimated after-tax value of commodity hedge positions
Source: Company reports and Water Tower Research estimates
DISCLOSURES
Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Jeff Robertson, who is the writer of this report, covers the Natural Resources sector for WTR. Mr. Robertson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

United States

HighPeak Energy, Inc. operates as an exploration company. The Company offers petroleum engineering, geology, geophysics, drilling, and land financing services. HighPeak Energy serves customers in the United States.

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HighPeak Energy Inc (HPK US)

FY22E Outlook Update - HIGHPEAK ENERGY

KEY POINTS The midpoint of HighPeak’s updated FY22E outlook implies production remains on a steep growth trajectory. Management forecast average...

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