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What changed in HighPeak Energy, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of HighPeak Energy, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+296 added−266 removedSource: 10-K (2024-03-06) vs 10-K (2023-03-06)

Top changes in HighPeak Energy, Inc.'s 2023 10-K

296 paragraphs added · 266 removed · 212 edited across 4 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

122 edited+23 added−22 removed350 unchanged
Biggest changeHighPeak Energy may be unable to obtain required capital or financing on satisfactory terms, including as a result of recent increases in cost of capital resulting from Federal Reserve policies or otherwise, which could reduce its ability to access or increase production and reserves. ● Our existing and future indebtedness may adversely affect our cash flows and ability to operate our business, remain in compliance and repay our debt. ● We may not be able to generate sufficient cash to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness and may be forced to take other actions to satisfy our obligations under our debt agreements, which may not be successful. ● HighPeak Energy has experienced periods of higher costs as commodity prices have risen and inflation may adversely affect our operating results, which negatively impacts our profitability, cash flow and ability to complete development activities as planned.
Biggest changeHighPeak Energy may be unable to obtain required capital or financing on satisfactory terms, including as a result of recent increases in cost of capital resulting from Federal Reserve policies or otherwise, which could reduce its ability to access or increase production and reserves. ● Restrictions in the Term Loan Credit Agreement, the Senior Credit Facility Agreement and any future debt agreements could limit HighPeak Energy’s growth and ability to engage in certain activities. ● Our ability to repurchase shares under our recently announced share repurchase program is subject to certain considerations, and any share repurchases thereunder could increase the volatility of our stock prices and could diminish our cash reserves. ● Our existing and future indebtedness may adversely affect our cash flows and ability to operate our business, remain in compliance and repay our debt. ● Our results of operations and cash flows vary significantly from year to year due to the cyclical nature of the crude oil and natural gas industry. ● HighPeak Energy has experienced periods of higher costs as commodity prices have risen and inflation may adversely affect our operating results, which negatively impacts our profitability, cash flow and ability to complete development activities as planned.
Inflationary factors such as increases in the labor costs, material costs and overhead costs may adversely affect our operating results.
Inflationary factors such as increases in the labor costs, material costs and overhead costs may adversely affect our operating results.
These cost increases have resulted from a variety of factors that HighPeak Energy will be unable to control, such as increases in the cost of electricity, steel and other raw materials; increased demand for labor, services and materials as drilling activity increases; and increased taxes.
These cost increases have resulted from a variety of factors that HighPeak Energy will be unable to control, such as increases in the cost of electricity, steel and other raw materials; increased demand for labor, services and materials as drilling activity increases; and increased taxes.
The Amended and Restated Certificate of Incorporation (“A&R Charter”) provides that, unless HighPeak Energy consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (“Court of Chancery”) will, to the fullest extent permitted by applicable law and subject to applicable jurisdictional requirements, be the sole and exclusive forum for (i) any derivative action or proceeding as to which the Delaware General Corporation Law (“DGCL”) confers jurisdiction upon the Court of Chancery, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of HighPeak Energy to HighPeak Energy or its stockholders, (iii) any action asserting a claim against HighPeak Energy, its directors, officers or employees arising pursuant to any provision of the DGCL, the A&R Charter or HighPeak Energy’s bylaws or (iv) any action asserting a claim against HighPeak Energy, its directors, officers or employees that is governed by the internal affairs doctrine, in each case except for such claims as to which (a) the Court of Chancery determines that it does not have personal jurisdiction over an indispensable party, (b) exclusive jurisdiction is vested in a court or forum other than the Court of Chancery or (c) the Court of Chancery does not have subject matter jurisdiction.
The Second Amended and Restated Certificate of Incorporation (“A&R Charter”) provides that, unless HighPeak Energy consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (“Court of Chancery”) will, to the fullest extent permitted by applicable law and subject to applicable jurisdictional requirements, be the sole and exclusive forum for (i) any derivative action or proceeding as to which the Delaware General Corporation Law (“DGCL”) confers jurisdiction upon the Court of Chancery, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of HighPeak Energy to HighPeak Energy or its stockholders, (iii) any action asserting a claim against HighPeak Energy, its directors, officers or employees arising pursuant to any provision of the DGCL, the A&R Charter or HighPeak Energy’s bylaws or (iv) any action asserting a claim against HighPeak Energy, its directors, officers or employees that is governed by the internal affairs doctrine, in each case except for such claims as to which (a) the Court of Chancery determines that it does not have personal jurisdiction over an indispensable party, (b) exclusive jurisdiction is vested in a court or forum other than the Court of Chancery or (c) the Court of Chancery does not have subject matter jurisdiction.
These costs and liabilities could arise under a wide range of federal, state and local environmental laws and regulations, including the following federal laws and their state counterparts, as amended from time to time, among others: ● the CAA, which restricts the emission of air pollutants from many sources, imposes various pre-construction, monitoring and reporting requirements and is relied upon by the EPA as authority for adopting climate change regulatory initiatives relating to GHG emissions; ● the CWA, which regulates discharges of pollutants from facilities and sources to federal waters and establishes the extent to which waterways are subject to federal jurisdiction and rulemaking as protected waters of the United States; ● the OPA, which imposes liabilities for removal costs and damages arising from a crude oil spill into waters of the United States; 40 ● the SDWA, which ensures the quality of the nations’ public drinking water through adoption of drinking water standards and control over the subsurface injection of fluids into belowground formations; ● the RCRA, which imposes requirements for the generation, treatment, storage, transport, disposal and cleanup of non-hazardous, hazardous and solid wastes; ● CERCLA, which imposes liability on generators, transporters and those who arrange for transportation or disposal of hazardous substances at sites where hazardous substance releases have occurred or are threatening to occur, as well as imposes liability on present and certain past owners and operations of sites where hazardous substance releases have occurred or are threatening to occur; ● the ESA, which restricts activities that may affect federally identified endangered and threatened species or their habitats through the implementation of operating limitations or restrictions or a temporary, seasonal or permanent ban on operations in affected areas; and ● OSHA, under which federal Occupational Safety and Health Administration and similar state agencies have promulgated regulations limiting exposures to hazardous substances in the workplace and imposing various worker safety requirements.
These costs and liabilities could arise under a wide range of federal, state and local environmental laws and regulations, including the following federal laws and their state counterparts, as amended from time to time, among others: ● the CAA, which restricts the emission of air pollutants from many sources, imposes various pre-construction, monitoring and reporting requirements and is relied upon by the EPA as authority for adopting climate change regulatory initiatives relating to GHG emissions; ● the CWA, which regulates discharges of pollutants from facilities and sources to federal waters and establishes the extent to which waterways are subject to federal jurisdiction and rulemaking as protected waters of the United States; ● the OPA, which imposes liabilities for removal costs and damages arising from a crude oil spill into waters of the United States; 45 ● the SDWA, which ensures the quality of the nations’ public drinking water through adoption of drinking water standards and control over the subsurface injection of fluids into belowground formations; ● the RCRA, which imposes requirements for the generation, treatment, storage, transport, disposal and cleanup of non-hazardous, hazardous and solid wastes; ● CERCLA, which imposes liability on generators, transporters and those who arrange for transportation or disposal of hazardous substances at sites where hazardous substance releases have occurred or are threatening to occur, as well as imposes liability on present and certain past owners and operations of sites where hazardous substance releases have occurred or are threatening to occur; ● the ESA, which restricts activities that may affect federally identified endangered and threatened species or their habitats through the implementation of operating limitations or restrictions or a temporary, seasonal or permanent ban on operations in affected areas; and ● OSHA, under which federal Occupational Safety and Health Administration and similar state agencies have promulgated regulations limiting exposures to hazardous substances in the workplace and imposing various worker safety requirements.
