HighPeak Energy, Inc. (HPK) Q4 2021 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the HighPeak Energy’s Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s call is being recorded. [Operator Instructions] I would now like to hand the call over to Steven Tholen, Chief Financial Officer. Please go ahead.

Thank you. Good morning, everyone, and welcome to HighPeak Energy’s fourth quarter 2021 conference call. Representing HighPeak today are Chairman and CEO, Jack Hightower; President, Michael Hollis; Vice President of Business Development, Ryan Hightower; and I’m Steven Tholen, the Chief Financial Officer. During today’s call, we will make reference to our March Investor Presentation, our fourth quarter 2021 earnings release, and our 2021 Form 10-K, all of which can be found on HighPeak’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 in the earnings release, which was issued yesterday afternoon. Our prepared remarks will begin on Slide 4 of our March Investor Presentation. I will now turn the call over to our Chairman and Chief Executive Officer, Jack Hightower.

Thank you, Steven, and good morning, everyone, and welcome to today’s call. As you probably realize, every CEO is always excited to talk about their company and the performance of the company. I’m more of a macro person in terms of annualized performance. But this is a great exciting time with HighPeak and with oil and gas prices in the world, unfortunately, some of which contributing to the Ukraine crisis. But we had a great fourth quarter. Our average production averaged over 14,900 barrels a day, which was an 81% increase compared with our third quarter average. We successfully executed our drilling program and averaged almost three rigs throughout the quarter. We had a large number of wells that are in the process of being completed, and most of these wells will come online and be completed and contributing to our production towards the end of this year. The majority of the wells are anticipated to ramp-up and be reaching peak rates towards the end of the year again. We added our fourth rig in January, and are now very active with four rigs running in the market. We continue to [Technical Difficulty] consider adding to our rig count if commodity prices remain strong. And so we are contemplating adding to our drilling activity. And with our cash flow as we go through the numbers, you can see we could do so without increasing our outspend. HighPeak is a growth story, and we’re going to take advantage of current market strength in oil and gas process to create additional value for our shareholders. So I’d like everyone to point to Slide 4 of our March Investor Presentation. And this gives you an overview and key statistics for the company. I previously mentioned that our average production was 14,900 barrels a day, consisting of 95% liquids. This contributes tremendously to our economic success. We continue to realize peer leading prices and cash operating margins. And on a BOE basis, our fourth quarter unhedged cash margin was $60.26 per barrel of oil equivalent, approximately 84% of our fourth quarter realized pricing. Also, in the in the first quarter of 2022, we entered into a series of acquisitions, which in the aggregate, include 9,500 acres and almost 2,500 barrels a day of production, and an additional 40 locations with a saltwater disposal system, including three disposal wells and rights to the local non-potable water sourcing of approximately 35,000 barrels a day. These acquisitions also contribute to about $3 million per year in savings on water. The acquisitions just in closing in the first quarter at 15% increase to our flat top acreage, I mean to our acreage – total acreage position and 29% to our flat top acreage position. If you think about it and looking back a year ago, in 2021, we had about 51,000 acres. And today, with the closing of that transaction, we will have almost 72,000 acres and a little over a year a 40% increase for HighPeak, increasing our scale and giving additional locations to our inventory. The acquisitions check all the boxes, they’re immediately available for development and related gathering infrastructure is already in place. We paid less than a three times multiple on cash flow and were projected to increase our EBITDAX in 2020 to over $50 million, more than that with present pricing, but $50 million assuming commodity prices it stay in the range of $70 to $90 a barrel. The assets are contiguous to our flat top operating area, they provide many synergies, including adding to our robust infrastructure system. The acreage is 100% operated and will be easy to integrate into our development plan. The 40 locations with $15 million to $20 million of net present value and, of course, it’s hard to pick pricing right now because prices are so high compared to the numbers that we’ve been utilizing. But they add potential upside value to HighPeak in addition to the current PDP value. In other words, we will be actively developing that area. And each well at approximately $20 million net present value with 40 locations can add significantly to our value. If you’ll turn to Page 5, or Slide 5, I’m only going to pick out a few things in this particular slide. We still have the highest oil cut amongst our peers in the basin. Our income stream was 88% oil, 95% liquids. Our realized price was $72.07 on a BOE basis, which was 93% of the weighted average of NYMEX oil price during the quarter. And this is because we have such a high percentage of oil. Our hedge price was $67.50, still a great price compared to a lot of our peers that are having significant write-downs because of their hedges. We lowered our LOE by $0.60 a barrel in the third quarter compared to the third quarter. But I look at what’s happening in the future. And Mike is going to talk about operationally what’s happening with our lease operating expenses. But they’re going to continue decreasing once the substation and other things become operable that are active things in progress. Our EBITDAX was $72.4 million, which is 117% increase. But that was at a very low oil price of $72. Think about what it would be today on an unhedged basis, that gives you a sense of what’s happening in the future and how excited we are about our future plans and our future drilling and our future EBITDAX. If you’ll turn to Slide 6, our track record of delivering capital efficient always growth will continue into the future. You look at 2020 from a 1,900 barrels a day, all the way up to this fifth – almost 15,000 barrels, and then take our guidance for this year of averaging on the low end 27,000 barrels to 32,500 barrels with the four rigs drilling and going all the way up to around 45,000 barrels. That’s tremendous growth. If you look at our EBITDAX as a function of increasing production, and we’ll talk about drilling performance in terms of single well performance payout in reserves. But if you think about, this was based on roughly $70 to $90 oil at $600 million to $800 million average for 2022 and exiting the year at between $850 million and $1.100 billion at a higher oil price of around $110 a barrel, that takes us up to a $1.04 billion to $1.06 billion in 2022. And so that you can see what oil and gas prices are doing for HighPeak in terms of cash flow. And now if you turn to Slide 7, HighPeak is continuing to provide rapid proved developed reserves growth. I’ve mentioned many times and I’m going to mention many times in today’s presentation, we are a growth company. If you look at our growth from 2020 going up from $51 million to $400 million to $744 million to exiting this year at over $815 million in proved developed reserves and another added up to $1.498 billion counting our proved reserves and that’s at a low price deck. It’s much higher than that at today’s prices just a month or so after the end of the year. And then you look at and this is very important to look at our rapid growth and what that’s going to do to us going into the end of 2022. And we did some numbers at a price deck of $110 a barrel, basically $14 a barrel below, actually oil prices are higher than that right this minute, almost $19 a barrel cheaper, I mean, more expensive today than what we projected, and it takes us up to $3.8 billion of proved reserves in just this 12-month period, not counting what will be in process of being completed at year-end. So we are on a rapid growth. We’re very excited about what’s taking place. We’re going to drill over 100 wells this year. And as you can see and use your own imagination as to what price deck you want to use, we are having tremendous success. And with that, I’ll turn the presentation over to Mike, who is going to talk about the next few slides and give you an update on operations.

