Our session for the Water Tower Research Virtual Insights Conference. I am pleased to welcome HighPeak Energy. From the company today, we are joined by CEO Mike Hollis and Executive Vice President Ryan Hightower. I am Jeff Robertson, Managing Director of Natural Resources. Before we begin, I would like to note that HighPeak's safe harbor statements regarding forward-looking statements can be found under the Investor tab of the company's homepage. Also that investors can submit questions through the conference portal, and we will seek to address those in the follow-up management series report. Also, indications of interest in meeting with management can be submitted in the portal, and our team will work to coordinate those. HighPeak is an oil and gas exploration and production company focused on developing unconventional resources in the Midland Basin of West Texas.
The company's acreage is primarily concentrated in northeast Howard County and Southeastern Borden County, and two contiguous acreage blocks called Flat Top and Signal Peak. HighPeak's total production averaged about 45,500 BOE per day in the first half of 2026, and oil accounted for about 66% of the total. As of year-end 2025, management estimates that the asset base held more than 650 gross undeveloped locations in the two primary reservoir targets and upwards of 2,600 locations across all of the stacked potential pay zones on the acreage position. HighPeak is focused on balancing CapEx between the stable production profile and using excess cash flow to strengthen the balance sheet to position the company to recognize the embedded value of the asset base. With the introduction out of the way, Mike, Ryan, thank you for taking the time to join us today.
Thank you.
Thanks, Jeff.
Mike, you have been in the CEO seat at HighPeak since September 2025. In fact, last fall, you laid out a strategy to transition HighPeak into a company that is really built for the long-term value creation. Can you give us a one-year progress report on how you see that transition evolving?
You bet, Jeff. No, thank you. Look, from an operational standpoint, we've executed our plan exactly the way we intended. Our focus has been on disciplined maintenance, program production, as well as improving our capital efficiency and driving our operational costs lower. That's across the entire business. As a result, we've not only enhanced our operational efficiency but also built a meaningful and substantial cash position. That financial strength gives us now the optionality and support for our broader objective of transforming HighPeak Energy into a company capable of consistently creating long-term value for our shareholders.
Mike, HighPeak deliberately went to the northeastern portion of the Midland Basin to build the acreage position. Given your experience in the Permian Basin, in the Midland Basin in particular, what drew HighPeak to that part of the basin early on to build the acreage blocks? Does that give you an advantage as you think about the strategy that you have in front of you?
You bet, Jeff. No, that's a great question because we did take a step out whenever we picked up this acreage. I think stepping back, it's important to note that, look, over the last several years, we've consistently allocated capital at a 70%/30% breakout or ratio between our northern and southern blocks, which that 70/30 breakout represents almost identically what the breakout in our acreage is, as well as our inventory breakout between the two blocks. The read-through there is what we have been drilling and the results you're seeing today, which again, we've talked about being above guidance, lower LOE cost than we've budgeted over the last couple of years. All of that performance has been a result of what we've completed on that 70/30 breakout of capital across both acreage positions.
It leads credence and gives us confidence that our inventory and our development program over the foreseeable future will continue to have the results that we've seen in the past.
Now most.
Oh, real quick, Jeff. How did we get to this acreage position? That is a pretty unique story. Obviously, my time at Diamondback Energy, we looked at a lot of things over in western Howard, and at the time, that was a pretty far stretch for the industry because, again, the oil and gas industry likes to do closeology, right? When a well is good, we offset it really far away, like a half a mile to drill and make sure that that acreage is good. But what we did know, and the industry knew, is that the resource was there. Jack Hightower, our previous CEO, actually drilled a well in the late 70s right near our acreage position, drilled through our current target zones to a deeper formation. Again, the industry knew it was there.
What was not available back in the 70s was the technology for horizontal drilling and completions to be able to economically extract that oil. Over the decades, what has changed is that technology has caught up. We can now economically, very economically extract that product out of the ground. More importantly, the industry as a whole, as they were stepwise moving to the east, they have now encompassed our entire acreage position, both in north and south. Again, just leading credence and validity to our acreage position's potential and asset value.
Mike, just one question to follow- up on the comment about inventory. I think you said closeology, a geologist might refer to it as trendology. But I am curious, in the Lower Spraberry and the Wolfcamp A, which are the main targets, how much geological risking, if any, is left to do? Then you all have spoken about the Middle Spraberry being a potential add to the high margin category. Obviously, since that sits above the Lower Spraberry, every well that is drilled goes through and sees, at least from a well log perspective. Can you help frame for people, from such a large inventory number, put some risk parameters on that?