Any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and present value of reserves.” In addition, the cost of drilling, completing and operating wells will often be uncertain. 33 Further, many factors may curtail, delay or cancel scheduled drilling operations, including: ● delays imposed by, or resulting from, compliance with regulatory requirements, including the IRA 2022, limitations on wastewater disposal, emission of GHGs and hydraulic fracturing; ● pressure or irregularities in geological formations; ● shortages of or delays in obtaining equipment and qualified personnel or in obtaining water for hydraulic fracturing activities; ● equipment failures, accidents or other unexpected operational events; ● lack of available gathering facilities or delays in construction of gathering facilities; ● lack of available capacity on interconnecting transmission pipelines; ● lack of availability of water and electricity; ● adverse weather conditions; ● issues related to compliance with environmental regulations; ● environmental hazards, such as crude oil and natural gas leaks, crude oil spills, pipeline and tank ruptures and unauthorized discharges of brine, well stimulation and completion fluids, toxic gases or other pollutants into the surface and subsurface environment; ● declines in crude oil and natural gas prices; ● limited availability of financing on acceptable terms; ● title issues; and ● other market limitations in HighPeak Energy’s industry.
Any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and present value of reserves.” In addition, the cost of drilling, completing and operating wells will often be uncertain. 39 Further, many factors may curtail, delay or cancel scheduled drilling operations, including: ● delays imposed by, or resulting from, compliance with regulatory requirements, including the IRA 2022, limitations on wastewater disposal, emission of GHGs and hydraulic fracturing; ● pressure or irregularities in geological formations; ● shortages of or delays in obtaining equipment and qualified personnel or in obtaining water for hydraulic fracturing activities; ● equipment failures, accidents or other unexpected operational events; ● lack of available gathering facilities or delays in construction of gathering facilities; ● lack of available capacity on interconnecting transmission pipelines; ● lack of availability of water and electricity; ● adverse weather conditions; ● issues related to compliance with environmental regulations; ● environmental hazards, such as crude oil and natural gas leaks, crude oil spills, pipeline and tank ruptures and unauthorized discharges of brine, well stimulation and completion fluids, toxic gases or other pollutants into the surface and subsurface environment; ● declines in crude oil and natural gas prices; ● limited availability of financing on acceptable terms; ● title issues; and ● other market limitations in HighPeak Energy’s industry.
Risks Related to Ownership of our Securities ● We are evaluating strategic alternatives, including a possible sale of the Company, and there can be no assurance that we will be successful in identifying or completing any strategic alternative transactions, that any such strategic alternative transactions will result in additional value for our shareholders or that the process will not have an adverse impact on our business and shareholders. ● HighPeak Energy is a “controlled company” within the meaning of Nasdaq rules and qualifies for exemptions from certain corporate governance requirements.
Risks Related to Ownership of our Securities ● We are evaluating strategic alternatives, including a possible sale of our business, and there can be no assurance that we will be successful in identifying or completing any strategic alternative transactions, that any such strategic alternative transactions will result in additional value for our shareholders or that the process will not have an adverse impact on our business and shareholders. ● HighPeak Energy is a “controlled company” within the meaning of Nasdaq rules and qualifies for exemptions from certain corporate governance requirements.
Risks Related to Ownership of our Securities We are evaluating strategic alternatives, including a possible sale of the Company, and there can be no assurance that we will be successful in identifying or completing any strategic alternative transactions, that any such strategic alternative transactions will result in additional value for our shareholders or that the process will not have an adverse impact on our business and shareholders.
Risks Related to Ownership of our Securities We are evaluating strategic alternatives, including a possible sale of our business, and there can be no assurance that we will be successful in identifying or completing any strategic alternative transactions, that any such strategic alternative transactions will result in additional value for our shareholders or that the process will not have an adverse impact on our business and shareholders.
The Amended and Restated Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders ’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
The Second Amended and Restated Certificate of Incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders ’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Climate change may also increase the frequency or intensity of such adverse weather conditions; for more information, see our risk factor titled “The operations of HighPeak Energy are subject to a variety of risks arising from climate change.” HighPeak Energy ’ s operations are substantially dependent on the availability of sand and water.
Climate change may also increase the frequency or intensity of such adverse weather conditions; for more information, see our risk factor titled “The operations of HighPeak Energy are subject to a variety of risks arising from climate change.” HighPeak Energy ’ s operations are substantially dependent on the availability of frac sand and water.
Stockholders will not be deemed, by operation of Article 8 of the A&R Charter alone, to have waived claims arising under the federal securities laws and the rules and regulations promulgated thereunder. 52 If any action the subject matter of which is within the scope of the forum selection provision described in the preceding paragraph is filed in a court other than the Court of Chancery (or, if the Court of Chancery does not have jurisdiction, another state court or a federal court located within the State of Delaware) (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (i) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce the forum selection provision (a “Foreign Enforcement Action”) and (ii) having service of process made upon such stockholder in any such Foreign Enforcement Action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.
Stockholders will not be deemed, by operation of Article 8 of the A&R Charter alone, to have waived claims arising under the federal securities laws and the rules and regulations promulgated thereunder. 57 If any action the subject matter of which is within the scope of the forum selection provision described in the preceding paragraph is filed in a court other than the Court of Chancery (or, if the Court of Chancery does not have jurisdiction, another state court or a federal court located within the State of Delaware) (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (i) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce the forum selection provision (a “Foreign Enforcement Action”) and (ii) having service of process made upon such stockholder in any such Foreign Enforcement Action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.
Litigation risks are also increasing, as a number of entities have sought to bring suit against crude oil and natural gas companies in state or federal court, alleging, among other things, that such companies created public nuisances by producing fuels that contributed to climate change or that such companies have been aware of the adverse effects of climate change for some time but defrauded their investors or customers by failing to adequately disclose those impacts. 45 There are also increasing financial risks for fossil fuel producers as shareholders currently invested in fossil-fuel energy companies concerned about the potential effects of climate change may elect in the future to shift some or all their investments into other sectors.
Litigation risks are also increasing, as a number of entities have sought to bring suit against crude oil and natural gas companies in state or federal court, alleging, among other things, that such companies created public nuisances by producing fuels that contributed to climate change or that such companies have been aware of the adverse effects of climate change for some time but defrauded their investors or customers by failing to adequately disclose those impacts. 50 There are also increasing financial risks for fossil fuel producers as shareholders currently invested in fossil-fuel energy companies concerned about the potential effects of climate change may elect in the future to shift some or all their investments into other sectors.
Further, HighPeak Energy’s drilling operations may be curtailed, delayed or cancelled as a result of numerous factors, including: ● unexpected drilling conditions; ● title issues; ● pressure or lost circulation in formations; ● equipment failures or accidents; ● adverse weather conditions; ● compliance with, or changes in, environmental and other governmental or contractual requirements, including the IRA 2022; and ● increases in the cost of, and shortages or delays in the availability of, electricity, supplies, materials, drilling or workover rigs, equipment and services. 42 HighPeak Energy may be unable to make additional attractive acquisitions or successfully integrate acquired businesses with its current assets, and any inability to do so may disrupt its business and hinder its ability to grow.