Thanks, Jack. I’d like to start by saying that our hearts, minds and prayers are with each and every Ukrainian. Their perseverance, strength and sheer determination are all inspiring. HighPeak will absolutely do our part to provide the world with clean, cheap and reliable energy. We do not and should not have to be asked to do the right thing, that’s just embedded in our DNA. We are blessed here to have the acreage position, the rock quality and a fortress balance sheet that will allow us to lean in during this time. With a heavy heart that he can’t do more, I’m very proud that HighPeak and our employees are doing what we can to reduce our nation’s need for foreign energy. Now turning to Slide 8. Midland Basin benchmarking. Well results Slide 8 illustrates how consistent our well performance has been to date. The red curve shows our Midland Basin peer average. The yellow dotted curve shows how our flat top average wells compare. Our wells shallower decline leads to outperformance in later months. Our low call structure, strong well performance absolutely drive peer-leading economics and efficiencies. The blue dotted line shows our Signal Peak average. The results in Signal Peak, although very early and include many vintage wells, strongly compete for capital not just in ours, but in anyone’s portfolio. Turning now to Slide 9. Flat Top single well economics. Slide 9 details our single well economics based on the blended average type curves from our year-end 2021 reserve report for 12,500 foot laterals in lower Spraberry and Wolfcamp A formations. Since we’re focusing on co-developing these zones in flat top, we feel this is a great way to display our average single well economics. This provides a representative view of our investment opportunity. Our wells achieve payout quickly and provide very high net present values as shown on the chart. They deliver tremendous rates of return in today’s commodity price environment, of course, but are still extremely economic and low prices. At $80 oil, they have a recycled ratio of 5.7, again, phenomenal. The average well in flat top is a break-even of only $28 a barrel, again, blended break-even. We get asked a lot about inflationary pressures. They are real and we have accounted for them. We’re carrying roughly 10% more CapEx in our budget for 2022 from what we achieved in the fourth quarter of 2021. The graph also shows payout sensitivities compared with capital cost. At any reasonable oil price, our wells have a fantastic rate of return and recover our investment in a short period of time. We show the effect of what a $0.5 million per well will do to the payout period from first production and our strong well economics are resilient inflationary cost and payout timing is not affected significantly at any old price shown. If you’ll turn now to Slide 10, 2021 margins. Again the slide on Slide 10 are margins for the full year of 2021, which were driven by our low-cost, high oil cuts and great realized pricing were peer leading on both a hedged and unhedged basis. Our margins were approximately 27% higher than our closest peer on an unhedged basis and 45% higher than our closest peer on a hedged basis. But remember, we positioned ourselves for continued margin growth, with our LOE reduction initiatives, which will further distinguish us from our peers. For example, increased recycling, our Horizontal Ellenburger SWDs, full field electrification and energizing our solar farm. I should also note we are extremely lean in a very lean shop and we’ll continue to be that way. And as our production grows so too well our G&A per barrel leads us, [ph] again, further magnifying our margins. If you’ll turn now to Slide 11, operational update at flat top. Again, we’re in full manufacturing mode, co-developing the Wolfcamp A and lower Spraberry. In Signal Peak, we have two new 15,000 foot Wolfcamp B wells, they’re about to come online in Eastern one-third of our block. That’s a 30,000 lateral foot test. We also have a 10,000 foot Wolfcamp D well on the far east of our acreage. We’re encouraged by the early flowback of our recent Wolfcamp A and lower Spraberry wells, again, very early time, but look, extremely encouraging and following our tie curve. We are also drilling or in the process of drilling two additional 15,000 foot Wolfcamp D wells in the southern portion of our block. In complementary to our operated wells, we’ve recently participated in three gross non-operated Wolfcamp Ds on the western side of our acreage position, as well as we are currently participating in the drilling of four additional gross non-op Wolfcamp D wells as well. With that said, we’ll have full insight into the delineation of our Wolfcamp D zone across our entire block in the coming quarters. If you’ll turn now to Slide 12, ESG and sustainability highlights. In the fourth quarter, we recycled 58% of our simulation fluid company-wide. As Jack mentioned earlier, we have access now through the recent acquisitions to 35,000 barrels a day of non-potable water. So in addition to reducing our need for freshwater makeup, we stand to save roughly $3 million a year in capital cost. And we can now supply 100% of the stimulation fluid needs for one frack crew in flat top with recycling non potable fluid. The HighPeak substation is fully constructed and set for a second quarter commissioning date, eliminating the need for multiple local generators and the cost and emissions associated with them. Our solar farm is on schedule to be completed this summer. The oil pipeline construction commenced and our gas infrastructure upgrade is in process. Phase one is operational today or has been. These will result in trucking and emissions reductions. Deliveries from our local sand mine will commence in the third quarter, assuring sand availability and efficient completions operations and reduced trucking missions. We are also proud of the fact that we have had zero employee safety incidences to date. And with my comments now complete, I’ll turn the call back over to Jack.

