Good day and thank you for standing by. Welcome to the High Peak 2026 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, we'll open up for questions. To ask a question during the session, you will need to press star 1-1 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's call is being recorded. I will now hand it over to our first speaker, Steven Tholen, CFO. Please go ahead.

Good morning, everyone, and welcome to High Peak Energy's third quarter 2026 earnings call. Representing High Peak today are President and CEO Mike Hollis, Executive Vice President Ryan Hightower, Executive Vice President Daniel Silver, Senior Vice President Chris Mundy, and I'm Steven Tholen, the Chief Financial Officer. During today's call, we may refer to our November investor presentation and press release, which can be found on High Peak'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 and the earnings release 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. The third quarter was an important quarter for Hypeak, and one I'm particularly proud of. Our team delivered another strong operational performance, exceeding production expectations while spending less capital and improving efficiencies across the business. At the same time, we generated meaningful free cash flow, reduced debt, and recently announced what we believe is a transformational refinancing transaction that materially strengthens our balance sheet. What makes these accomplishments especially meaningful is they are not isolated successes. They are the result of nearly two years of focused execution around a simple set of priorities. Operate efficiently, spend capital wisely generate substantial free cash flow and improve our financial strength. Around here, we've never believed that bigger automatically means better. We believe better means operating the assets responsibly, creating value from every dollar we invest and building a company that can perform through all parts of the commodity cycle. Most importantly, None of this happens without our people. The men and women in the field, our operations teams, engineers, geologists, office staff, continue to find ways to do more with less every day. Their commitment, ingenuity, and work ethic are the reason we're able to report these results. Today, I would like to discuss the operational momentum were seen across the business, our outlook for the remainder of the year, and why we believe the refinancing represents a significant milestone in High Peak's evolution. Starting with operations, our team once again delivered an exceptional quarter. Production exceeded the high end of the original guidance range we established at the beginning of the year. Driven by strong field performance, successful work over activity, and continued drilling and completion efficiencies. I often say that consistency is one of the most undervalued attributes in this business. Anyone can have a good quarter. The best operators deliver results quarter after quarter, and that's exactly what our team continues to do. And at the same time, capital spending declined 34% quarter over quarter as we executed our planned development program. Those efforts generated approximately $164 million of EBITDAX, more than $58 million of free cash flow before working capital changes, and allowed us to reduce debt by $30 million. What encourages me the most is that we're continuing to find opportunities to improve the business. Whether it's work over performance, production enhancement initiatives, operating efficiencies, or DNC improvements, our teams keep uncovering ways to create incremental value from assets we already own. That operational mindset is showing up in our results. and it's a major reason we're able to improve guidance today. Our objective has never been to chase production growth for the sake of growth. Our objective is to create long-term shareholder value. That means maintaining a disciplined approach to capital allocation, investing where returns is justified, generating free cash flow and strengthening our balance sheet over time. In West Texas, we've always believed that every dollar spent ought to earn its keep. We approach shareholder capital exactly the same way. Over the last several years, we've substantially reduced annual capital spending while maintaining a stable production platform. That's not an accident. It's the direct result of operational efficiency, infrastructure investments, and a disciplined approach to development. During the quarter, we generated meaningful free cash flow and directed a portion of that cash toward debt reduction. We continue to believe that reducing leverage remains one of the highest risk-adjusted return uses of capital available to us today. Simply put, a stronger balance sheet lowers risk, increases flexibility, and enhances long-term value creation opportunities. When you step back and look at the business today, what stands out is the quality of cash flow being generated by this asset. During the third quarter, High Peak generated approximately $45.50 of unhedged EBITDAX per BOE, placing us among the leaders in our oil-focused peer group. Those results didn't happen overnight. They're the product of years of investment in infrastructure, electrification, field optimization, and operating efficiently. More importantly, they reinforce our belief that maintaining a low-cost, high-margin operation is one of the most durable advantages a company can have in a volatile commodity business. Our strategy remains straightforward. Free cash flow first. Fortress balance sheet next. Then, accretive growth and scale. Because of the operational progress we delivered this year, we're updating our 2026 outlook. We're increasing production guidance to 44,500 to 45,500 BOEs per