Further, HighPeak Energy’s drilling operations may be curtailed, delayed or cancelled as a result of numerous factors, including: ● unexpected drilling conditions; ● title issues; ● pressure or lost circulation in formations; ● equipment failures or accidents; ● adverse weather conditions; ● compliance with, or changes in, environmental and other governmental or contractual requirements, including the IRA 2022; and ● increases in the cost of, and shortages or delays in the availability of, electricity, supplies, materials, drilling or workover rigs, equipment and services. 47 HighPeak Energy may be unable to make additional attractive acquisitions or successfully integrate acquired businesses with its current assets, and any inability to do so may disrupt its business and hinder its ability to grow.
HighPeak Energy’s ability to drill and develop its acreage and establish production to maintain its leases depends on a number of uncertainties, including crude oil, NGL and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, drilling results, lease expirations, gathering system and pipeline transportation constraints, access to and availability of water sourcing, frac sand and distribution systems, regulatory approvals and other factors. 32 Certain factors could require HighPeak Energy to write-down the carrying values of its crude oil and natural gas properties, including commodity prices decreasing to a level such that future undiscounted cash flows from its properties are less than their carrying value.
HighPeak Energy’s ability to drill and develop its acreage and establish production to maintain its leases depends on a number of uncertainties, including crude oil, NGL and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, drilling results, lease expirations, gathering system and pipeline transportation constraints, access to and availability of water sourcing, frac sand and distribution systems, regulatory approvals and other factors. 38 Certain factors could require HighPeak Energy to write-down the carrying values of its crude oil and natural gas properties, including commodity prices decreasing to a level such that future undiscounted cash flows from its properties are less than their carrying value.
Restrictions on its ability to obtain sand and water may have an adverse effect on its financial condition, results of operations and cash flows. Water and sand are an essential component of crude oil and natural gas production during the hydraulic fracturing process, and to a lesser extent, drilling operations.
Restrictions on its ability to obtain frac sand and water may have an adverse effect on its financial condition, results of operations and cash flows. Water and sand are an essential component of crude oil and natural gas production during the hydraulic fracturing process, and to a lesser extent, drilling operations.
If HighPeak Energy is unable to obtain water to use in operations, it may need to be obtained from non-local sources and transported to drilling sites, resulting in increased costs, or HighPeak Energy may be unable to economically produce crude oil and natural gas, which could have a material and adverse effect on its financial condition, results of operations and cash flows. 38 The Company ’ s assets are located in the northeastern Midland Basin, making HighPeak Energy vulnerable to risks associated with operating in a limited geographic area.
If HighPeak Energy is unable to obtain water to use in operations, it may need to be obtained from non-local sources and transported to drilling sites, resulting in increased costs, or HighPeak Energy may be unable to economically produce crude oil and natural gas, which could have a material and adverse effect on its financial condition, results of operations and cash flows. 43 The Company ’ s assets are located in the northeastern Midland Basin, making HighPeak Energy vulnerable to risks associated with operating in a limited geographic area.
To what extent these and other external factors (such as government action with respect to climate change regulation) ultimately impact our future business, liquidity, financial condition, and results of operations is highly uncertain and dependent on numerous factors, including future developments, which are not within our control and cannot be accurately predicted. 31 The marketability of HighPeak Energy ’ s production is dependent upon transportation, storage and other facilities, certain of which it does not control.
To what extent these and other external factors (such as government action with respect to climate change regulation) ultimately impact our future business, liquidity, financial condition, and results of operations is highly uncertain and dependent on numerous factors, including future developments, which are not within our control and cannot be accurately predicted. 37 The marketability of HighPeak Energy ’ s production is dependent upon transportation, storage and other facilities, certain of which it does not control.
Further, if HighPeak Energy were no longer listed on the Nasdaq, its securities would not be covered securities and HighPeak Energy would be subject to regulation in each state in which HighPeak Energy offers its securities. 53 Unanticipated changes in effective tax rates or laws or adverse outcomes resulting from examination of HighPeak Energy ’ s income or other tax returns could adversely affect HighPeak Energy ’ s financial condition, results of operations and cash flow.
Further, if HighPeak Energy were no longer listed on the Nasdaq, its securities would not be covered securities and HighPeak Energy would be subject to regulation in each state in which HighPeak Energy offers its securities. 58 Unanticipated changes in effective tax rates or laws or adverse outcomes resulting from examination of HighPeak Energy ’ s income or other tax returns could adversely affect HighPeak Energy ’ s financial condition, results of operations and cash flow.
If cash flow generated by HighPeak Energy’s operations or available debt financing, including borrowings under the Credit Agreement, are insufficient to meet its capital requirements, the failure to obtain additional financing could result in a curtailment of the development of HighPeak Energy’s properties, which in turn could lead to a decline in reserves and production and could materially and adversely affect HighPeak Energy’s business, financial condition and results of operations.
If cash flow generated by HighPeak Energy’s operations or available debt financing, including borrowings under the Credit Agreements, are insufficient to meet its capital requirements, the failure to obtain additional financing could result in a curtailment of the development of HighPeak Energy’s properties, which in turn could lead to a decline in reserves and production and could materially and adversely affect HighPeak Energy’s business, financial condition and results of operations.
Business and Properties—Regulation of Environmental and Occupational Safety and Health Matters— Hydraulic Fracturing Activities.” 46 Legislation or regulatory initiatives intended to address seismic activity could restrict HighPeak Energy ’ s drilling and production activities, as well as HighPeak Energy ’ s ability to dispose of produced water gathered from such activities, which could have a material adverse effect on its future business.
Business and Properties—Regulation of Environmental and Occupational Safety and Health Matters— Hydraulic Fracturing Activities.” 51 Legislation or regulatory initiatives intended to address seismic activity could restrict HighPeak Energy ’ s drilling and production activities, as well as HighPeak Energy ’ s ability to dispose of produced water gathered from such activities, which could have a material adverse effect on its future business.
This impact may be magnified to the extent that HighPeak Energy’s ability to participate in the commodity price increases is limited by its derivative activities, if any. 43 The IRA 2022 could accelerate the transition to a low carbon economy and could impose new costs on our operations. In August 2022, President Biden signed the IRA 2022 into law.
This impact may be magnified to the extent that HighPeak Energy’s ability to participate in the commodity price increases is limited by its derivative activities, if any. 48 The IRA 2022 could accelerate the transition to a low carbon economy and could impose new costs on our operations. In August 2022, President Biden signed the IRA 2022 into law.
A significant reduction in cash flows from operations or the availability of credit could materially and adversely affect its ability to achieve its planned growth and operating results. 47 HighPeak Energy ’ s use of seismic data is subject to interpretation and may not accurately identify the presence of crude oil and natural gas, which could adversely affect the results of its drilling operations.
A significant reduction in cash flows from operations or the availability of credit could materially and adversely affect its ability to achieve its planned growth and operating results. 52 HighPeak Energy ’ s use of seismic data is subject to interpretation and may not accurately identify the presence of crude oil and natural gas, which could adversely affect the results of its drilling operations.
These known material risks could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by us or on our behalf. 24 We are providing the following summary of the risk factors contained in this Annual Report to enhance the readability and accessibility of our risk factor disclosures.
These known material risks could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by us or on our behalf. 29 We are providing the following summary of the risk factors contained in this Annual Report to enhance the readability and accessibility of our risk factor disclosures.
However, there can be no certainty that commodity prices will sustain at these levels or continue to increase. 26 Likewise, NGL, which are made up of ethane, propane, isobutane, normal butane and natural gasoline, each of which has different uses and pricing characteristics, have also fluctuated widely during this period.