Thanks, Mike. If you look on Slide 13 and that gives you an overview of our budget increased up to $800 million. We show our production range in terms of guidance for this year, and this has been a year of growth. We revised our capital guidance, as I mentioned to you. The graph on the right, which is very interesting, shows that our 2022 average production at the midpoint is 220% higher compared to our 2021 average. Our 2022 exit production rate at the midpoint is 350% higher than what we did in 2021. So, that basically signifies unparalleled organic growth into 2023. Keeping in mind that we are not going to get out of our skis. And I’ll re emphasize that we have a pristine balance sheet. Our overspend is almost been completely absorbed with where oil and gas prices are today. And this growth profile will continue on as we go forward into the year. If you turn your side to the next page on liquidity and financial overview, it shows our financial position at year-end. And it shows that subsequent to year-end, we closed our $225 million senior unsecured notes. We took those dollars and we paid off our RBL in full, and we still have $225 million of liquidity between our cash position and our undrawn RBL. We expect at – in April, we have a redetermination period. We already know that we can increase our RBL significantly. We haven’t specifically outlined exactly what we’re going to apply for that. But we’re not going to have any problems relative to liquidity or having access to necessary capital. We maintained our low leverage position at 0.2 times net debt to annualized fourth quarter EBITDAX. And it just shows how little leverage we currently have compared to the value of our PDP and our proved reserves. And if you look at the box on the lower right-hand corner, that just simply for you financial experts, gives you an overview of what our coverage is relative to our debts. And as you can see, we just have tremendous coverage relative to total debt and net debt. And, and with that, I’ll reemphasize that we’re always going to maintain a debt to EBITDAX of less than a one-time leverage. So we’re – we’ve been able to do this very effectively, very responsibly as we go forward. And if you’ll turn to Slide 15, that continues our responsible growth story, we’re going to continue our efficient production growth while maintaining a very low responsible debt level. We’ve increased our liquidity position as mentioned. Our focus will continue being capital and operational efficiency, especially in light of current industry wide inflationary pressures. And as Mike mentioned earlier, we’ve done many, many things to eliminate these inflationary pressures by going out into the forward market and buying materials and planning for all of our LOE savings as we go forward. We have one of the most attractive product mixes in the industry. And that leads to higher oil and liquids production strength, great realized prices for our products, and a low-cost structure that will continue to drive our peer-leading margins for HighPeak. I’m going to emphasize in closing that prior to the Ukrainian crisis, we recognized the massive underinvestment in energy over the past several years. Many of the banks were coming out with forward projections and many were saying the prices are going to go down. And contrary to industry sentiment, we forged ahead and positioned ourselves for responsible growth. HighPeak is uniquely poised to take advantage of current market conditions, excellent well economics and performance, operational expertise and a strong balance sheet. We contemplate accelerating our drilling activity this year, which at today’s prices, we could accomplish without increasing our near-term outspend. In fact, we would have no outspend with prices where they are today if they maintain close to this range. I want to reemphasize, we are a growth company. We’re going to take advantage of all available opportunities. And we’re going to – with our quick payouts on our wells, our high rates of return, we will continue leaning into, as Mike mentioned, can – increasing our drilling activity and making sure that our shareholders have the returns that they expect to have going forward. So now, we’ll turn the call and open up the call to questions.

