10-Q: HighPeak Energy Q3 2025: Net Loss Amid Price Volatility

HighPeak Energy reports a net loss of $18.3 million in Q3 2025, driven by lower commodity prices and a significant loss on debt extinguishment, despite increased NGL and natural gas sales volumes.

Summary

• Reported a net loss of $18.3 million for the three months ended September 30, 2025, a significant decrease from net income of $49.9 million in the same period of 2024.
• Net income for the nine months ended September 30, 2025, was $44.176 million, down from $86.088 million for the nine months ended September 30, 2024.
• Total operating revenues decreased by 30% to $188.862 million for Q3 2025 (from $271.578 million in Q3 2024) and by 23% to $646.710 million for the nine months ended September 30, 2025 (from $834.608 million in 2024).
• Average daily sales volumes decreased by 7% to 47,839 Boepd in Q3 2025, primarily due to lower crude oil volumes from decreased activity and natural decline, partially offset by increased NGL and natural gas sales volumes.
• Average realized crude oil prices decreased by 14% to $65.63 per Bbl in Q3 2025 (from $75.99 per Bbl in Q3 2024).
• Average realized natural gas prices increased by 155% to $1.07 per Mcf in Q3 2025 (from $0.42 per Mcf in Q3 2024).
• Incurred a $25.4 million loss on extinguishment of debt in Q3 2025 related to the amendment of the Term Loan Credit Agreement.
• Cash provided by operating activities totaled $120.2 million for Q3 2025, down from $177.1 million in Q3 2024.
• Capital expenditures for the nine months ended September 30, 2025, were $391.9 million, excluding acquisitions.
• Completed 36 gross (35.7 net) horizontal wells and 2 gross (2.0 net) salt-water disposal wells during the nine months ended September 30, 2025.
• Jack Hightower, former CEO and Chairman, retired in September 2025; Michael Hollis was named Interim CEO, then President and Chief Executive Officer on November 4, 2025.
• Maturity dates for the Term Loan Credit Agreement and Senior Credit Facility Agreement were extended by two years to September 30, 2028.
• Quarterly amortization payments of $30.0 million for the Term Loan Credit Agreement were deferred for one year, now resuming in September 2026.
• Declared a quarterly dividend of $0.04 per share in August 2025 and November 2025.

Sentiment

Score: 3

Explanation: The company reported a net loss and significant revenue decline in Q3 2025, primarily due to lower commodity prices and a substantial loss on debt extinguishment. While debt maturity was extended and liquidity was enhanced through the upsized Term Loan, the overall financial performance has deteriorated year-over-year, and the outlook remains highly uncertain due to commodity price volatility and geopolitical factors.

Positives

• NGL and natural gas sales volumes increased by 27% and 30% respectively in Q3 2025 compared to Q3 2024, driven by third-party midstream expansions and debottlenecking.
• Natural gas prices per Mcf increased significantly by 155% in Q3 2025 compared to Q3 2024.
• The maturity dates for both the Term Loan Credit Agreement and the Senior Credit Facility Agreement were extended by two years to September 30, 2028, improving long-term debt profile.
• The Term Loan Credit Agreement was upsized to $1.2 billion, providing additional liquidity.
• Quarterly amortization payments of $30.0 million on the Term Loan Credit Agreement were deferred for one year, now resuming in September 2026, easing short-term cash flow demands.
• Cash and cash equivalents increased to $164.913 million at September 30, 2025, from $86.649 million at December 31, 2024.
• The company holds a net derivative asset position of $19.6 million as of September 30, 2025, indicating favorable hedging positions at that time.
• Successfully completed and placed on production 36 gross (35.7 net) horizontal wells and 2 gross (2.0 net) salt-water disposal wells during the nine months ended September 30, 2025.

Negatives

• Reported a net loss of $18.3 million in Q3 2025, a substantial decline from net income of $49.9 million in Q3 2024.
• Total operating revenues decreased by 30% in Q3 2025 and 23% for the nine months ended September 30, 2025, primarily due to lower commodity prices.
• Average daily sales volumes decreased by 7% in Q3 2025, mainly due to lower crude oil volumes resulting from decreased activity and natural decline.
• Average realized crude oil prices decreased by 14% in Q3 2025 and 14% for the nine months ended September 30, 2025.
• Average realized NGL prices decreased by 18% in Q3 2025 and 6% for the nine months ended September 30, 2025.
• Incurred a $25.4 million loss on extinguishment of debt in Q3 2025 due to the First Term Loan Amendment.
• Experienced a $25.4 million decrease in derivative instruments gain in Q3 2025 compared to Q3 2024.
• Cash provided by operating activities decreased by 24% for the nine months ended September 30, 2025, compared to the same period in 2024.
• General and administrative expenses increased, partly due to severance and legal costs related to the former CEO's retirement and higher wages/professional fees.
• Exploration and abandonment expenses increased due to regulatory requirements for plugging and abandonment and abandoned leasehold costs.
• Workover expenses increased significantly by 163% in Q3 2025 compared to Q3 2024, and 104% for the nine months ended September 30, 2025, due to increased well cleanouts and pump changes with an aging well population.