Absolutely. The 650 wells that are inventory that you had mentioned earlier, that is in the Wolfcamp A and Lower Spraberry formations. Out of our 440 wells that we have drilled and producing today, the vast majority of those, high- 90%, are in the Wolfcamp A and Lower Spraberry. We have got a whole lot of data that supports bookended north, south, east, west across our acreage position in those two zones. A very exciting zone for us is the Middle Spraberry. To your point, yes, we drill through it every time we go to the Wolfcamp A, Lower Spraberry, or even on our Wolfcamp D wells. We have the data where the vertical portions of the wells are. Again, HighPeak being a smaller company, I like to explore through other people's dollars.
There have been, if you go back three years ago, several wells drilled along our western flank in the Middle Spraberry. All very good wells. We drilled our first one, now it is probably been a little over two years ago. We currently have at least drilled, I would say, eight Middle Spraberry wells and have five of them online. The Middle Spraberry, think 300-ish wells that will move from our 2,600 total to our top- tier. Our 650 will move upwards closer to 900, 950 here in the very near future. We are bookending that Middle Spraberry zone. I am sorry, the Middle Spraberry, such that we can get all of the inventory value credit in between those bookends. Because again, the great thing about being in the Permian Basin is its very consistent sheet-like kind of reservoirs that were laid down over millions of years.
Again, if you can get good production on either side, is there some variability in between? Absolutely, there always is. But if they are really good numbers of little variability, and our cost structure to drill and complete wells and how efficiently we can produce them, they will all be very highly economic and compete for capital in the future.
Mike, the 2026 capital program was really designed to help maintain a stable production base. I think 69% of capital was spent in the first half of the year. Can you share some perspective on your thoughts around spending patterns and how you use those to manage production in 2026? Maybe if we extend it into, you do not have guidance out for next year, but from a development standpoint, what you would envision late this year, maybe early next, that would then influence production in 2027?
You bet. We communicated early in our guidance for 2026 that we would be front half weighted somewhere in the 60%+ of CapEx for the year spent in the first half. Now, it's kind of a double-edged sword. When you're very efficient at drilling and completing wells, you can bring forward some activity from later years. What we did is we just brought forward a four-well pad from the second half of 2026 into the first half. So that's why we ended up spending 69% of the total CapEx budget. The budget has not changed.
The number of wells that we intend to complete, since we are drilling faster and it's only a single rig running, we don't want to lay the rig down, so we will drill a few additional wells in 2026, and that'll just set us up for 2027 to be able to more efficiently complete our plan in 2027. But for 2026, again, the accelerated plan plus bringing forward the four-well pad. Yes, did we have more new wells come online? So you had some new production from those wells. But also we had a lot of wells that were completed toward the end of the first half, which don't accelerate production. But what you do have, any time you accelerate activity in a, I hate to use the word congested, but in an area with a lot of production, you do frack impact some of those offset wells.
What was built into our original guidance was that frack impacted volume offline for a period of time as we brought forward some of those completions. What happened in the first half of the year? We ended up producing 45,500 BOEs, well above guidance. How did we do that? A lot of base production optimization, lift optimization, and you see that in our LOE numbers coming down and our production being above guidance. It's, again, a double-edged sword. What does that mean for the second half of the year? We will have a lot fewer completions in the second half of the year. Yes, you have fewer new wells coming online, but you also have fewer frac impacted volumes associated with it. And we will continue, and are continuing, our base production optimization program that we've done for the last five, six months.
The read through there is that our maintenance program, CapEx budget that we set out for 2026, albeit production will be at a little bit higher level than guided, we still look to have base production being very flat and maintained throughout 2026. And again, 2027, nothing has changed. We're not giving formal guidance, but what drives the company is capital efficiency, operational excellence, and a strong balance sheet. In order to achieve those three goals, 2027 will look extremely similar to the way 2026 did in our D&C budget, and we'll continue that going into 2027. Again, driving down absolute debt, improving our balance sheet, and providing us flexibility to strategically change the outlook for HighPeak .
Mike, HighPeak has invested in a lot of infrastructure over the years in order to set the field up for what you might term full field development. Are there any material infrastructure needs that you think are left, or would it most just be related to bringing on incremental pads and things like that, as opposed to any kind of central processing facilities or any other big ticket type items?