[Operator Instructions] Our first question comes from the line of John White of ROTH Capital Partners. Your line is open.

Good morning, gentlemen, and congratulations on a very impressive quarter.

Thank you.

Thanks, John.

If you could, I’d like to get the breakout on fourth quarter completed wells in flat top and Signal Peak, if you have that handy, or you have some ballpark numbers?

Yeah. John, this is Mike Hollis. A – basically, we’ve had six wells that were completed, that came online in the fourth quarter. Again, kind of the third quarter going into fourth is when we really began our ramp-up, we went from the one virtually up to three rigs and picked up the fourth in January. So again, we brought these rigs and drilled large multi well pads. So as we mentioned in our press release, we’ve got 27 wells in the first quarter that will be turned online, most of which will be in the latter portion of the first quarter. So what you saw in the fourth quarter were the six turning lines that we had, as well as the large battery of wells in the center part of flat top that came on earlier, kind of late 1Q into Q2, that really started to perform into the fourth quarter and what drove that performance. Again, we’ve kind of mentioned a little bit of the lumpiness from the second quarter into the third, you saw that. Again, you’ll see a little bit more of that going into the early part of 2022 as we bring on these 27 wells. But again, the blended data that we showed in the presentation of our average flat top wells drive net present value dramatically, as well as rate of return. So again, we’re very excited about what’s coming. We feel very confident in our guidance for 2022. But again, you did not see all of the wells that were drilled and completed in fourth quarter. You’re going to see all of those coming on towards the latter half of 2022 – the first quarter of 2022. So hopefully, that’ll give you a little bit of clarity. But yes, six wells and the six wells coming on versus the 27. And then from a go-forward standpoint, think about a ratable eight wells per month, coming online that are being drilled and completed. And again, it’ll smooth more out as we go forward into 2022 and 2023, that will be closer to that eight. Again, as we do pads, you may have 10 one-month, an eight or six, the next month. But in general, eight each month. Signal Peak, we have completed two of the 15,000 foot wells. We just – if you look back in fourth quarter, we barely finished fracking the two Wolfcamp A in the lower Spraberry well. We’ve now had them on for roughly a week-and-a-half. And again, as we said, we’re very encouraged with those results. The two 15,000 foot wells, we’ve now frack those and will begin drill out operations and continue to complete wells in Signal Peak on a ratable basis. Again, at about that split of 25/75 of our CapEx spend for 2022 for Signal Peak versus flat top. A little a long winded, but hopefully that gives you a good sense.