Risks

• Volatility in the supply and demand for and market prices of crude oil, NGL, and natural gas, and the associated impact of hedging policies.
• Inflation rates, the impacts of associated monetary policy responses, including increased or decreased interest rates and resulting pressures on economic growth.
• U.S. trade policy and the imposition of and changes to tariffs, which could increase operating and capital costs.
• Political instability or armed conflict in crude oil or natural gas producing regions, such as the ongoing war between Russia and Ukraine and conflicts in the Middle East.
• Volatility in the political, legal, and regulatory environments, including the effects of a prolonged U.S. government shutdown.
• Liquidity, cash flow, and access to capital, including the ability to refinance or pay indebtedness when due.
• Production and reserve levels, and the accuracy of reserve estimates which are subject to numerous uncertainties.
• Drilling and completion risks, including the impacts of revising drilling plans and severe weather conditions.
• Epidemics or pandemics, including the effects of related public health concerns and their impact on commodity prices, supply and demand, and storage capacity.
• Availability of goods and services and supply chain issues, leading to cost inflation.
• Regulatory and related policy actions by federal, state, and/or local governments to reduce fossil fuel use and associated carbon emissions, potentially reducing demand for crude oil, NGL, and natural gas.
• Ability to predict and manage the effects of actions by OPEC and its non-OPEC allies (OPEC+) and agreements to set and maintain production levels.
• Recent management changes could disrupt operations and impair the ability to attract and retain key personnel.
• Cyber-attacks could adversely affect business operations.
• Risks associated with property acquisitions or divestitures and the integration of acquisitions.
• Capital markets and the ability to access such markets on attractive terms or at all, including general credit, liquidity, market, and interest-rate risks.
• Uncertainty regarding the outcome of the ongoing strategic alternatives process, which may not result in additional value for shareholders or could adversely impact the business.
• Exposure to counterparty credit risk if a counterparty fails to perform under a derivative contract.
• Potential for increased costs when commodity prices rise and inflation, negatively impacting profitability, cash flow, and ability to complete development activities as planned.
• The Principal Stockholder Group has significant influence over the company, which could limit the ability of other stockholders to approve certain transactions.
• Potential for a former executive officer to be forced to sell pledged shares of common stock, which could cause the stock price to decline.
• Development projects require substantial capital expenditures, and the ability to obtain required capital or financing on satisfactory terms is uncertain.
• Production interruptions or curtailments from third-party infrastructure downtime or delays in third-party installation of infrastructure.
• Ability to obtain storage capacity for crude oil.
• Restrictions in the instruments governing debt on the ability to incur additional indebtedness.

Future Outlook

The company plans to average one to two drilling rigs and approximately one frac crew during the remainder of 2025. The 2025 capital budget is projected to be in the range of $375 million to $405 million for drilling, completion, facilities, and equipping crude oil wells, plus $40 million to $50 million for field infrastructure buildout and other costs, and $33 million to $35 million for one-time infrastructure expenditures, excluding acquisitions, asset retirement obligations, geological and geophysical expenses, and general and administrative expenses. Funding is expected from cash on the consolidated balance sheet, cash generated by operations, and borrowing capacity under the Senior Credit Facility Agreement. The company maintains flexibility in its capital plan and will continue to evaluate drilling and completion activity on an economic basis, with future activity levels assessed monthly, acknowledging ongoing market volatility and geopolitical risks.

Management Comments

• We are focused on maintaining our ability to sustain strong operational performance and financial stability while maximizing returns, improving leverage metrics, and increasing the value of our Midland Basin assets.
• The Company is maintaining flexibility in its capital plan and will continue to evaluate drilling and completion activity on an economic basis, with future activity levels assessed regularly.