However, there can be no certainty that commodity prices will sustain at these levels or continue to increase. 31 Likewise, NGL, which are made up of ethane, propane, isobutane, normal butane and natural gasoline, each of which has different uses and pricing characteristics, have also fluctuated widely during this period.
Furthermore, the success and timing of development activities operated by its partners will depend on several factors that will be largely outside of HighPeak Energy’s control, including: ● the timing and amount of capital expenditures; ● the operator’s expertise and financial resources; ● the approval of other participants in drilling wells; 37 ● the selection of technology; and ● the rate of production of reserves, if any.
Furthermore, the success and timing of development activities operated by its partners will depend on several factors that will be largely outside of HighPeak Energy’s control, including: ● the timing and amount of capital expenditures; ● the operator’s expertise and financial resources; ● the approval of other participants in drilling wells; 42 ● the selection of technology; and ● the rate of production of reserves, if any.
HighPeak Energy cannot ensure that it will continue to have ready access to suitable markets for its future crude oil and natural gas production. 39 HighPeak Energy ’ s operations may be exposed to significant delays, costs and liabilities as a result of environmental and occupational health and safety requirements applicable to its business activities.
HighPeak Energy cannot ensure that it will continue to have ready access to suitable markets for its future crude oil and natural gas production. 44 HighPeak Energy ’ s operations may be exposed to significant delays, costs and liabilities as a result of environmental and occupational health and safety requirements applicable to its business activities.
HighPeak Energy uses, and expects to continue to use debt financing, including borrowings under the Credit Agreement, to finance a portion of its future growth, and these changes could cause its cost of doing business to increase, limit its ability to pursue acquisition opportunities, reduce cash flow used for drilling and place HighPeak Energy at a competitive disadvantage.
HighPeak Energy uses, and expects to continue to use debt financing, including borrowings under the Credit Agreements, to finance a portion of its future growth, and these changes could cause its cost of doing business to increase, limit its ability to pursue acquisition opportunities, reduce cash flow used for drilling and place HighPeak Energy at a competitive disadvantage.
Failure to comply with those regulations in the future could subject our operators to civil penalty liability, as described in “Items 1 and 2: Business and Properties—Regulation of the Crude Oil and Natural Gas Industry.” 44 The operations of HighPeak Energy are subject to a variety of risks arising from climate change.
Failure to comply with those regulations in the future could subject our operators to civil penalty liability, as described in “Items 1 and 2: Business and Properties—Regulation of the Crude Oil and Natural Gas Industry.” 49 The operations of HighPeak Energy are subject to a variety of risks arising from climate change.
The effects of these regulations could reduce HighPeak Energy’s hedging opportunities, or substantially increase the cost of hedging, which could adversely affect HighPeak Energy’s business, financial condition and results of operations. 36 The standardized measure of estimated reserves may not be an accurate estimate of the current fair value of estimated crude oil and natural gas reserves.
The effects of these regulations could reduce HighPeak Energy’s hedging opportunities, or substantially increase the cost of hedging, which could adversely affect HighPeak Energy’s business, financial condition and results of operations. 41 The standardized measure of estimated reserves may not be an accurate estimate of the current fair value of estimated crude oil and natural gas reserves.
ESG matters may also impact our suppliers and customers, which may ultimately have adverse impacts on our operations. 41 HighPeak Energy may incur substantial losses and be subject to substantial liability claims as a result of operations. Additionally, HighPeak Energy may not be insured for, or insurance may be inadequate to protect HighPeak Energy against, these risks.
ESG matters may also impact our suppliers and customers, which may ultimately have adverse impacts on our operations. 46 HighPeak Energy may incur substantial losses and be subject to substantial liability claims as a result of operations. Additionally, HighPeak Energy may not be insured for, or insurance may be inadequate to protect HighPeak Energy against, these risks.
In addition, charges of this nature may cause HighPeak Energy to be unable to obtain future financing on favorable terms or at all. 51 There is no guarantee that our warrants will be in the money at the time you choose to exercise them, and they may expire worthless.
In addition, charges of this nature may cause HighPeak Energy to be unable to obtain future financing on favorable terms or at all. 56 There is no guarantee that our warrants will be in the money at the time you choose to exercise them, and they may expire worthless.
Production may be interrupted, or shut-in, from time to time for numerous reasons, including as a result of weather conditions, accidents, loss of pipeline, gathering, processing or transportation system access or capacity, field labor issues or strikes, or we might voluntarily curtail production in response to market or other conditions.
Production may be interrupted, or shut-in, from time to time for numerous reasons, including as a result of weather conditions, accidents, loss of pipeline, gathering, processing or transportation system access or capacity, various contaminants, field labor issues or strikes, or we might voluntarily curtail production in response to market or other conditions.
The prices HighPeak Energy receives for its production, and the levels of HighPeak Energy’s production, will depend on numerous factors beyond HighPeak Energy’s control, which include the following: ● worldwide and regional economic conditions, including rising interest rates and associated policies of the Federal Reserve, impacting the global supply and demand for crude oil, NGL and natural gas; ● the price and quantity of foreign imports of crude oil, NGL and natural gas; ● domestic and global political and economic conditions, such as the ongoing conflict in Ukraine, socio-political unrest and instability, terrorism or hostilities in or affecting other producing regions or countries, including the Middle East, Africa, South America and Russia; ● the occurrence or threat of epidemic or pandemic diseases, such as the recent and ongoing outbreak of COVID-19, or any government response to such occurrence or threat; ● actions of OPEC, its members and other state-controlled crude oil companies relating to crude oil price and production controls; ● the level of global exploration, development and production; ● the level of global inventories; ● prevailing prices, and expectations regarding future prices, on local price indexes in the areas in which HighPeak Energy operates; ● the proximity, capacity, cost and availability of gathering and transportation facilities; ● localized and global supply and demand fundamentals and transportation availability; ● the cost of exploring for, developing, producing and transporting reserves; ● weather conditions and natural disasters; ● technological advances affecting energy consumption; ● the price and availability of alternative fuels, including the potential acceleration of the development of alternative fuels as a result of the IRA 2022 or otherwise; ● expectations about future commodity prices; and ● U.S. federal, state and local and non-U.S. governmental regulation and taxes.
The prices HighPeak Energy receives for its production, and the levels of HighPeak Energy’s production, will depend on numerous factors beyond HighPeak Energy’s control, which include the following: ● worldwide and regional economic conditions, including elevated interest rates and associated policies of the Federal Reserve, impacting the global supply and demand for crude oil, NGL and natural gas; ● the price and quantity of foreign imports of crude oil, NGL and natural gas; ● domestic and global political and economic conditions, such as the upcoming U.S. presidential election, the ongoing conflict in Ukraine, the Israel-Hamas conflict, socio-political unrest and instability, terrorism or hostilities in or affecting other producing regions or countries, including the Middle East, Africa, South America and Russia; ● the occurrence or threat of epidemic or pandemic diseases, such as the recent outbreak of COVID-19, or any government response to such occurrence or threat; ● actions of OPEC, its members and other state-controlled crude oil companies relating to crude oil price and production controls; ● the level of global exploration, development and production; ● the level of global inventories; ● prevailing prices, and expectations regarding future prices, on local price indexes in the areas in which HighPeak Energy operates; ● the proximity, capacity, cost and availability of gathering and transportation facilities; ● localized and global supply and demand fundamentals and transportation availability; ● the cost of exploring for, developing, producing and transporting reserves; ● weather conditions and natural disasters; ● technological advances affecting energy consumption; ● the price and availability of alternative fuels, including the potential acceleration of the development of alternative fuels as a result of the IRA 2022 or otherwise; ● expectations about future commodity prices; and ● U.S. federal, state and local and non-U.S. governmental regulation and taxes.
