Denver-based producer HighPoint Resources Inc. reported higher year/year sales volumes, while lowering operating costs and reducing spending in 2019, a conservative capital approach the Denver-Julesburg Basin pure-play plans to carry forward in 2020.
Although the independent exploration and production (E&P) company announced its plan to slash capital expenditures (capex) by another 40% year/year in 2020 before Monday’s carnage in the oil markets, the focus on capital discipline could help the producer navigate the sharper downturn.
“We have a flexible development program as the majority of our acreage is held by production, and we have very few drilling commitments,” CEO Scot Woodall said last month on a fourth quarter earnings call.
HighPoint management continues to prioritize positive free cash flow generation and no increase in debt. “We remain focused on creating further cost savings by generating greater operating efficiencies in our drilling program, leading to lower well costs and enhanced returns,” the company chief said.
HighPoint indicated it would cut 2020 spending to between $200-220 million, with activity in the first half of the year primarily focused on the completion of seven drilled but uncompleted wells (DUC) in the Hereford field and another 24 DUCs in the northeast Wattenberg. It also would spud up to 13 wells.
Drilling and completion operations would resume at Hereford during the second half of the year and would be based on the results of the Section 17 wells and the larger stimulations and spacing tests being employed on the Hereford DUCs, according to management.
“This will enable us to proceed with the most economic future development plan going forward,” Woodall said. “Although crude prices continue to fluctuate, our capital program economics and cash flow are protected with an underlying hedge portfolio covering approximately 95% of our 2020 oil production at a WTI price that is well in excess of current prices.”
On Monday, West Texas Intermediate (WTI) crude plunged to a $27.34/bbl low before rebounding into the $30 range.
HighPoint also has a “strong base” of 2021 hedges at $55 to protect its current activities, according to CFO Bill Crawford. “This is consistent with our long-standing strategy of being 50% to 70% hedged over the 12- to 18-month timeframe to protect our capital investments.”
HighPoint reported that production sales volume for the fourth quarter of 2019 totaled 3.5 million boe, which is an increase of 12% over 4Q2018. Oil volumes totaled 2.0 million bbl, an increase of 3% year/year. Production sales volume from northeast Wattenberg totaled 2.5 million boe, while Hereford production volumes totaled 1.0 million boe, the company said.
Management noted that fourth quarter volumes were adversely impacted by a blizzard in November, which caused a widespread regional power outage and resulted in all Hereford field production being shut in for three days. Full production was restored to the field after about a week.
Reported oil, natural gas and natural gas liquids production sales volume totaled 12.5 million boe for 2019, up 23% over 2018. Reported oil production sales volume rose 21% year/year to a total 7.7 million bbl. Production sales volume from northeast Wattenberg totaled 9.4 million boe, up 5% year/year, and production sales volume for Hereford totaled 3.1 million boe, a gain of 155% over 2018.
“Operationally, a significant achievement was the completion of our Hereford optimization program, which yielded an enhanced geologic and reservoir understanding of the field and provided an economic baseline for future development,” Woodall said. “Our growing confidence in the field was supported by the Section 16 wells that continue to exhibit strong performance.”
HighPoint continues to bring its best wells to date online in northeast Wattenberg, as the most recent high-fluid intensity completions are exhibiting strong performance. “High-fluid intensity completions will remain the standard design going forward as we deliver optimum value from our development program,” the CEO said.
In 2019, the company reduced aggregate operating costs by 16% to $5.74/boe for 2019, compared to $6.81/boe in 2018. The producer reduced 2019 per-unit cash general and administrative expenses by 23% compared to 2018.
Management also is in the process of selling non-operated assets in Wyoming, Colorado and New Mexico, all of which constitute a smaller portion of HighPoint’s overall acreage position, according to COO Paul Geiger. The company has received acceptable bids for multiple parties and expects these transactions to close separately during the second quarter. The combined sales are expected to bring in $27 million, which would be used to repay borrowings.
HighPoint reported a fourth quarter net loss of $48 million (minus 23 cents/share), which is down from net income of $222 million ($1.06) in 4Q2018. Full year net loss was $135 million (minus 64 cents), down from full year net income of $121 million (64 cents) in 2018.
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