Okay. Yeah, thanks for all the detail. 27 wells, that’s a lot of wells to be completed. So, for 2022, about – the drilling plans are about 75%, flat top 25% Signal Peak, is that right?

That is correct. Yes.

Okay, I’ll I’ll pass it along.

All right. Thank you.

Thank you. Our next question comes from Nicholas Pope of Seaport Research. Your line is open.

Good morning, guys.

Good morning.

Good morning.

I was hoping you could talk a little bit more on the Signal Peak area as you kind of delineate that acreage. You laid out the map here of what wells we’re going to be looking at in the near-term and over 2022. But I’m curious what I guess what data that you are going to get from this first set of wells? And I guess maybe what’s missing with the data at this point that was fairly early stage and what the focus is going to be as you start to see these wells come on? And what we should – how we should think about that, that set of wells and what it means for kind of inventory?

Yeah, Nick, overall, from a big picture perspective, we’re looking at a lot of development from the western part off of our acreage was offset operators, that have drilled four wells, and now we’re participating with them in four more wells. And we’re moving from West to East from a depositional perspective coming off the shelf edge to the East. And so from a geological perspective, we have enough well controlled to know that the zone is there. We know the thickness of the zone. We’re trying to make sure before we start. We want to delineate the area to make sure that from the eastern part all the way to the western part, that we’re going to have the performance that we feel like we should have with the thickness of the reservoir, with the proxy, with the permeability, and making sure we are completing the wells properly in the various areas because of increasing clays, the stabilizers, the friction reducers we’re using, we apply a lot of technology that a lot of smaller companies don’t do. And we come from building major oil companies. So we’re very, very deliberate and making sure everything is good. Mike now can speak more specifically about what we learn in each area in terms of drilling the performance, what we’re waiting to see and while we are moving slowly to do this in the proper manner. Go ahead, Mike.

You bet. Yeah, Nick in Signal Peak, the map that we’ve shown on Page 11, that gives you an idea of what is in progress today. So a lot more activity is going to take place at Signal Peak throughout the year. But this will – this is the initial phase of the delineation. as Jack mentioned, moving kind of from East to West. The eastern third of the block, we’re doing a 30,000 foot lateral test, that’s almost done fracking today. So what we’re looking for there, as Jack mentioned, is the economic evaluation. We know the rock is there. We know it produces oil and gas. And every indication is that it will meet our expectations. Again, being a very pragmatic engineer, I like to see oil in the stock tank. So we had oil in the stock tank a mile-and-a-half to the West that absolutely met our expectations. The rock here is thicker, looks to be better, we expect the same. So we should be able to be forthcoming with that information very quickly. As Jack mentioned, we want to do it systematically and delineate. So over the next couple months, we’ll have all the way from the West to the East, and the North to the South delineate into the Wolfcamp D. The lower Spraberry, we have offset a well that was drilled by an offset operator. So everything there is again progressing as we had expected, mentioned a Wolfcamp A well is a step out in the test that well we have drilled, it’s flowing back and again, meeting type curve early time right now. So everything is producing and reacting as we had expected. Jack mentioned there’s a lot of science going on out here. We talked about just the completion side of things. Again, on the drilling side, we love putting a rock in the ground or a bid in the ground. The rock talks to us a lot and we’re able to optimize. So we would be very surprised if we’re not able to see extreme optimization on the drilling front, much like we saw up in flat top to very much differentiate ourselves from our peer group in the area for our drilling calls, completion calls and well results, again, driving the economics can be differential as well.