Realization of any of these factors could adversely affect our financial condition. 29 HighPeak Energy experiences periods of higher costs when commodity prices rise and inflation may adversely affect our operating results, which could negatively impact our profitability, cash flow and ability to complete development activities as planned.
Realization of any of these factors could adversely affect our financial condition. 35 HighPeak Energy experiences periods of higher costs when commodity prices rise and inflation may adversely affect our operating results, which could negatively impact our profitability, cash flow and ability to complete development activities as planned.
In connection with these assessments, HighPeak Energy performs a review of the subject properties that it believes to be generally consistent with industry practices. Such assessments are inexact and inherently uncertain. For these reasons, the properties that HighPeak Energy acquired, or may acquire in the future, may not produce as expected.
In connection with these assessments, HighPeak Energy performs a review of the subject properties that it believes to be generally consistent with industry practices. Such assessments are inexact and inherently uncertain. For these reasons, the properties that HighPeak Energy acquires, or may acquire in the future, may not produce as expected.
This may make comparison of HighPeak Energy’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. 54
This may make comparison of HighPeak Energy’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. 59
Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 48 HighPeak Energy ’ s business could be adversely affected by security threats, including cyber-security threats, and related disruptions.
Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 53 HighPeak Energy ’ s business could be adversely affected by security threats, including cyber-security threats, and related disruptions.
The loss of one or more of such purchasers could, among other factors, limit HighPeak Energy’s access to suitable markets for the crude oil, NGL and natural gas it produces. 25 ● HighPeak Energy may be unable to make additional attractive acquisitions or successfully integrate acquired businesses with its current assets, and any inability to do so may disrupt its business and hinder its ability to grow. ● The unavailability or high cost of drilling rigs, equipment, supplies, personnel, frac crews and oilfield services due to commodity price volatility or supply constraints as a result of the conflict in Ukraine, the COVID-19 pandemic, rising interest rates and associated policies of the Federal Reserve could adversely affect HighPeak Energy’s ability to execute its development plans within its budget and on a timely basis and consequently could materially and adversely affect our cash flows and results of operations. ● The IRA 2022 could accelerate the transition to a low carbon economy and could impose new costs on our operations. ● HighPeak Energy may be involved in legal proceedings that could result in substantial liabilities. ● Should our operators fail to comply with all applicable regulatory agency administered statutes, rules, regulations and orders, our operators could be subject to substantial penalties and fines. ● The operations of HighPeak Energy are subject to a variety of risks arising from climate change. ● Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays in the completion of crude oil and natural gas wells and adversely affect HighPeak Energy’s production. ● Continued increases in interest rates could adversely affect HighPeak Energy’s business. ● HighPeak Energy’s business could be adversely affected by security threats, including cyber-security threats, and related disruptions.
The loss of one or more of such purchasers could, among other factors, limit HighPeak Energy’s access to suitable markets for the crude oil, NGL and natural gas it produces. 30 ● HighPeak Energy may be unable to make additional attractive acquisitions or successfully integrate acquired businesses with its current assets, and any inability to do so may disrupt its business and hinder its ability to grow. ● The unavailability or high cost of drilling rigs, equipment, supplies, personnel, frac crews and oilfield services due to commodity price volatility or supply constraints as a result of the conflict in Ukraine, the Israel-Hamas conflict, elevated interest rates and associated policies of the Federal Reserve could adversely affect HighPeak Energy’s ability to execute its development plans within its budget and on a timely basis and consequently could materially and adversely affect our cash flows and results of operations. ● The IRA 2022 could accelerate the transition to a low carbon economy and could impose new costs on our operations. ● HighPeak Energy may be involved in legal proceedings that could result in substantial liabilities. ● Should our operators fail to comply with all applicable regulatory agency administered statutes, rules, regulations and orders, our operators could be subject to substantial penalties and fines. ● The operations of HighPeak Energy are subject to a variety of risks arising from climate change. ● Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays in the completion of crude oil and natural gas wells and adversely affect HighPeak Energy’s production. ● Continued increases in interest rates could adversely affect HighPeak Energy’s business. ● HighPeak Energy’s business could be adversely affected by security threats, including cyber-security threats, and related disruptions.
If additional capital is needed, HighPeak Energy may not be able to obtain debt or equity financing on terms acceptable to it, if at all, due to rising interest rates and associated policies of the Federal reserve, or otherwise.
If additional capital is needed, HighPeak Energy may not be able to obtain debt or equity financing on terms acceptable to it, if at all, due to elevated interest rates and associated policies of the Federal reserve, or otherwise.
Moreover, there can be no assurance that reserves will ultimately be produced or that proved undeveloped reserves will be developed within the periods anticipated. 27 HighPeak Energy ’ s development projects and acquisitions will require substantial capital expenditures.
Moreover, there can be no assurance that reserves will ultimately be produced or that proved undeveloped reserves will be developed within the periods anticipated. 32 HighPeak Energy ’ s development projects and acquisitions will require substantial capital expenditures.
Lower commodity prices may reduce HighPeak Energy’s cash flow and borrowing ability. If HighPeak Energy is unable to obtain needed capital or financing on satisfactory terms, its ability to develop future reserves could be adversely affected. Also, using lower prices in estimating proved reserves may result in a reduction in proved reserve volumes due to economic limits.
Lower commodity prices may reduce HighPeak Energy’s cash flow and access to capital markets. If HighPeak Energy is unable to obtain needed capital or financing on satisfactory terms, its ability to develop future reserves could be adversely affected. Also, using lower prices in estimating proved reserves may result in a reduction in proved reserve volumes due to economic limits.
In addition, if we fail to comply with the covenants or other terms of our Credit Agreement, our lenders will have the right to accelerate the maturity of that debt and foreclose upon the collateral, if any, securing that debt.
In addition, if we fail to comply with the covenants or other terms of our Credit Agreements, our lenders will have the right to accelerate the maturity of that debt and foreclose upon the collateral, if any, securing that debt.
Such increased interest rates may increase the cost of capital and prevent us from being able to obtain debt financing at favorable rates, or at all, which would materially impact our operations.
Such increased interest rates have increased the cost of capital and may prevent us from being able to obtain debt financing at favorable rates, or at all, which would materially impact our operations.
The terms and conditions governing the Credit Agreement , the 10.000% Senior Notes and the 10.625% Senior Notes currently, and any future additional indebtedness are expected to: ● require HighPeak Energy to dedicate a portion of cash flow from operations to service its debt, thereby reducing the cash available to finance operations and other business activities and could limit its flexibility in planning for or reacting to changes in its business and the industry in which it operates; ● increase vulnerability to economic downturns and adverse developments in HighPeak Energy’s business; ● place restrictions on HighPeak Energy’s ability to engage in certain business activities, including without limitation, to raise capital, obtain additional financing (whether for working capital, capital expenditures or acquisitions) or to refinance indebtedness, grant or incur liens on assets, pay dividends or make distributions in respect of its capital stock, make investments, amend or repay subordinated indebtedness, sell or otherwise dispose of assets, businesses or operations and engage in business combinations or other fundamental changes; ● potentially place HighPeak Energy at a competitive disadvantage relative to competitors with lower levels of indebtedness in relation to their overall size or less restrictive terms governing their indebtedness; and ● limit management’s discretion in operating HighPeak Energy’s business.
