Thank you for joining us for this session of our Water Tower Insights Conference. Our next company is HighPeak Energy. I'm Jeff Robertson, Managing Director for Natural Resources here at Water Tower. We are pleased today to have CEO Mike Hollis, and Executive Vice President Ryan Hightower, with us from the company. Mike, Ryan. Welcome, and thanks for taking the time to join us today.
Thank you. Thanks for having us.
Absolutely, Jeff.
Before we dive in, I'd just like to mention a quick note. HighPeak's safe harbor statements regarding forward-looking information can be found under the Investor Relations tab of its corporate homepage, along with the company's latest investor presentation. As a reminder, this fireside chat cannot be reproduced or transcribed without the written permission of Water Tower Research. Participants, please feel free to send questions in through the chat. We will address as many as possible in a follow-up email or cover them in our management series report, which will follow the conference. If you'd like to request a meeting with HighPeak's management after the company reports first quarter earnings in early May, simply indicate that on the conference portal as well. Now, with housekeeping complete, let's get started.
For intro, HighPeak is an independent oil and gas exploration production company whose assets are concentrated in two contiguous acreage blocks in the northeast portion of the Midland Basin in Texas. The company owns approximately 143,000 net acres, which are primarily located in Howard and Borden counties. About 70% of the acreage is held by production, and HighPeak operates about 98% of its net acreage. It owns an average of 92% across the footprint. Total production averaged about 43,700 BOE a day in 4Q 2025, with oil accounting for 64%. Since its formation in 2020, HighPeak's reserve and production growth has come almost exclusively through organic development of its Midland Basin leasehold. Mike, I'd like to start at the top. I talked about the organic growth history of the company.
What do you think are the keys to building a foundation that can turn that growth trajectory into a real exploration production franchise that can deliver stakeholders value?
Thanks, Jeff. That's a great question, and that transition's happened over the last year, 1.5 years . If you go back in time a little over five years ago, we had virtually zero production. We've grown total greenfield, put the acreage together, no infrastructure, drilled our first couple wells, proved up the acreage. Since then, have grown, as you said to 43,000 BOEs, 44,000 BOEs a day last quarter. However, a couple of weeks ago when we did our last quarter, our fourth quarter update earnings call. Quarter-to-date, at that point, we were producing about 10% above those. Through the talk, we'll mention a few of the things that help us transition to where I think we'll be much more efficient in the future. As we've slowed down activity, again, we had to build the base, we had to delineate, build the infrastructure.
That's what created some of the debt that we have today came from that growth in greenfield project. Where we sit today and what we think is a franchise going forward is more of a maintenance CapEx for the next foreseeable future. Call it a couple of years. Kind of holding that mid-40,000 BOEs a day flat with CapEx ranging in the $260 million-$270 million range, throws off significant free cash flow. Again, the transition from outspend and growth to now free cash flow generation and all of the efficiencies we have today ride on the backbone of all the work that's been done over the last five years to build this efficient machine.
Mike, you talked about CapEx levels and production in the low to mid-40,000 BOE a day range. What impact does reducing CapEx over the last couple of years just have on the overall sustaining CapEx for production as you look out over the next several years?
Great, Jeff. Obviously, as we slowed down drilling activity back in late 2023, corporate decline when you're extremely busy and growing organically from no production to a large number, your corporate decline is pretty high. Think high- to mid-40% corporate decline. Where we sit today is about 39% corporate decline. If we continue this maintenance CapEx program for the next couple of years, each year should drop about 1.5% corporate decline. Again, allowing you to do less over the next couple of years to hold the same production flat. You're kinda making a [bet] with picking up a rig and laying down a rig, right? What that really equates to is slight growth in production over the next couple of years at our maintenance CapEx budget that you have in 2026. We're set up very nicely in 2027 to continue to do the same thing.
We'll exit this year with about 15 drilled but uncompleted wells that'll allow us to do exactly the same program that we're doing in 2026, in 2027.
This year and next, Mike, then the timing of completing those wells that you carry over is what partially has a big impact on production for 2026 and then again for production in 2027. Is that right?