That is very thorough. For both of you. I appreciate it. That’s very helpful. And then kind of change the topics here a little bit. On the financial side, I’m curious with the outstanding warrants that are still out there. Is there anything – is there any timeline on the warrants? Or are they just indefinite? Is there anything that that could happen with converting those to shares? Or should I just – should be all continue to treat those just as they’re fully in the money and kind of potential dilution out there?

Good question, Nick. The warrants are it’s amazing how many continued to be exercise where people are looking for long-term capital gain and realizing that our stock should be continuing to go up in value, and we had another 40,000 shares exercise this last week. But gradually, the warrants will be exercised, they were originally for five years. So they’re still well over three years, in order for them to be able to exercise the warrants and that will be taking place. And they should be well into the money and continue increasing in value over the course of the next year-and-a-half to two years.

Got it. And should I assume on the CDRs. I mean, at this price – stock price, they shouldn’t even come to the conversation, is that right? I’m trying to remember, it’s been a while to get focused on it?

Yeah, eventually, they come due in August. And in August, as long as the original investors have a 20% gain at $12 – as long as our stock stays at $12, they have no effect and they will expire and be gone. And that should happen in August.

Got it. That’s all I had. I appreciate the time, guys. Thank you.

Thank you. Our next question comes from Jeff Robertson of Water Tower Research. Your line is open.

Thanks. Good morning. Jack, you talked about potentially adding a fifth rig and I’m curious one where you would take that rig and would you accelerate some of what you had talked about previously doing a Signal Peak? And then secondly, if you add a rig, does it change? Anything you’ll need to do on your saltwater disposal or other infrastructure assets in flat top?

Good question, John, I mean, Jeff. In adding a fifth rig, when we say we’re contemplating that, lots of things go into that decision process. And part of the process is deciding where we’re going to go with it and where we’re going to keep this because we want to be very efficient with pad drilling in terms of economics and cost. And we have multiple places we could go with it right now. We could go on some of our new acreage acquisitions, it’s basically development drilling on these 40 locations. We could go with it, depending on the outcome of what’s happening down at Signal peak, we could go down there with it and keep roughly four rigs running up North and maybe having a half a rig down at Signal Peak, plus the other rig down Signal Peak. We could even – we have enough locations and enough opportunity already identified that we could actually go to six rigs instead of five rigs. But we’re going to study this over the course of the next three to four weeks and make a decision probably around mid-March as to expanding our operational and our drilling activity. But with process where they are and four to five months pay outs, we feel like it’s in the best interest of our shareholders to really be proactive and where we would go and that can happen almost anywhere. We have so many locations and so many areas. We’re not going to go out and do speculation or what I would call more exploratory. Anything we do will be posts in drilling, development drilling, increasing our PUDs and increasing our cash flow.

Hey, Jeff, on the SWD question, absolutely not. Look, we build the pipeline system again being a 20-inch pipeline that basically encircles the center part of flat top allows us to move very, very large volumes of water anywhere in the field such that we’re able to either dispose of it very efficiently in our high volume deep Horizontal Ellenburger wells. And so again, to increase activity and increase the water production from the field slightly, now it will have zero effect. Now, would that mean we might have to drill a future SWD instead of a year out, maybe nine months out? Yes. But again, it’s because we are receiving unparalleled kind of returns drilling those wells from the oil side. So the system was built to be expandable. And again, we talked the last conference call about the split and one of the future or earlier questions about the 75%, 25% split on CapEx for the DC and East side. However, on the infrastructure side, it’s about split the other direction between flat top and Signal Peak. So as soon as we get our delineation information from our wells, we’ve already have designs and everything ready to go to implement a SWD system and recycle system down in Signal Peak. That’s what you see the vast majority of the infrastructure dollars that we have in the budget for 2022. Again, we just want to get confirmation that we know the sizing that we have is right, the modeling is easy. We can change the sizing based on well performance in water cuts. So again, we will have Signal Peak very quickly built out like we did in flat top. Again, we’re all about doing this efficiently and making sure we get the highest return for our shareholders.

Thanks. That was the next question on Signal Peak. Can you talk, Mike or Jack, about any offset activity on the – of the Southern end of your flat top acreage or the Eastern flank of flat top that’s helping you delineate through what others are doing, that’s – that side of your acreage position?

Yeah, I mean, [Mike are in operational] [ph].