The terms and conditions governing the Term Loan Credit Agreement, the Senior Credit Facility Agreement and any future additional indebtedness are expected to: ● require HighPeak Energy to dedicate a portion of cash flow from operations to service its debt, thereby reducing the cash available to finance operations and other business activities and could limit its flexibility in planning for or reacting to changes in its business and the industry in which it operates; ● increase vulnerability to economic downturns and adverse developments in HighPeak Energy’s business; ● place restrictions on HighPeak Energy’s ability to engage in certain business activities, including without limitation, to raise capital, obtain additional financing (whether for working capital, capital expenditures or acquisitions) or to refinance indebtedness, grant or incur liens on assets, pay dividends or make distributions in respect of its capital stock, make investments, amend or repay subordinated indebtedness, sell or otherwise dispose of assets, businesses or operations and engage in business combinations or other fundamental changes; ● potentially place HighPeak Energy at a competitive disadvantage relative to competitors with lower levels of indebtedness in relation to their overall size or less restrictive terms governing their indebtedness; and ● limit management’s discretion in operating HighPeak Energy’s business.
HighPeak Energy could be an emerging growth company for up to five years, although circumstances could cause HighPeak Energy to lose that status earlier, including if the market value of HighPeak Energy’s equity held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case HighPeak Energy would no longer be an emerging growth company as of the following December 31.
HighPeak Energy could be an emerging growth company for up to five years (i.e., until December 31, 2025), although circumstances could cause HighPeak Energy to lose that status earlier, including if the market value of HighPeak Energy’s equity held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case HighPeak Energy would no longer be an emerging growth company as of the following December 31.
Additionally, the FTC has regulations intended to prohibit market manipulation in the petroleum industry with authority to fine violators of the regulations civil penalties of up to $1,210,340 per day (annually adjusted for inflation) and the CFTC prohibits market manipulation in the markets regulated by the CFTC, including similar anti-manipulation authority with respect to crude oil swaps and futures contracts as that granted to the CFTC with respect to crude oil purchases and sales.
Additionally, the FTC has regulations intended to prohibit market manipulation in the petroleum industry with authority to fine violators of the regulations civil penalties of up to $1,472,546 per day (annually adjusted for inflation) and the CFTC prohibits market manipulation in the markets regulated by the CFTC, including similar anti-manipulation authority with respect to crude oil swaps and futures contracts as that granted to the CFTC with respect to crude oil purchases and sales.
For example, during the period from January 1, 2018 through December 31, 2022, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $114.34, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $9.35.
For example, during the period from January 1, 2020 through December 31, 2023, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $114.34, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $9.35.
For example, during the period from January 1, 2018 through December 31, 2022, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $114.34, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $9.35.
For example, during the period from January 1, 2020 through December 31, 2023, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $114.34, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $9.35.
For example, during the period from January 1, 2018 through December 31, 2022, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $114.34, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $9.35.
For example, during the period from January 1, 2020 through December 31, 2023, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $114.34, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $9.35.
Certain of the undeveloped leasehold acreage of HighPeak Energy ’ s assets is subject to leases that will expire over the next several years unless production is established on units containing the acreage or the leases are renewed. As of December 31, 2022, approximately 56% of HighPeak Energy’s acreage was held by production.
Certain of the undeveloped leasehold acreage of HighPeak Energy ’ s assets is subject to leases that will expire over the next several years unless production is established on units containing the acreage or the leases are renewed. As of December 31, 2023, approximately 64% of HighPeak Energy’s acreage was held by production.
Limitation of investments in and financing for fossil fuel energy companies could result in the restriction, delay or cancellation of drilling programs or development or production activities. In addition, the SEC proposed a rule requiring registrants to make certain climate-related disclosures, including emissions data. The final rule is expected in 2023, and we cannot predict its final form or substance.
Limitation of investments in and financing for fossil fuel energy companies could result in the restriction, delay or cancellation of drilling programs or development or production activities. In addition, the SEC proposed a rule requiring registrants to make certain climate-related disclosures, including emissions data. The final rule remains pending, and we cannot predict its final form or substance.
Under the Energy Policy Act of 2005, FERC has civil penalty authority under the Natural Gas Act of 1938 to impose penalties for current violations of up to $1,269,500 per day for each violation (annually adjusted for inflation) and disgorgement of profits associated with any violation.
Under the Energy Policy Act of 2005, FERC has civil penalty authority under the Natural Gas Act of 1938 to impose penalties for current violations of up to $1,544,521 per day for each violation (annually adjusted for inflation) and disgorgement of profits associated with any violation.
Factors affecting the trading price of our securities may include: ● actual or anticipated fluctuations in our financial results or the financial results of companies perceived to be similar to us; ● the market volatility resulting from sustained uncertainty surrounding the COVID-19 outbreak; ● changes in the market’s expectations about our operating results; ● success of our competitors; ● our operating results failing to meet the expectation of securities analysts or investors in a particular period; ● changes in financial estimates and recommendations by securities analysts concerning us or the market in general; ● operating and stock price performance of other companies that investors deem comparable to us; ● changes in laws and regulations affecting our business; ● commencement of, or involvement in, litigation involving us; ● changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; ● the volume of shares of HighPeak Energy common stock available for public sale; ● any major change in our Board or management; 50 ● sales of substantial amounts of HighPeak Energy common stock by the HighPeak Group, our directors, executive officers or significant stockholders, or the perception that such sales could occur; and ● general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations, OPEC+’s ability to continue to agree to limit production among its members and acts of war or terrorism.
Factors affecting the trading price of our securities may include: ● actual or anticipated fluctuations in our financial results or the financial results of companies perceived to be similar to us; ● changes in the market’s expectations about our operating results; ● success of our competitors; ● our operating results failing to meet the expectation of securities analysts or investors in a particular period; ● changes in financial estimates and recommendations by securities analysts concerning us or the market in general; ● operating and stock price performance of other companies that investors deem comparable to us; ● changes in laws and regulations affecting our business; ● commencement of, or involvement in, litigation involving us; ● changes in our capital structure, such as future issuances of securities or the incurrence of additional debt; ● the volume of shares of HighPeak Energy common stock available for public sale; ● any major change in our Board or management; 55 ● sales of substantial amounts of HighPeak Energy common stock by the Principal Stockholder Group, our directors, executive officers or significant stockholders, or the perception that such sales could occur; and ● general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations, OPEC+’s ability to continue to agree to limit production among its members and acts of war or terrorism.
While the Company does not have operations overseas, the conflict elevates the likelihood of supply chain disruptions, heightened volatility in crude oil and natural gas prices and negative effects on our ability to raise additional capital when required and could have a material adverse impact on our business, financial condition or future results.
While the Company does not have operations overseas, these conflicts elevate the likelihood of supply chain disruptions, heightened volatility in crude oil and natural gas prices and negative effects on our ability to raise additional capital when required and could have a material adverse impact on our business, financial condition or future results.
The unavailability or high cost of drilling rigs, equipment, supplies, personnel, frac crews and oilfield services due to commodity price volatility or supply constraints as a result of the conflict in Ukraine, the COVID-19 pandemic, rising interest rates and associated policies of the Federal Reserve could adversely affect HighPeak Energy ’ s ability to execute its development plans within its budget and on a timely basis and consequently could materially and adversely affect our cash flows and results of operations.
The unavailability or high cost of drilling rigs, equipment, supplies, personnel, frac crews and oilfield services due to commodity price volatility or supply constraints as a result of the conflict in Ukraine, the Israel-Hamas conflict, elevated interest rates and associated policies of the Federal Reserve could adversely affect HighPeak Energy ’ s ability to execute its development plans within its budget and on a timely basis and consequently could materially and adversely affect our cash flows and results of operations.