No, Jeff. Great segue. If you look back in the past, HighPeak has spent a lot of capital on infrastructure. Infrastructure is one of those capital investments you have to make that you have to pay for today, and you do not see the love for it until everything is connected to it. Well, you are seeing that today. You are seeing that low cost. One thing that a lot of investors may not understand, where HighPeak's acreage is, it is a little different than what you would have around Midland County, right? Or Midland or Ector County. The differences are kind of important when it comes to operational efficiency. We do produce less gas per barrel of oil. That means fewer BOEs you are associated with every barrel of oil that will come out of a well.
Again, today, we are not getting paid much for our gas, or it is negative in some last quarters. However, that does reduce the number of BOEs you can divide by for your LOE metrics. We also tend to produce a higher water/oil ratio. So for every barrel of oil, we produce a little bit more water. So it is very important and a priority for HighPeak many years back, four or five years ago, to make sure that we built life of field infrastructure to be able to handle our product and the water that we produce in a very efficient way. What you see is, even though you have those two factors of less gas and more water, our LOE per BOE competes with any mid-cap company in the pubco world in the Permian Basin.
Now, if you look into the future, where do we see any kind of pinch points, CTBs that need to be built? We have over 40 central tank batteries. These are very large central tank batteries. Many have upwards to 30 wells going into them. This year, we will be building the pipes and the central tank battery for our very northern portion of Flat Top, which is our northern block of acreage. So after 2026, the vast majority and the backbone of all the infrastructure will be in place. So when you look into future years and spend needed to access that infrastructure with new wells, much less infrastructure dollars. I will never say zero, because we will tack on some new acreage and we will have to go build something out to it.
But with our existing footprint, much more capitally efficient in this, looking at next year, even.
Mike, am I understanding correctly that in 2027, more of the CapEx dollars that get spent will actually be to contact the reservoir to generate production and then therefore generate cash flow, as opposed to spending on infrastructure to facilitate development?
Jeff, you said it perfectly. Absolutely. As we become more capitally efficient, we need less capital to continue to keep our maintenance program going, which will allow us to have more free cash flow to do the other corporate strategies that we're looking at, which is, number one, to pay down absolute debt and then strengthen our balance sheet. Obviously, today's current commodity prices are helping with that.
Since you mentioned base production and some of the optimization work that you all have undertaken this year, for an investor who may not be that familiar with the industry, what should they know about the economics and some of what you're doing to try to maximize production out of the existing well population?
Look, this is blocking and tackling in the E&P world. When you have an asset, the well's already been drilled, you've already spent the initial D&C CapEx. Some of the best returns you can get in our industry is optimizing the production from those existing wells. None of that's new. Lift optimization, chemical optimization. What has changed over the last, call it five to seven years, is just the technology and the application that we've done. Again, everything gets better with time. Today, a few things that are a little different that we just had never tried as an industry in the past are what I would refer to as mini- stimulations, nanosurfactants, just some tools that we didn't have at our disposal before. But think very low capital dollars or expense dollars with very high, much higher than drilling a well rate of return.
The great thing about optimizing your base production is it's always there. You always have the ability to go and tweak a little bit more juice out of what you have there. It is an ongoing effort. We'll continue to do this, and in the next several years, not only will we have more efficient completions, more efficient workovers, but more efficient use of the infrastructure as well.
Since it's early in the football season, I'll use the analogy of three yards and a cloud of dust for the base optimization. Is that about right?
With the football, I would say you're probably in the late second half, because there's been some really unique and new ideas that people are trying. What used to cost us a ton of money to go in and clean out a well, today, we're able to do it either hydraulically, we're able to do it differently. Not that we're trying to achieve something a whole lot different than what we did before. We're just able to do it much more efficiently and contact more of the rock and clean the wells out better. It will change in the future, but I can't say that we're in the third or fourth quarter because I know there's a lot more to come.
One of the aspects of the transition that we started out talking about was positioning the balance sheet for the long- term. Ryan, reducing leverage has been something you all talked a lot about this year when you laid out this strategy coming into the year. Can you share what you all think might be an optimal capital structure for a company like HighPeak ? Do you have any thoughts that you can share on the path to get there?
Yeah, that's a really good question, Jeff, and without getting into exact specifics, fundamentally, we believe the optimal structure for HighPeak is something more akin to your traditional E&P financing model with significantly lower cost of capital than our current structure today. That type of model would allow us to direct more of our overall cash flow to absolute debt reduction while strengthening our balance sheet and increasing our overall financial flexibility. Every 1% that we could possibly save on our interest coupon rate would translate to $12 million a year in annual interest expense reduction. So if you're able to save 2%, 3%, 4%, that's a very material savings outcome for HighPeak over a multiple year period process.