day, representing approximately 6% growth at the midpoint. We're lowering LOE guidance by roughly 7% to $8 to $8.25 per BOE. Now, we are increasing our capital budget to $310 to $320 million. But I want to stress the point that that increased capital budget is not the result of inflation, cost overruns, or execution challenges. It is absolutely the result of opportunity capture. We chose to lean into the stronger commodity price environment and expand our work over program because the economics are highly attractive. These projects have a short cycle time, quick payouts, and immediate production impacts. They've also been a significant contributor to our increased production guidance. Now an additional benefit to that work over driven production tends to carry a shallower decline profile than production from newer wells. That means we're not only bringing incremental barrels to the market quickly, we're also improving the overall sustainability of our production base. As drilling efficiencies continue to improve, rather than dropping a rig and picking it back up, we plan to keep activity steady and reinvest those efficiency gains into additional high return opportunities, resulting in a modest increase in capital investment. It also positions us to enter 2027 with a larger inventory of wells in progress, providing additional flexibility and a stronger starting point for next year. The bottom line is this. Our teams are executing at such a high level that we're able to do more with the same equipment, the same people, and essentially the same dollars. When we see opportunities that meet our return thresholds, we are going to pursue them. That is not a change in strategy. It's discipline execution creating additional opportunities. Now let me turn to what we believe is the most significant corporate development we've announced in quite some time. The refinancing transaction fundamentally improves High Peak's financial position and resolves what has been our largest balance sheet challenge. For several years, we've talked openly about our desire to simplify the capital structure, reduce leverage, lower our cost of capital and provide the company with greater financial flexibility. This transaction accomplishes all four. The refinancing replaces our legacy $1.2 billion term loan with a combination of $450 million of perpetual preferred equity and an $800 million Credit Facility comprised of a $750 million RBL and a $50 million term loan aid. The immediate impact is substantial. Total debt declines from approximately $1.17 billion to roughly $650 million. Leverage improves from approximately 2.1 times at quarter end to to an estimated 1.2 times at closing, while projected net leverage approaches one turn. That is meaningful deleveraging event by any measure. Just as importantly, we expect to exit the transaction with more than $180 million of liquidity and significantly greater financial flexibility. Now the economics of this transaction are equally compelling. Our weighted average cost of debt is expected to fall below 7%, reducing our annual interest expense by more than $50 million. Those savings translate directly into additional free cash flow available for debt reduction, reinvestment, and future shareholder value creation. The transaction also pushes our primary maturity profile out to 2030, eliminating the near-term maturity overhang and provides a multi-year runway to continue strengthening the company. Now, when I step back and look at this refinancing, what stands out is simple. More cash flow stays at high peak and less cash leaves high peak. That's good for our balance sheet, good for our flexibility, and ultimately good for the shareholders. I'd also like to welcome Dan and Tara and EMP as investors and partners. We appreciate their confidence in our asset base, our strategy, and our future. We look forward to building an even stronger High Peak together. Now as we wrap up, I'd like to leave you with four thoughts. First, our operations are performing at an extremely high level. We hope you expect nothing less from us. Second, our employees continue finding ways to improve efficiency, lower costs, and create value across the organization. Third, our commitment to capital discipline is producing substantial free cash flow and reducing corporate risk. And fourth, this refinancing fundamentally strengthens the foundation of the company. Nearly two years ago, we set out to improve capital discipline, increase corporate efficiency, Strengthen the balance sheet and create long-term shareholder value. Today, we can point to measurable progress on every one of those objectives. Now, we can't control commodity prices. We can't control global events. But we absolutely can control how we operate this company. We will continue focusing on operational excellence, Discipline Capital Allocation, Free Cash Flow Generation, and Balance Sheet Improvement. Now, before we close, I want to personally thank our employees again. The success we're discussing today didn't happen in a boardroom. It happened in the field, on location, in offices, through thousands of smart decisions made by dedicated people across the company every single day. The High Peak team has built a culture of accountability, ownership, and continuous improvement, and these results reflect that effort. I'd also like to thank our shareholders for the trust they've placed in us. We understand that trust has to be earned, and we are committed to earning it every day through our actions and our results. And with that operator, We're ready to open the call for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for a name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Jeff Robertson from Water Tower Research. Your line is open.