Should HighPeak Energy’s revenues or the borrowing base under the Credit Agreement decrease as a result of lower crude oil, NGL and natural gas prices, operational difficulties, declines in reserves or for any other reason, HighPeak Energy may have limited ability to obtain the capital necessary to sustain operations at expected levels.
Should HighPeak Energy’s revenues decrease as a result of lower crude oil, NGL and natural gas prices, operational difficulties, declines in reserves or for any other reason, HighPeak Energy may have limited ability to obtain the capital necessary to sustain operations at expected levels.
To the extent some of these acquisitions included current producing crude oil and natural gas properties, acquiring crude oil and natural gas properties requires HighPeak Energy to assess reservoir and infrastructure characteristics, including such assets and/or other recoverable reserves, future crude oil and natural gas prices and their applicable differentials, development and operating costs, and potential liabilities, including environmental liabilities.
To the extent these acquisitions include producing crude oil and natural gas properties, acquiring crude oil and natural gas properties requires HighPeak Energy to assess reservoir and infrastructure characteristics, including such assets and/or other recoverable reserves, future crude oil and natural gas prices and their applicable differentials, development and operating costs, and potential liabilities, including environmental liabilities.
If HighPeak Energy enters into derivative instruments that require cash collateral and commodity prices or interest rates change in an adverse manner, our cash otherwise available for use in operations would be reduced which could limit HighPeak Energy’s ability to make future capital expenditures and make payments on indebtedness, and which could also limit the size of the borrowing base.
If HighPeak Energy enters into derivative instruments that require cash collateral and commodity prices or interest rates change in an adverse manner, our cash otherwise available for use in operations would be reduced which could limit HighPeak Energy’s ability to make future capital expenditures and make payments on indebtedness.
In October 2022, OPEC+ determined to reduce production beginning in November 2022 through December 2023 by 2 million Bopd, due to the uncertainty surrounding the global economic and crude oil market outlooks. Furthermore, sanctions and import bans on Russian crude oil have been implemented by various countries in response to the war in Ukraine, further impacting global crude oil supply.
In November 2023, OPEC+ determined to reduce production beginning in early 2024 by 2.2 million Bopd, due to the uncertainty surrounding the global economic and crude oil market outlooks. Furthermore, sanctions and import bans on Russian crude oil have been implemented by various countries in response to the war in Ukraine, further impacting global crude oil supply.
The difficulties HighPeak Energy may face drilling horizontal wells may include, among others: ● landing its wellbore in the desired drilling zone; ● staying in the desired drilling zone while drilling horizontally through the formation; ● running its casing the entire length of the wellbore; and ● being able to run tools and other equipment consistently through the horizontal wellbore.
The difficulties HighPeak Energy may face drilling horizontal wells may include, among others: ● landing its wellbore in the desired drilling zone; ● staying in the desired drilling zone while drilling horizontally through the formation; ● Running and cementing casing throughout the wellbore; and ● being able to run tools and other equipment consistently through the horizontal wellbore.
Continuing or worsening inflationary issues and associated changes in monetary policy have resulted in and may result in additional increases to the cost of our goods, services and personnel, which in turn could cause our capital expenditures and operating costs to rise. ● Political instability or armed conflict in crude oil or natural gas producing regions, such as the ongoing war between Russia and Ukraine, and OPEC+ policy decisions could have a material adverse impact on our business, financial condition or future results. ● The marketability of HighPeak Energy’s production is dependent upon transportation, storage and other facilities, certain of which it does not control.
Continuing or worsening inflationary issues and associated changes in monetary policy have resulted in and may result in additional increases to the cost of our goods, services and personnel, which in turn could cause our capital expenditures and operating costs to rise. ● Volatility in the political, legal and regulatory environment ahead of the upcoming U.S. presidential election and political instability or armed conflict in crude oil or natural gas producing regions, such as the ongoing war between Russia and Ukraine, the Israel-Hamas conflict and OPEC+ policy decisions could have a material adverse impact on our business, financial condition or future results. ● The marketability of HighPeak Energy’s production is dependent upon transportation, storage and other facilities, certain of which it does not control.
The CFTC rules subject violators to a civil penalty of up to the greater of $1,191,842 per day (annually adjusted for inflation) or triple the monetary gain to the person for each violation.
The CFTC rules subject violators to a civil penalty of up to the greater of $1,450,040 per day (annually adjusted for inflation) or triple the monetary gain to the person for each violation.
In addition, conditions in the global capital markets have been volatile due to the conflict in Ukraine, the COVID-19 pandemic or otherwise, making terms for certain types of financing difficult to predict, and in certain cases, resulting in certain types of financing being unavailable.
In addition, conditions in the global capital markets have been volatile due to the conflict in Ukraine, the Israel-Hamas conflict or otherwise, making terms for certain types of financing difficult to predict, and in certain cases, resulting in certain types of financing being unavailable.
Still, crude oil and natural gas prices have recently declined from the highs experienced in second quarter of 2022 and could decrease or increase with any changes in demand due to, among other things, uncertainty and volatility from global supply chain disruptions attributable to the pandemic, the ongoing conflict in Ukraine, international sanctions, speculation as to future actions by OPEC+, developing COVID-19 variants and the potential for a widespread COVID-19 outbreak, increasing inflation and government efforts to reduce inflation, and possible changes in the overall health of the global economy, including a prolonged recession.
Still, crude oil and natural gas prices have declined from the highs experienced in second quarter of 2022 and could decrease or increase with any changes in demand due to, among other things, uncertainty and volatility from global supply chain disruptions attributable to the pandemic, the ongoing conflict in Ukraine, the Israel-Hamas conflict, international sanctions, speculation as to future actions by OPEC+, increasing inflation and government efforts to reduce inflation, and possible changes in the overall health of the global economy, including a prolonged recession.
Estimated future development costs relating to the development of such PUDs at December 31, 2022 are approximately $934.3 million over the next five (5) years. HighPeak Energy’s ability to fund these expenditures is subject to several risks. See “—HighPeak Energy’s development projects and acquisitions will require substantial capital expenditures.
Estimated future development costs relating to the development of such PUDs at December 31, 2023 are approximately $1.5 billion over the next five (5) years. HighPeak Energy’s ability to fund these expenditures is subject to several risks. See “—HighPeak Energy’s development projects and acquisitions will require substantial capital expenditures.
If these facilities are unavailable, in whole or in part, HighPeak Energy’s operations could be interrupted, and its revenues reduced. ● Certain factors could require HighPeak Energy to shut-in production or cease its capital expenditure program. ● Certain of the undeveloped leasehold acreage of HighPeak Energy’s assets is subject to leases that will expire over the next several years unless production is established on units containing the acreage or the leases are renewed. ● Certain factors could require HighPeak Energy to write-down the carrying values of its crude oil and natural gas properties, including commodity prices decreasing to a level such that future undiscounted cash flows from its properties are less than their carrying value. ● Drilling for and producing crude oil and natural gas are high risk activities with many uncertainties that could adversely affect HighPeak Energy’s business, financial condition or results of operations. ● Restrictions in the Credit Agreement, the indentures governing the 10.000% Senior Notes and the 10.625% Senior Notes and any future debt agreements could limit HighPeak Energy’s growth and ability to engage in certain activities. ● Any significant reduction in HighPeak Energy’s borrowing base under the Credit Agreement as a result of periodic borrowing base redeterminations or otherwise may negatively impact HighPeak Energy’s ability to fund its operations. ● Hedging transactions expose HighPeak Energy to counterparty credit risk and may become more costly or unavailable. ● The standardized measure of estimated reserves may not be an accurate estimate of the current fair value of estimated crude oil and natural gas reserves. ● Properties that HighPeak Energy acquires may not produce as projected, and HighPeak Energy may be unable to determine reserve potential, identify liabilities associated with such properties or obtain protection from sellers against such liabilities. ● Adverse weather conditions may negatively affect HighPeak Energy’s operating results and ability to conduct drilling activities. ● HighPeak Energy’s operations are substantially dependent on the availability of sand and water.