It is, yes. Think fairly level loaded, as we mentioned in our guidance for this year. It's slightly front half weighted. About 60% of the CapEx is in first half of 2026, and about 40% of the CapEx will be spent in the second half of the year. Thinking into 2027, it will look very similar to 2026.
Mike, because oil prices have been elevated due to the Middle East war over the last month or so. We'll see what happens with volatility over the next several months, but I know that price level is probably a lot different than what went into HighPeak's original planning process for 2026. What can you do in the field to try to maximize production to take advantage of the elevated prices?
Let's start with the volatility. It's not uncommon to see 10% a week change in oil price or certain days will move 15%. Again, HighPeak's approach is going to be very methodical. Yes, the budget that we put in place for 2026 was done prior to the beginning of the Mideast conflict. To scope that out a little bit, we built our program to be cash flow neutral at a mid-$50s price of oil. As you've mentioned, prices have moved up. Moving up doesn't change what we are going to do mechanically in the field from a drill and complete standpoint.
What it does allow us to do is lean into that additional free cash flow that we're generating this year and into the future, as the future curves for oil price have moved up, will allow us to accelerate that debt paydown much more quickly. Now, what are we doing in the field? Again, because of the oil price, that is not why we're doing what we're doing in the field today. We started doing a lot of base optimization and production optimization over the last six months. Think changes to lift types, artificial lift types, placement of that lift type, chemicals that are utilized in the wellbores, as well as what we call mini stimulations have been done several times up to the end of last year. As you can imagine, this year we're doing the same and seeing very positive results.
A lot of our peer companies also mentioned that in the last quarter updates. We're seeing exactly the same thing, and that's part of what's fueling that kind of 10% improvement in production that we saw quarter-to-date up to our earnings release here a couple of weeks ago.
Mike, I want to point people to, I believe it's slide 11 in your March investor deck, which talks about some of these issues of increasing capital efficiency. Can you, from a high level, help people understand what you do operationally and from a CapEx standpoint to get to the chart on the lower right-hand of that slide, which is to get more production per dollar spent?
You bet, Jeff. Again, this process and the outcome we have today started five years ago. We had to build the infrastructure. We had to put oil, water, gas pipelines, recycle facilities, solar farm, substations. All of that infrastructure has been built over time. Maybe a way to put it in perspective, if you go back to 2023, we were producing about 45,000 BOEs, and we spent $1 billion of CapEx. The next year, we spent $640 million, a little bit higher. We were probably at closer to 50,000 BOEs. The next year, which was a year ago, we spent $500 million and produced about 48,000 BOEs. This year, we'll be in that mid-40,000 BOEs a day of production for $270 million. As you project ahead into the next couple years, that's a very good number.
Why I say it's a great number for next year is I assume there will be some service cost increases, but we also have $10 million-$15 million of infrastructure we do not have to spend in 2027 that we're spending this year. I think the number of the $270 million-ish for the next year or two will be our maintenance CapEx spend.
Mike. As a part of this, I guess, transition that may or may not be the right way to think about it, but maybe HighPeak's valuation is probably reflective of current production and current proved producing reserves. Part of that might be because of the leverage level of the company. As you move through this process and take the free cash flow that you outlined to reduce debt, do you think that would help people focus more on the drilling inventory, both what's been de-risked through the activities to date and what could be de-risked in the coming years, and get people to think more that HighPeak is a story that has legs to stand on to generate consistent returns?
Great question, Jeff. It's one that we've been working on and educating folks for several years. As you can imagine, as you go to a newer area, we have all of the science and modeling and things that made us feel comfortable five, six years ago about acquiring the acreage, spending the money to drill the first few wells. Obviously, we had a different picture of what we had below ground. The real truth in anything is what can you sell out of the stock tank? You've got to be able to sell the oil. Where are we at today? We've drilled over 400 wells. We've produced over almost 100 million BOE. Let that number sink in. 400 wells, we've produced 100 million BOE, and we still have some folks that are questioning the quality of the rock.
Obviously, you can see on any of the public sources where the wells are and know that they blanket both of these entire acreage blocks. To your point, we have over 650 locations just in the Wolfcamp A, Lower Spraberry. We're drilling more Middle Spraberry this year, and all of the results in the Middle Spraberry look just like what we've seen before and what our offset operators have. When you add those three zones together, and if you're developing somewhere in the 30-50 wells a year, 50 wells would be a pretty big growth case for where we are. The 37 wells that we're going to complete this year, if that is the rate at which we're burning through that inventory, think multiple decades that we can continue to do that and generate significant free cash flow.
