HPK - HighPeak Energy Inc. Poised To Benefit From Strong Fossil Fuels Tailwinds

• Investors should not miss the big opportunity of the current rapid rise in oil and gas prices, but increase their exposure to high-margin explorers and miners.
• HighPeak Energy, Inc. appears as a good investment proposition given the high profitability of its operations.
• The company is targeting an efficient expansion of the drilling campaign and believes it can sell many more barrels within a few years.

With Oil And Gas On The Rise, Take Advantage Of High-Margin Operators

The war in Ukraine and ongoing geopolitical tensions destabilizing 3/4 of the world are causing oil and natural gas prices to skyrocket. Disruptions in the sourcing of these fossil fuels are putting strong upward pressure on the prices.

It is not known whether the reasons are technical or purely political, but the Nord Stream gas shutdown that was announced by Gazprom ( OTCPK:OGZPY ) ( OTCPK:GZPFY ) yesterday, Aug. 19, for the period from Aug. 31 to Sept. 2, could push gas prices up significantly in the coming periods. This announcement will add to existing concerns about the actual adequacy of gas resources in Europe and is likely to reflect a long-term factor for the commodity prices.

Natural gas futures, which mature in September 2022, are trading at $9.282 per metric million British thermal units [/MMBtu] as of this writing, and are expected to rise more than 20% to $11.26/MMBtu within a year, according to analysts .

Tensions with Russia are making natural gas procurement more difficult, causing economies to focus more on oil for power generation. However, with oil supplies still limited relative to global energy needs at the behest of key OPEC exporters, this commodity is destined to continue its ascent to new highs as well.

Analysts expect Brent Oil Futures due October 2022 and Crude Oil WTI Futures due September 2022 to trade at $113 and $106.96 a barrel respectively in 12 months, up 18-19% from the prices at the time of this article.

To capitalize on the big opportunity of such a surge, it is advisable to increase exposure to high-margin oil and gas explorers and miners, which are on track to improve sales volumes and profits. If sales and earnings are strong catalysts, then the shares will rise too.

Search For High Yield Fossil Fuel Stocks: HighPeak Energy, Inc., A Texan Operator With Significant Uplift Potential

In the oil and gas exploration and mining universe, HighPeak Energy, Inc. ( HPK ) appears as a good investment proposition given its highly profitable operations [ ttm EBITDA margin of 77.30% versus an industry median of 25.75% ].

For every $1 in revenue from the sale of oil or gas, HighPeak Energy will earn nearly 80% profits, allowing for greater reinvestment to accelerate the advancement of its portfolio of mineral activities.

One such positive investment resulted in the acquisition in the second quarter of 2022 of approximately 18,600 acres owned by Hannathon Petroleum LLC, an upstream operator of high-value assets in Texas, located primarily in the state's Permian Basin.

The mineral claim is not far from HighPeak Energy's assets, and the company estimates that the field will significantly complement the operation and allow it to generate additional cash.

The transaction was valued at $335.5 million to be paid $238.3 million in cash and credit facilities and the remainder in about 3.52 million HighPeak ordinary shares.

The transaction includes certain infrastructure that will support the development of an adjacent HighPeak Energy asset, approximately 200 world-class drill sites and an area hosting production and development activities.

Although the price of the deal was approximately three times the estimated 2022 EBITDAX [Earnings Before Interest, Taxes, Depreciation, Amortization, and Exploration Expense], the investment is expected to deliver significant value from synergies.

In recent months, the company has also completed a series of acquisitions, adding more than 14,000 acres where the presence of many promising wells and infrastructure allows it to target high-margin oil production.

Essentially, as an independent crude oil and natural gas company, HighPeak Energy, Inc., headquartered in Fort Worth, Texas, acquires and develops unconventional crude oil and natural gas reserves located in the Midland Basin of West Texas. The company is also engaged in exploration and mining activities on more than 97,000 net acres at the end of the second quarter of 2022, up from 63,000 net acres a year ago.

The Second Quarter Of 2022: Significant Sales Volumes And Strong EBITDA Growth

HighPeak pursued a rapid growth strategy during the second quarter of 2022 as the operation delivered a sequential increase in oil equivalent sales volume of well over 80%, averaging 21,995 barrels per day.

As a result of higher sales volumes and realized prices, EBITDAX grew 165% sequentially to $135.4 million.

HighPeak had an average of four drill rigs during the second quarter of 2022 and expects an expanding drill program for the remainder of 2022 and into 2023.

Commenting on the results for the second quarter of 2022, Jack Hightower, HighPeak's Chief Executive Officer, said production rates should keep on moving up in the second half of 2022 and throughout 2023 thanks to the decision made a few months ago to raise the number of rigs.

The CEO added that through the end of 2023, the company is targeting higher production through efficient drilling campaigns, which coupled with rising fossil fuel prices should result in significant free cash flow.

The stock price is poised to welcome the upcoming strong tailwinds.

Analysts' Growth Estimates

Sell-side analysts on Wall Street estimate that HighPeak Energy, Inc. will increase its profit by 295% to $3.16 in 2022 [from 2021] and by 129.75% to $7.26 in 2023 [from 2022].

Financial Condition To Support Higher Production Plans Is Approved

As of June 30, 2022, the balance sheet of HighPeak had good financial leverage ratios.

These are a Net Debt to EBITDA of 1.37x as Net Debt was $466.7 million while ttm EBITDA was $340 million as of June 30, 2022, meaning it takes just a little over a year to pay off outstanding debts with profits.

This ratio has deteriorated sequentially, as it was 0.76x in the previous quarter, but the interest coverage ratio of 15x indicates that the company has no problem paying interest charges after taking out additional loans. The interest coverage ratio is calculated as ttm operating income of $252.3 million divided by ttm interest expense of $16.8 million .

The Stock Price

Buoyed by a surge in oil and gas prices, shares of HighPeak Energy, Inc. are up 163.16% over the past year to trade at $22.50 a unit on Aug. 19. The stock has a market cap of $2.55 billion and has ranged from $7.60 to $38.21 in 52 weeks.

The stock price is only slightly above the long-term trend as the 200-day moving average stands at $22.02, while the 14-day relative strength indicator of 49 says the stock is far from overbought despite its year-to-date upsurge.

Given the existence of significant growth potential that could cause the stock price to rise rapidly, the following analyst ratings and price targets are set accordingly.

The stock has a strong buy recommendation.

The stock has an average price target of $45.

Conclusion

Oil and gas are headed to new highs and under these circumstances, HighPeak Energy will be encouraged to expand and intensify production. As the company's profitability continues to improve, this should be reflected in a higher share price.

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