Industry Context

The crude oil and natural gas industry is experiencing significant volatility due to numerous market-related variables. OPEC+ actions, including unwinding prior production cuts and announcing further increases, have contributed to a decline in global crude oil prices. U.S. tariffs on energy imports and broader trade measures are introducing uncertainty, potential inflation, and trade disputes, which could increase operating and capital costs and place downward pressure on oil prices. The current U.S. presidential administration's executive orders aim to increase domestic crude oil production and decrease commodity prices. Geopolitical risks stemming from the ongoing war between Russia and Ukraine and conflicts in the Middle East continue to impact global supply chains and energy costs, leading to inflationary pressures. Despite low global crude oil inventories, OPEC+ supply is not expected to meet forecasted demand growth for the next few years, although recent production increases have been approved.

Management Changes

Corporate Governance

Legal Proceedings

• The company may be a party to various lawsuits, proceedings, and claims incidental to its business from time to time. Management believes that the amount of liability, if any, ultimately incurred with respect to these matters will not have a material adverse effect on the company's consolidated financial position, liquidity, capital resources, or future results of operations.

Related Party Transactions

• The Principal Stockholder Group, comprising HighPeak Pure Acquisition, LLC, HighPeak Energy, LP, HighPeak Energy II, LP, HPK GP, and their affiliates/transferees, owns approximately 65% of the company's common stock and has significant influence over corporate actions.
• Following Jack Hightower's retirement, HighPeak Pure Acquisition, LLC will distribute 1,532,478 shares of common stock to him in full and complete redemption of his interest in Pure.
• Jack Hightower, the former CEO, has personal loan obligations secured by pledges of HighPeak Energy common stock and interests in the HighPeak Funds. A decline in stock price or loan maturity without renewal could force sales of these shares.
• The HighPeak Funds are managed by a committee comprised of Michael Hollis (President and CEO), Daniel Silver (Executive Vice President), and Ryan Hightower (Executive Vice President), all of whom also serve as company executives.

Stakeholder Impact

• Shareholders: Experienced a net loss and decreased revenues, potentially impacting investment returns. Dividends of $0.04 per share continue to be declared. The ongoing strategic alternatives process introduces uncertainty, and the significant influence of the Principal Stockholder Group remains. There is a risk of stock price decline if the former CEO's pledged shares are forced to be sold.
• Employees: Affected by recent management changes, including the retirement of the CEO and the appointment of a new one. Stock-based compensation expense has decreased as most instruments have vested.
• Creditors: Benefit from the extension of debt maturity dates to September 2028 and the upsizing of the Term Loan Credit Agreement, which provides additional liquidity. Quarterly amortization payments on the Term Loan are deferred for one year, easing immediate repayment pressure. Hedging requirements in debt agreements aim to mitigate commodity price risk.
• Customers: The company has significant customer concentration, with its largest purchaser (Delek) accounting for 88% of revenues and the second largest (ETC) for 9%. However, management believes the loss of these purchasers would not materially impact operations due to the fungible nature of crude oil and natural gas and the availability of other purchasers.

Next Steps

• Average one to two drilling rigs and approximately one frac crew during the remainder of 2025.
• Evaluate drilling and completion activity on an economic basis, with future activity levels assessed monthly.
• The Board will continue to evaluate strategic alternatives to maximize shareholder value.
• HighPeak II is likely to distribute its shares early next year, after which HighPeak Energy will cease to be a controlled company.
• Quarterly amortization payments of $30.0 million on the Term Loan Credit Agreement will resume in September 2026.
• The company will pay a quarterly dividend of $0.04 per share in December 2025.
• Accrue an additional combined $31,000 in dividends on restricted stock issued to directors, management directors, and certain employees, payable upon vesting.

Key Dates

Recommendation

The company reported a net loss and significant revenue decline in Q3 2025, primarily due to lower commodity prices and a substantial loss on debt extinguishment. While debt maturities were extended and liquidity was enhanced through the upsized Term Loan, the overall financial performance has deteriorated year-over-year. The company faces ongoing challenges from volatile commodity prices, geopolitical risks, and inflationary pressures. The strategic alternatives process introduces uncertainty. However, the company maintains a flexible capital plan, continues to pay dividends, and has increased NGL and natural gas sales volumes. The stock repurchase program also indicates some management confidence. Given the mixed signals—deteriorating financial results but proactive debt management and ongoing strategic review—a 'hold' recommendation is appropriate for investors to monitor the outcome of the strategic review and commodity price stabilization before making further investment decisions.

Keywords

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