Obviously, in the near term, it's to pay down absolute debt that we have. A lot of things change when you start getting the debt leverage metrics into what people feel is a more comfortable range. Options open up for lower cost of capital, which again, just snowballs into what we can do with debt pay down. Obviously with the large inventory we have, there will be a point of time in the future when we can invest more of that free cash flow back into the ground.
You mentioned the Middle Spraberry, Mike. Should we expect that there will be some element of the 2026 capital program that will help de-risk that inventory? I think you call it around 300 potential drilling locations.
Yes, sir. 2026, the great thing is all of those wells that you mentioned that are potential upside, they are already completely bounded by known producing Middle Spraberry wells. Do I think that inventory will grow over time? Yes. Are we going to drill anywhere that is not between those known productive Middle Spraberry areas? Absolutely not. That's multiple years down the road. We've got plenty to say grace over as we sit today. There is one, what I would call delineation well that we will drill in 2026. That's one of 30 drilled, and one, it'll probably be completed in 2027, but maybe one out of the 37 completions we have.
A small percentage, and that well sits on the very north end of our northern Borden block. That's where part of this additional $15 million-$20 million of infrastructure come into play, is tying that row of wells into our legacy system. We feel very confident and think normal zones, Wolfcamp A, Lower Spraberry. Before we drill a lot of wells up on that northern row, we want to make sure that they're good, which is what we've done, very systematic and methodical on all of the development that we've had across our both blocks.
It's important for people to remember, just geologically, every time you drill a Lower Spraberry or Wolfcamp A well, you get a data point in the Middle Spraberry as you penetrate it.
Absolutely.
One of the things HighPeak has spent a lot of capital on over the years and really emphasized is infrastructure. You talked about infrastructure spending in 2026 being lower than 2025. Are there any significant or heavy lift infrastructure items that are still needed to have an asset that could be full field or developed from a full field standpoint as you look at cash flow levels and ups and downs into the future?
The infrastructure we do have in place today, we built for life of field. It is sized for if we were to get this field up to, say, 100,000 bpd, was the engineering model that we utilized. We have the capacity to dispose of upwards to 400,000 bpd today of water. Again, that would support that 100,000 bpd of oil production. We obviously aren't there and don't plan on getting there anytime soon. We've got some housekeeping on the balance sheet that's to take care of. To your question on what do the future years look like? As I've mentioned, in 2026, we will build infrastructure up to our northernmost row of wells. Once that is done, very, very minimal infrastructure dollars for the life of this field. All of that infrastructure has been built and is in place.
Now, as I plan each year, we always put $5 million or so in there, $10 million for an SWD if something were to happen five years out. We always keep, but think of that number as being 1/30 of what we have spent in previous years on infrastructure. From a corporate efficiency standpoint, now every dollar on the CapEx side that we spend is invested to turn into oil production, as opposed to a very large percentage of it for the future value of being able to keep our cost structure low. Of course, our drilling and completion costs are competitive across anything in the Permian Basin. We're a little shallower, so our costs are a little lower.
Whenever you look at the full cycle economics for HighPeak compared to any of our peers, and to your earlier question, that maintenance CapEx dollar amount spent for the production you're holding flat. Again, we screen fairly high into the stack. I think Diamondback's probably the only one that's a little cheaper. I know somebody that might have had a hand in that one. We'll get there, is the answer. The next couple years will be very exciting for HighPeak because it is different today than what it was before. We still have decades of inventory to continue what we're doing. Again, the debt pay down and the oil price, commodity price today is a wind in our sail, right? It just accelerates the plan that we already had in place.
That plan has not changed and won't change until we get that debt down.
Speaking of debt and the balance sheet. At December 31, 2025, the company's net debt was about $1 billion, which included $1.2 billion outstanding on the term loan, which matures in September of 2028, and $162 million of cash. Ryan, can you talk a little bit about the amortization features of the term loan and the ability to pay the term loan down without penalty before-
Yeah. You bet, Jeff.
