Good day, and thank you for standing by. Welcome to the HighPeak Energy Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steven Tholen, Chief Financial Officer. Please go ahead.

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'm going to start today's call with a brief overview of our third quarter results and a quick update of our current development activity, after which and more importantly, I want to use this opportunity to give you a glimpse into our company road map looking forward. With that said, before we start talking about HighPeak's future, I'm proud to report that we delivered a solid third quarter results, which tracked our internal expectations. Production levels were consistent with the second quarter despite our reduced level of development activity. We only ran 1 rig through the entirety of the third quarter, drilled 6 wells and turned in line only 9 wells. That's roughly 2/3 of our tills that we had in Q1 and Q2. Our CapEx was down 30% from Q2 as a result of our deliberate reduction of development activity and was spot on with our internal estimates. We held our LOE per BOE consistent with our first half 2025 levels. And as we discussed on last quarter's call, we successfully amended and extended our term loan, pushed out debt maturities until 2028 and materially increased our liquidity. Now turning to current operations. Due to continued weakness in commodity prices and overall market volatility, we delayed picking our second rig back up until mid-October, a roughly 1.5-month delay from our original plan. Now we plan to run both rigs throughout the fourth quarter before making a determination as to what the appropriate level of activity should be for 2026, which will be heavily dependent on oil prices, D&C cost and overall market conditions. And we recently finished our second successful simul-frac completion on a 6-well pad with 15,000-foot average lateral…

[Operator Instructions] Our first question comes from the line of 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 way 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. No, great question, Jeff. We want to be very -- what you will see from HighPeak is a much more systematic and methodical hedging program. Obviously, we do have some minimum requirements and we will continue to have to hedge a little bit into the future each quarter, but those are small pieces. Now we'll always be opportunistic if that opportunity were to come along. You'll notice that we layered on some gas hedges a couple of quarters back that were fantastic prices in the $4.43 range. We've also hedged some basis differentials. But I think what you'll see in the -- as prices continue to stay in this lower range, it will be very methodical and small slices that we will layer on. Again, you tend to see less when prices are low. And then when prices move up a little bit, I think you're going to see us layer on a little bit more. We want to protect our capital budget. We want to protect the dividend as it sits today, again, in this kind of base case $60 to $70 range. But I think looking forward to think somewhere in the 55% to 65% hedged at these kind of prices are probably what you would see HighPeak move towards. Obviously, if we had a spike in commodity prices, you may see us push that above that hedge percentage going 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.

Curious, as you kind of look at this plan and you look at the flex that you have with different -- at different oil kind of environments, you brought that second rig back. Curious if there's changes in how you're thinking about where kind of within the acreage footprint you're going to be drilling or what you're going to be drilling? And if the focus changes in those different scenarios, maybe between Flat Top, Single Peak or even in the different formations, like how much flexibility is there? And how much does the pricing affect what and where you're drilling 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 2 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 2 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, I mean, almost flat the last 6 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 2 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 2 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 some really 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? Is the -- 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 2 years old. And again, the fact that we are able to get run lives of 2-plus years out of these pumps is almost unheard of in the Permian Basin. But for instance, when that will happen, we -- 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 1. It takes time, but you're going to start seeing better and better recoveries from these wells.

[Operator Instructions] Our next question comes from the line of 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 3 quarters of 2026?

Yes, sir, absolutely. So we picked up the second rig October 15. Just kind of a rule of thumb for where we're at in the basin, we typically drill 2 wells a month per rig. So that will get us an additional 5 to 6 wells that we've drilled a little more than 2 per month now. So call it, 5 to 6 wells that we will have drilled in the fourth quarter in addition to the 1 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 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 5 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 are 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, 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 here 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?

So a couple of ways we're thinking about it, Noah. And obviously, there's -- it's a multivariate problem. Obviously, you can have a couple of days. You can even have a month. When you look at this year, we've probably averaged, I don't know, $63, $64 for the whole year. That would put you pretty squarely in between the bear and base case. Again, these aren't hard lines. There's going to be some squish between them. But if I look into 2026, even if you were in the bear case, something less than 2 rigs, again, remember, you pick up, it's kind of like -- they call it a dip switch, on or off, right? So you pick a rig up, it's on, lay it down, it's off. So in order to get something that's less than 2 kind of infers something more than 1, so call it 1.5. The way you would do that is drill with 2 rigs for a portion of the year and then lay it down. Now kind of when I answered the question for Jeff on timing, when you drill these wells and when you bring them on are important for production throughout the quarters of the year. So in reality, I would foresee if we drill -- and with Board approval, obviously, if we chose to do more than 1 rig and we're in kind of the 1.5 to 1.7 rigs for next year based on whatever the oil prices look like toward the end of the year, we would most likely have that second rig going for the first portion of the year. So you may see us keep the second rig for some months into 2026. And then it would be determined by kind of oil price and long-term outlook as well as just the whole macro environment that we're in. It's very volatile right now. So I want to make sure that we keep that kind of long-term prudent look of what's going on in the market.

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.