Business

When the temperature drops, this energy game turns into a ‘top’ performance


The “bomb storm” expected to hit the country during the holiday season seems an appropriate way to end 2022, which has brought bad news for investors.

Art Blast also focuses on natural gas and fuel oil. Much colder weather means more energy use as most countries have much higher heating needs.

With this in mind, it seems like a good time to pick up a fast-growing energy producer like this weekend’s covered fundraising idea: HighPeak Energy, Inc. (HPK) . This is the name I briefly mentioned earlier this month and is a new addition to my portfolio. HighPeak and its acreage are located northeast of the Midland Basin in Texas, where it produces oil, natural gas, and natural gas liquids.

Stocks have sold off more than 40% from recent highs due to falling energy prices in the second half of 2022. There’s a lot to like about HighPeak at current trading levels with a market cap of around 2.4 billion. dollars. First, more than 80% of the company’s production is crude, and production jumped more than 200% in the third quarter as the company benefited from organic production growth and a number of strategic acquisitions. The company also benefits from the location of the production area.

The company primarily operates from two adjacent large blocks, which allows HighPeak to mine its assets more efficiently with longer premises and volume discounts on sand and pipe, as well as services Water treatment. These lots are also adjacent to refineries, meaning significantly reduced collection and transportation costs to bring product to market. HighPeak is also taking advantage of its location (near the power substation) to power its rigs there with high-line power (as opposed to diesel generators), saving nearly $90,000 per well drilled. Finally, two (and soon all three) teams of hydraulic fracturing technology – aka fracking – are using wet sand through a partnership with a local mine as prop in their wells. This will save the company about $300,000 per well in terms of transportation costs. HighPeak drilled a total of 86 wells between the beginning of the year and 2022.

The stock price drop triggered an insider purchase of nearly $1.1 million from the company’s CEO this week. In November and December, the company’s president also purchased nearly $2 million in equity. Earnings will quadruple this year to more than $2.35 a share with sales up more than 200%. Analysts see revenue growing by 90% in fiscal year 2023 and earnings above $4 a share. Adding to the prudently managed balance sheet, there’s not much to dislike about HighPeak Energy at this valuation despite fluctuations in energy prices.

Selection strategy:

Options against HPK are lucrative and quite liquid. Using the $22.50 call strikes in May, create a covered buy order with a net debit in the range of $18 to $18.50 per share (net stock price – – option premium). This strategy offers just over 15% downside protection and almost 25% upside potential even if the stock doesn’t do much from here during the option term.

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