Thank you, good morning. Mike, with maintaining the rig and the number of wells that you will build into 2027, I know it's too early for guidance for 2027, but can you share any thoughts around what production might look like in the first half of the year with the carryover and activity that you'll have from 2026?

You bet. Hey, Jeff, thank you and great question. I think the best way to look at this is we have been in a maintenance mode of operation here for quite some time. And I think we've been able to demonstrate that with the performance we've had over the last, you know, call it three, four quarters where production has remained relatively flat. I think that level of activity is what you can probably expect. Obviously, we're not giving guidance today, but with the objectives that we've laid out and hopefully with the discipline that we've shown the market over the last several quarters is that we will continue that same disciplined approach. We still have some work to do to get the balance sheet to where we would like it to be, but this was a huge first step with this transformational refinancing that does put High Peak in a different position once we close and kind of estimated timing for that close is sometime by the end of the month that we will be in a different spot with different availability to take advantage of some opportunities that may come down the line in 2027 that might not have been a possibility for us in the previous years.

Mike, you highlighted the workover program and the impact it's had on production and the decline. Is that enough, or how does that reflect in High Peak's overall corporate decline rate when you mix that in with the new drills?

You bet. Great question. And Jeff, so kind of the way to look at that is, High peaks corporate decline is somewhere in the 38%-ish or so. So whenever we drill a new well, a brand new well that comes on and hits peak production, you have an initial decline rate of somewhere closer to 70%. Now, whenever we go and work over one of these older wells that might be a couple years into its life, and downed into something that may more represent the normal corporate decline. And then we go add additional production from those wells. It's going to more represent the kind of 38-ish percent decline instead of the 70. So when you look at what we've done with guidance for the year of 2026, we've moved that up roughly 6%. A lot of that change, again, we are drilling the same wells we planned to drill at the end of last year. Yes, are we getting incrementally better? Absolutely, on both the way we drill complete and on the cost side, as well as on the production side. But those incremental barrels we bring forward with the workover program are extremely valuable because we can get them on in a couple of days. You know what the oil price environment is when you do the work as opposed to when drilling a well, it might be six months after that first dollar of investments made before you see any product that you can sell come out of one of those wells. So it's a lot less risky from a macroeconomic stance. And so we leaned into that over the last quarter and a quarter and a half because the oil price dictated it. And when you have payouts that can be a month to two months, you go ahead and make that investment. It's a smart thing to do.

On the balance sheet and the refinancing, Mike, High Peak had protected liquidity with pretty substantial cash balances through the latter part of 2025 and most of 2026. Between the roughly $50 million of interest savings from the prior term loan to where you'll be pro forma. How do you think about maintaining the cash balance and liquidity as you look into 2027 with volatile commodity prices and the opportunity to accelerate debt reduction next year? And then just lastly, do you have a targeted leverage ratio that you'd like to get to by the end of 2027? Yeah.

Hey, Jeff, this is Ryan. Appreciate the question. Going forward, obviously the flexibility that the RBL provides is going to allow us to kind of have much more of what you would call normal cash management. We will not need to keep $100 million plus of cash on the balance sheet like we did under the legacy term loan. If you recall, the legacy term loan didn't provide the ability to redraw a dollar once it was paid down. So again, going forward, The flexibility of the RBL will allow us to not keep near the amount of cash on the balance sheet just for liquidity and cash management purposes. And on your second question, as far as a leverage ratio going forward, Jeff, I would say our immediate goal is to get comfortably under one turn. And as you can see, the immediate deleveraging effect from this transaction is a major step towards that goal. and we hope to get under that one term here pretty quickly, again assuming reasonable oil prices and looking at our production forecast right now.