... as you look at those quarterly payments?
Absolutely. Yes, last August, September when we amended and extended the term loan, we paused the quarterly amortization feature that's built into the term loan. The $30 million per quarter amortization will restart at the end of Q3 2026. September 30th, we'll make our next $30 million amortization payment, and then we'll be on that same quarterly amortization schedule thereafterward. One of the great things about where we sit in the term loan, we're past any kind of make-whole protection penalty that the lenders of the term loan had in place. We have ultimate flexibility to pay off the term loan in full or partially anytime we want at par.
We've got a lot of optionality going forward, and if oil prices stay at an elevated range, we can use some of the additional free cash flow that we look to generate to absolutely pay down dollar for dollar on the term loan.
So just at a minimum between now and the end of 2027, the term loan would be amortized by, I think, $180 million?
That's absolutely correct, Jeff.
Mike, you laid out back I guess it was in late last year, the scenario about or different operating scenarios given different commodity prices. Just in light of the volatility, should investors expect HighPeak to lean into debt reduction while you have a period of commodity prices that are above what you might have used in your 2026 plan?
Absolutely. Again, super simple corporate story. We will continue at a maintenance CapEx position, which is where we sit in 2026, and we will continue to pay down that debt. As Ryan mentioned, we've got a huge gearing to our debt load. We've got 125 million shares. Every $125 million of debt that we pay down, and you mentioned the amortization, that's kind of the forced use of some of your free cash flow to pay it down. Again, as you run through any of your models at $70, $75 for the next two years, you'll see that there is a significant amount of money of free cash flow above that amortization that we would be able to pay down further debt with. Again, at every $125 million increment of debt, that translates to about $1 of shareholder value on the equity side.
Again, where we trade today, that could be as much as a 15%-18% increase in your equity value just by doing the right thing and getting our balance sheet in order, as opposed to it being some type of re-rating because our net debt leverage is lower. All those are other possibilities as well. That's just the pure math of it.
That's basically one year of term loan amortization at roughly $120 million versus 125 million shares outstanding, is the calculus you're using, correct?
That is correct.
Mike, just to further on that point, and I think you hit on it, but do you think that people should just consider that that's a transfer of value from the debt part of the capital structure to the equity part of the capital structure over time?
That is the exact way we're looking at it, Jeff. Again, part of this is where can someone stay the same from an operational spending standpoint, and really not change your amount of inventory by much over the next couple years and transfer significant value to our equity holders and still have everything that the company has today in the next, say, we did that for 2+ years. Again, you would only have 18 years of inventory instead of 20 years. Again, you are very differentiated than the typical pub co. Anything from a mid-cap down in the Permian Basin. Our inventory does make HighPeak very unique and does open up some doors for other creative things that can happen in the future. Today, and what we are focused on, is getting our financial house in order.
Mike, as we think about 2026, are there certain measurable goals that you hope to achieve that'll maybe further the way investors should think about the way the company is set up to move forward?
Again, Jeff, we've put out a very simple story, and I think the shareholders and our investors should hold HighPeak and HighPeak's management absolutely accountable for implementing that plan. Winning for HighPeak in 2026 is staying disciplined, even with the volatility. Yes, today, the volatility is good. It's moving in a way that makes free cash flow higher for us. Staying disciplined in that environment and implementing the plan that we have in place, and absolutely, the shareholders should hold us accountable, but they should also garner substantial value by us doing that, by moving that debt, as you said, the value from the debt holders into the equity holders' hands and still retaining all of the future inventory value that we have today.
I think we'll leave it there today, Mike. Mike, Ryan, I want to thank you so much for taking the time to join us for our Water Tower Insights Conference.
Thank you, Jeff.
Thank you, Jeff.
I'd also like to thank participants for joining. As a reminder, you can submit questions through the conference portal, and we will do our best to address them. You may also request a management meeting through the portal. Again, we will attempt to coordinate meeting requests following HighPeak 's earnings release in early May of first quarter 2026 results. Please stay tuned as we will move to the next conference session shortly. Thanks again, Mike, Ryan.
Thank you.
You bet, Jeff. Thank you.