As far as how to get to that point or the path to get us to that point, Jeff, our core focus remains on continuing to execute operationally, allocating capital responsibly, and thus generating sustained free cash flow. As we continue to build that track record, we believe that we will be able to materially improve HighPeak 's capital structure and thus enhance our ability to create that long- term shareholder value.
Ryan, it sounds like some of that value would be attributed to moving on the right-hand side of the balance sheet from the debt- line down into the equity- line.
That's exactly right, Jeff. A good way to think about it, if the value of the asset base just stayed the same, the enterprise value is what it is today. There is significant value that we can create for our shareholders by just moving enterprise value from the debt column to the equity column. As right now today, we have $8 - $9 per share of value in that debt column that we can just shift over to the equity column. That's roughly double our share price today that we could create for our shareholders if we're just able to do that.
I want to touch on oil prices, since we're obviously in a highly volatile market with some uncertainty, just given what's going on in the Persian Gulf region. How do the oil prices play into, or do they play into your capital allocation decisions? Or is it more of a high prices might allow you to accelerate some of the de-leveraging quicker than obviously at a much lower price?
Jeff, good question, especially as we sit here this morning with prices over $100 a bbl. Really the answer is no, higher prices have not materially changed our capital allocation philosophy. If anything, they've highlighted the operational efficiencies that we've achieved that Mike's been speaking of, and they've also accelerated our ability to pay down debt and get us in a better financial position faster. At $100 oil, every dollar of incremental free cash flow that we generate is just earmarked for debt reduction. It gets us into a much more reasonable kind of leverage situation in a much faster way.
Our kind of core focus remains on allocating capital responsibly, maintaining a strong balance sheet, paying down that absolute debt, and putting us in a position to refinance our debt to get us to that optimal capital structure, and then ultimately creating long-term value for our shareholders by, at minimum, shifting value from the debt column to the equity column, so to speak.
Mike, I want to just return to touch on production volumes, which as we discussed earlier, have been running ahead of guidance in the first half of the year. You talked a little about timing and pulling a well into the second quarter from later in the year. Is the performance related to timing issues like that, or asset performance, or some combination of the two? Or maybe throw in the base production optimization, because you have a lot of things going on with production running hot compared to guidance.
You bet, Jeff. Look, it's always a good problem to have to talk about why your production's higher than people thought it would be. It's never an easy answer. The answer is yes to all of those, and it's all of the things that a company has to focus on every day. It's a thousand little pieces. It's not just your production, but it's your cost of drilling, completing the wells, and lifting them. All of that comes together for the corporate efficiency of HighPeak , and that's what I look at. Ryan Hightower, the rest of the organization is laser focused on corporate efficiency, operational excellence, and then of course, getting our balance sheet in kind of the right state of mind. You might step back when you think of capital efficiency and what it means and why.
If you go back a couple of years ago, we were spending over $1 billion a year, and our production has been virtually flat for the last three years, but we were spending over $1 billion back then. You fast-forward to where we are in 2026, we'll be well under $300 million at about the same production level and maintaining that production going forward. That had to happen so that HighPeak would be positioned to be able to pay down that debt, get us in a position to where we have the flexibility and optionality for a different corporate finance structure, as well as any other opportunities that are out there in the future. If your house isn't in order, you can't take advantage of those opportunities.
Mike, I'd just like to close on that thought on corporate efficiency. From the outside looking in, how do you think investors could try to measure improvements in HighPeak 's corporate efficiency? What do you think the market should focus on as you all work toward enhancing the long-term asset value of the company?
You bet. Look, investors, whether it's HighPeak or any company, they need to focus on capital efficiency, track record of LOE, and consistently driving down LOE and becoming more efficient. Free cash flow generation through cycles. For HighPeak , debt reduction, many of our peers have been able to do that over the last three or four years. We're a little behind them there because we started a lot later in the race, but we are absolutely going to catch them, and then we'll be in the race with everyone else. The investors need to focus on that. They need to hold companies, HighPeak included, accountable for what we say we're going to do, and that we go achieve that goal. Hopefully over the last year and a half, you've seen, and the investors have seen HighPeak do exactly that.
We've been very disciplined in how we allocate capital, very focused on the operational front to drive those efficiencies and provide the free cash flow that will allow us those opportunities.
Mike, Ryan, I think we'll leave it there for today. I want to thank you for taking the time to join our conference.
Hey, thank you, Jeff. Appreciate it. Absolutely.
Thank you, Jeff.
As a reminder for the participants, questions can be entered in the conference portal along with meeting requests, and we will work toward coordinating responses to questions and meetings. I'd like to just mention our next session will commence shortly, so stay tuned. Once again, thank you for joining us.