To be clear, Ryan, on the cost of capital that Mike referenced, that includes the preferred dividend plus the new RBL component, right?

That's absolutely correct, Jeff. That assumes we pay the preferred dividend in cash.

Thank you.

Thank you. One moment for our next question. Our next question will come from the line of Nicholas Pope from Roth Capital. Your line is open. Good morning, guys.

Good morning, Nick. Good morning, Nick.

I had a question about, I guess, where we are on the build out of kind of the infrastructure I think looking at where CapEx spend was in 2026, Trying to get a sense of where we are and kind of what's remaining as you're kind of more in a steady state production mix. How much more is even needed to be added in those areas for capital going forward?

You bet, Nick. No, great question. And obviously, over the last several years, we have invested a lot of money into our infrastructure. both on the CTB front, the central tank batteries. So what we have today and what we plan to drill in the foreseeable future will all be connected to existing central tank batteries. So what would usually live in the facility or the F portion of our DC and ENF budget will be much lower on a per foot basis going forward because we're tying into existing facilities. We have drilled the first two wells on the very far north portion of our northern block, which we call flat top. We have this year spent somewhere close to $20 million in infrastructure. Next year, It's going to be a little less than that, maybe somewhere in the $15 million range. And that will completely tie 100% of both flat top and our southern block signal peak, all of the central tank batteries into all of our legacy infrastructure. So again, the previous years where it was $100-plus million a year has dropped very dramatically over the last year. and then in 2027 will be even lower. And then as you go into future years at 15, now I always like to have about $5 million in a budget in case we have a SWD that we need to go drill, a soil water disposal well or something else or we pick up more acreage. But as it stands right now, kind of think of that stepping down from the 20-ish to 15 and 27. to somewhere in the 10 or less go forward basis.

That makes sense. It's a good segue to another question I hope to To ask water disposal, I know you've built out a lot of your own infrastructure there. Curious what your systems utilization is right now and if there's opportunity for a third party to potentially utilize your water disposal infrastructure or if there's room to grow that in kind of the area that you're producing in.

No, fantastic question. Obviously, a couple years ago or five years ago when we started building out that system, we didn't know what the world was going to be and how quickly we would grow. We built that system to be able to essentially handle the produced water such that we could produce oil at a rate of 75 to 100,000 barrels a day. We are obviously not producing that much The oil-water ratio of what we produce on the produced water side is essentially the same as it's been over the last eight years. So to that point, our infrastructure and disposal capacity is, call it 50% or less utilized today. Obviously, operationally, we love having a lot of redundancy. We can move water anywhere in the field. Now to your last question, can you monetize some of that excess capacity? We do on a fairly small basis today. Again, a higher commodity price environment might entice some of our offset partners or offset neighbors to accelerate their development. I think what you'll see across the board in the Permian is most systems are highly or fully utilized, and they're having to utilize third-party, high-cost disposal. One little nugget to kind of grab onto with our water system, since we own everything from the SWDs to the pipe, we control everything. All in cost is call it sub 20 cents a barrel, which is extremely unique in the Permian. And a lot of that has to do with us building very large horizontal Ellenberger SWDs, very low injection pressures. A lot of what costs you money in the water disposal world is the horsepower to get rid of your water. We tried to design out four or five years ago all of the things that would either be an impediment or a cost driver in the system that we built out. So long-winded way to say, yes, we are open for business. If someone around us has water, we're taking it from a couple operators around us. We are open for business. Give us a call.

Got it. That's great. Just a clarification on that cost you mentioned, that 20 cents a barrel, that's the cost to dispose of per water barrel, is that right? That is correct. Got it. That's all I got. Thanks, guys.

You bet. Thank you, Nick. Thank you. And with that, this concludes the question and answer session. Thank you for your participation in today's conference. This does include the program. You may now disconnect. Everyone have a great day.