You bet. Jeff, it’s pretty obvious who the operator is to the south of us. Look, we’re all really tight. We’re friends out here. We share all of our data drilling, completion production with all of our offset operators, the operators, in particular, you’re mentioning to the South and directly South of us. They’re fairly active. They’re running two rigs a frack crew full time. They’ve got wells, right, South of our acreage block all the way to the East that, again, are extremely encouraging. Many of these wells ID well above 1,000 barrels of oil a day. So again, they’re similar rock, similar depth, costs will be very, very similar. If we were operating that, they’re very good operators as well. So we’re learning a lot from each other and it does encourage us. They’re also a little bit farther along. We’re more co-developing our known zones of Wolfcamp A and lower Spraberry. They’ve done a little bit more delineation right South of our flat top area, they’ve got several Wolfcamp Bs and boy wells. Again, they’re roughly 600,000 barrel oil wells with associated gas, highly economic at these prices, but even all the way down into the $35, $40 range, they’re economic. Another more exciting thing that the some of the operators near us are doing in flat top are Wolfcamp Ds and dog test. There’s a well right south of us that’s been completed and flowing back that, again, has got us very encouraged. And I think it would be reasonable to expect that in 2022, you’ll see us test a Wolfcamp D on our southern acreage blog. Again, we like to do close-ology and the geology looks good, well north of where their well is, but you’ll probably see us test of Wolfcamp D close to where their well is. So again, we really appreciate those guys getting on the forefront for us.

Thank you.

You bet. Thank you.

Thank you. Our next question comes from John White of ROTH Capital Partners. Your line is open.

Yeah. Just wanted to follow-up on your acquisition in the fourth quarter, the 9,500 net acres, the press release describe that if contiguous to flat top. I’m looking at Slide 4, your acreage, man, can you verbally walk us through where that acquisition – acquired acreage is?

John, we intentionally didn’t put that on the map at this stage. We are acquiring additional acreage. The area has become very competitive. From the Northern side, as you mentioned, we said Borden and Howard from the Northern side, all the way to the Eastern side, and then also to the Southeastern side of flat top. And so until we are successful or not successful, and possibly additional acquisitions and additional acreage add-on, we’re not going to specifically say where it is. But when I say contiguous, it is contiguous either North, South, East and West.

I like it, the undisclosed location. Well, I can appreciate that and I don’t blame you for title.

Yeah, it’s a very competitive area. And one of our peers has gone out all the way now six miles to the East in the Mitchell County. And we have a lot of control, a lot of information out there. And it’s really – the whole area is like we started when we first bought our first 7,500 acres. And if you remember the SM presentations of moving from the Western part of Howard County to the East, they kept delineating moving further and further East. And they only went too far East is the Viper well in that area to the West of us. And we bought our acreage thinking this isn’t going to change, it’s just going to continue moving to the East. And that’s happening and that’s exactly what’s happening. And even the wells to the South and the B and then the D and in the lower Spraberry and the Wolfcamp A, they’re coming in really well. And to the North in the Wolfcamp A, specifically, those wells are coming in really well. The 15,000 foot laterals are all over a 1 million barrels. So our whole area is really looking good and we’re very excited about what’s taking place.

Well, great. We’ll look forward to seeing some more leases get signed up, and good luck with that. I’ll pass it on.

Thanks, John.

Thanks.

Thank you. At this time, I’d like to turn the call back over to the CEO, Jack Hightower for closing remarks. Sir?

Well, in closing, I just want to thank everybody for attending the call. And I don’t really have anything else to say, I think, we’ve said it all other than we are, I just – I’m extremely excited about our performance. Our operational guys are doing a super job. I hate that we had to have award increase oil prices, because we felt like that oil prices are going to go up anyway. The industry, as a whole, on a worldwide basis is just not reinvesting enough capital. We’re going to have shortages, whether we had the Ukraine situation or not and those are on the horizon. And if you look at all the major company five-year plans, every single company from sovereign wealth to the big majors are way behind in reserve replacement. I think that almost less than 20% of what the five-year averages historically have been on the last part of this year, I mean of last year 2021. So we got some serious problems in terms of being able to supply the world and maintain our quality and quantity of lifestyle. And fossil fuels are going to be a very important part of that and we plan on making sure that we provide as much as we possibly can. Thank you very much for your time.

This concludes today’s conference call. Thank you for participating. You may now disconnect.