Torsten Asmus
HighPeak Power (NASDAQ:HPK) has efficiently refinanced its debt, pushing its subsequent debt maturity (based mostly on the springing maturity of its current credit score facility) out by round three years with a brand new $1.2 billion time period mortgage.
This offers HighPeak some respiratory room, though at a value. The time period mortgage comes with an rate of interest that’s shut to three% greater than HighPeak’s current debt. As effectively, there are numerous restrictions across the variety of energetic rigs that HighPeak can have, so it would most likely see its manufacturing decline not less than a bit in early to mid 2024.
The rig restrictions do get pleasure from forcing HighPeak to spend much less on capex and concentrate on producing extra free money movement, which it ought to have the ability to do decently with $80s oil.
I consider HighPeak is roughly pretty priced for long-term $80 oil now, though I estimate its worth at round $14 per share with long-term $75 oil. That is up barely from my earlier estimate of HighPeak’s worth, on account of improved near-term oil costs plus a extra steady monetary scenario.
Debt Refinancing
HighPeak efficiently refinanced its debt by getting into right into a time period mortgage settlement with a $1.2 billion dedication capability. This time period mortgage matures in September 2026 and carries an rate of interest of SOFR + 7.5%. The time period mortgage has a first-lien safety curiosity in considerably all of HighPeak’s belongings.
With SOFR at round 5.3%, the time period mortgage’s present rate of interest could be 12.8%, which is kind of excessive for first-lien debt.
HighPeak is utilizing the proceeds from the time period mortgage to repay its 10% unsecured notes due February 2024, its 10.625% unsecured notes due November 2024 and its current credit score facility borrowings (maturing in June 2024, however with a springing maturity to October 2023).
On the finish of Q2 2023, HighPeak had $970 million in internet debt, though with no working capital deficit its internet debt could be nearer to $1.25 billion. Proforma for its July fairness providing, its internet debt with no working capital deficit could be roughly $1.1 billion.
HighPeak will doubtless proceed to hold not less than some working capital deficit and it talked about that it’s now producing constructive free money movement, so its $1.2 billion time period mortgage ought to give it enough (albeit restricted) liquidity, provided that the time period mortgage additionally imposes restrictions on what number of energetic drilling rigs it may have.
HighPeak can also be allowed to enter into a brilliant senior revolving credit score facility for as much as $100 million.
Drilling Restrictions
HighPeak talked about that it was including a 3rd drilling rig to reap the benefits of sturdy oil costs, however it would quickly (in 2024) be restricted to not more than two drilling rigs (outdoors of obligation wells) so long as its internet leverage is 1.0x or greater. If its internet leverage is between 0.75x to 1.0x, then it’s allowed to have three drilling rigs.
HighPeak’s Capex Restrictions (highpeakenergy.com)
At present strip, HighPeak appears more likely to be restricted to 2 drilling rigs into mid-to-late 2024, however ought to get its internet leverage under 1.0x throughout 2H 2024. It could possibly get its internet leverage under 0.75x by the tip of 2024 at present strip, probably permitting it to extend its rig rely above three.
Potential 2024 Outlook
I’ve modeled a situation under the place HighPeak runs a two-rig drilling program via most of 2024 and spends $600 million on capex. On this situation HighPeak will doubtless see its manufacturing fall a bit from its 2023 exit charge (with steerage midpoint at the moment at 57,000 BOEPD).
Thus I’m at the moment modeling HighPeak’s 2024 manufacturing at 53,000 BOEPD (83% oil) with the assumption that it’s going to exit 2024 with round 50,000 BOEPD in manufacturing if it continues with a two-rig drilling program. Nonetheless, there may be vital uncertainty round HighPeak’s manufacturing ranges on account of its massive variety of latest wells and at the moment excessive base decline charge.
On the present strip of $82 WTI oil for 2024, HighPeak might generate $1.382 billion in oil and gasoline revenues earlier than hedges.
HighPeak’s Hedging Necessities (highpeakenergy.com)
HighPeak’s 2024 hedges (from the tip of Q2 2023) have roughly adverse $14 million in worth. This does not embrace the brand new hedges that HighPeak will add quickly (if it hasn’t performed so already).
As proven above, HighPeak is now required (as a part of its time period mortgage settlement) to enter into oil hedges protecting not less than 27,000 barrels per day in oil manufacturing for the twelve month interval ending September 2024, with a ground worth that’s not less than 85% of strip.
| Sort | Barrels/Mcf | $ Per Barrel/Mcf | $ Million |
| Oil | 16,056,350 | $81.50 | $1,309 |
| NGLs | 1,741,050 | $24.75 | $43 |
| Pure Fuel | 9,285,600 | $2.40 | $22 |
| Hedge Worth | -$14 | ||
| Complete | $1,360 |
I’m modeling HighPeak’s 2024 lease working bills (together with workover expense) at $9.00 per BOE at 53,000 BOEPD in common manufacturing. HighPeak’s money curiosity prices might find yourself at round $146 million if it solely makes its $30 million per quarter in scheduled repayments. It could possibly cut back its curiosity prices with accelerated repayments.
| Bills | $ Million |
| Lease Working Expense And Workovers | $174 |
| Manufacturing And Advert Valorem Taxes | $76 |
| Money G&A | $10 |
| Money Curiosity | $146 |
| Capital Expenditures | $600 |
| Complete Expenditures | $1,006 |
This leads to a projection of $354 million in 2024 free money movement at low-$80s WTI oil and modest manufacturing declines.
HighPeak additionally has $13 million in annual dividend funds at its present quarterly dividend of $0.025 per share. It’s also required to make $120 million per 12 months in time period mortgage repayments.
Notice Refinancing And Estimated Valuation
HighPeak estimated that its proved developed reserves had a PV-10 of $2.81 billion at $80 oil. This was based mostly on estimated reserves from the start of August 2023.
HighPeak’s Reserves (highpeakenergy.com)
At $16.75 per share, HighPeak’s market cap could be roughly $2.5 billion assuming that its excellent choices and warrants had been exercised. It will have roughly 149 million shares excellent together with $850 million in internet debt. This $3.35 billion mixed complete is almost 1.2x HighPeak’s proved developed PV-10 at $80 oil. At $80s oil, HighPeak ought to have the ability to improve its proved developed reserves whereas additionally decreasing its debt.
I beforehand estimated HighPeak’s worth at $13 per share in a long-term $75 oil and $3.75 gasoline situation. I’ve elevated its estimated worth to $14 per share with long-term (after 2024) $75 WTI oil. This improve is because of greater near-term oil costs in addition to the improved stability of HighPeak’s funds.
At long-term $80 WTI oil as a substitute, I might take into account HighPeak’s present share worth of round $16.75 per share to be roughly honest. HighPeak’s insiders have lately bought shares at round its present share worth, however I are inclined to take a extra conservative view in direction of longer-term oil costs.
Conclusion
HighPeak Power efficiently refinanced its debt and it now has three years till its new $1.2 billion time period mortgage matures. It’s paying near 13% curiosity on that time period mortgage although, and can also be required to make $120 million per 12 months in time period mortgage repayments.
At $80s oil, HighPeak ought to have the ability to make vital progress in decreasing its internet debt and leverage although. It will likely be restricted by way of the variety of energetic drilling rigs it may have till it reduces its leverage under 0.75x.
I consider that HighPeak is at the moment pretty valued for a long-term $80 WTI oil situation and is value roughly $14 per share at long-term $75 WTI oil as a substitute.