If these facilities are unavailable, in whole or in part, HighPeak Energy’s operations could be interrupted, and its revenues reduced. ● Certain factors could require HighPeak Energy to shut-in production or cease its capital expenditure program. ● Certain of the undeveloped leasehold acreage of HighPeak Energy’s assets is subject to leases that will expire over the next several years unless production is established on units containing the acreage or the leases are renewed. ● Certain factors could require HighPeak Energy to write-down the carrying values of its crude oil and natural gas properties, including commodity prices decreasing to a level such that future undiscounted cash flows from its properties are less than their carrying value. ● Drilling for and producing crude oil and natural gas are high risk activities with many uncertainties that could adversely affect HighPeak Energy’s business, financial condition or results of operations. ● Hedging transactions expose HighPeak Energy to counterparty credit risk and may become more costly or unavailable. ● The standardized measure of estimated reserves may not be an accurate estimate of the current fair value of estimated crude oil and natural gas reserves. ● Properties that HighPeak Energy acquires may not produce as projected, and HighPeak Energy may be unable to determine reserve potential, identify liabilities associated with such properties or obtain protection from sellers against such liabilities. ● Adverse weather conditions may negatively affect HighPeak Energy’s operating results and ability to conduct drilling activities. ● HighPeak Energy’s operations are substantially dependent on the availability of sand and water.
HighPeak Energy has evaluated multiple development scenarios under multiple potential commodity price assumptions. Under its current 2023 development program, HighPeak Energy would expect to incur approximately $1.1 to $1.2 billion of capital expenditures for drilling, completion, facilities and equipping costs and $50 - $60 million for field infrastructure, land and other costs.
HighPeak Energy has evaluated multiple development scenarios under multiple potential commodity price assumptions. Under its current 2024 development program, HighPeak Energy would expect to incur approximately $450 to $525 million of capital expenditures for drilling, completion, facilities and equipping costs and $50 - $60 million for field infrastructure, land and other costs.
The HighPeak Group owns approximately 74% of HighPeak Energy’s common stock as of December 31, 2022. As long as the Principal Stockholder Group owns or controls a significant percentage of HighPeak Energy’s outstanding voting power, subject to the terms of the Stockholders’ Agreement (as defined below), they will have the ability to influence certain corporate actions requiring stockholder approval.
As long as the Principal Stockholder Group owns or controls a significant percentage of HighPeak Energy’s outstanding voting power, subject to the terms of the Stockholders’ Agreement (as defined below), they will have the ability to influence certain corporate actions requiring stockholder approval.
Additionally, supply constraints due to the conflict in Ukraine, the COVID-19 pandemic, rising interest rates and associated policies of the Federal Reserve has increased the cost of oilfield services. HighPeak Energy’s operations are concentrated in areas in which oilfield activity levels have previously increased rapidly.
Additionally, supply constraints due to the conflict in Ukraine, the Israel-Hamas conflict, elevated interest rates and associated policies of the Federal Reserve has increased the cost of oilfield services. HighPeak Energy’s operations are concentrated in areas in which oilfield activity levels have previously increased rapidly.
HighPeak Energy is a “ controlled company ” within the meaning of Nasdaq rules and qualifies for exemptions from certain corporate governance requirements. As a result, you do not have the same protections afforded to stockholders of companies that are not exempt from such corporate governance requirements. The HighPeak Group collectively own a majority of HighPeak Energy’s outstanding voting stock.
HighPeak Energy is a “ controlled company ” within the meaning of Nasdaq rules and qualifies for exemptions from certain corporate governance requirements. As a result, you do not have the same protections afforded to stockholders of companies that are not exempt from such corporate governance requirements.
However, the Company has the ability under the contract to cumulatively bank excess volumes delivered to offset future minimum volume commitments. For the period from October 1, 2021 to December 31, 2022, the Company has delivered approximately 22,800 Bopd under the contract.
However, the Company has the ability under the contract to cumulatively bank excess volumes delivered to offset future minimum volume commitments. For the period from October 1, 2021 to December 31, 2023, the Company has delivered approximately 29,600 Bopd under the contract.
In September 2022, the Federal Reserve announced that six of the U.S.’ largest banks will participate in a pilot climate scenario analysis exercise, expected to be launched in early 2023, to enhance the ability of firms and supervisors to measure and manage climate-related financial risk.
In September 2022, the Federal Reserve announced that six of the U.S.’ largest banks will participate in a pilot climate scenario analysis exercise, which took place throughout 2023, to enhance the ability of firms and supervisors to measure and manage climate-related financial risk.
If HighPeak Energy seeks and obtains additional financing, subject to the restrictions in the instruments governing its existing debt, the addition of new debt to existing debt levels could intensify the operational risks that HighPeak Energy will face. Further, adding new debt could limit HighPeak Energy’s ability to service existing debt service obligations.
If HighPeak Energy seeks and obtains additional financing, subject to the restrictions in the instruments governing its existing debt, the addition of new debt to existing debt levels could intensify the operational risks that HighPeak Energy will face.
Our current level of indebtedness could have important consequences, such as: ● making it difficult for us to satisfy our obligations under our indebtedness and contractual and commercial commitments; ● increasing our vulnerability to adverse economic and industry conditions; ● requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; ● limiting our flexibility to plan for, or react to, changes in our business and the industry in which we operate; ● restricting us from making strategic acquisitions or exploiting business opportunities; ● placing us at a competitive disadvantage compared to our competitors that have less debt; ● limiting our ability to borrow additional funds; ● preventing us from raising the funds necessary to repurchase notes tendered to us if there is a change of control, which could constitute a default under the indentures governing the 10.000% Senior Notes and 10.625% Senior Notes and the Credit Agreement; and ● decreasing our ability to compete effectively or operate successfully under adverse economic and industry conditions.
Our current level of indebtedness could have important consequences, such as: ● making it difficult for us to satisfy our obligations under our indebtedness and contractual and commercial commitments; ● increasing our vulnerability to adverse economic and industry conditions; ● requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; ● limiting our flexibility to plan for, or react to, changes in our business and the industry in which we operate; ● restricting us from making strategic acquisitions or exploiting business opportunities; ● placing us at a competitive disadvantage compared to our competitors that have less debt; ● limiting our ability to borrow additional funds; and ● decreasing our ability to compete effectively or operate successfully under adverse economic and industry conditions.
Prices have recovered to pre-pandemic levels, with the calendar month average NYMEX WTI crude oil price of $76.52 per Bbl and the last trading day NYMEX natural gas price of $6.71 per MMBtu for the month of December 2022.
Prices have recovered to pre-pandemic levels, with the calendar month average NYMEX WTI crude oil price of $72.12 per Bbl and the last trading day NYMEX natural gas price of $2.71 per MMBtu for the month of December 2023.
There are stipulations in the agreement that reduce this commitment should we experience a downturn in crude oil prices. As of December 31, 2022, the Company has purchased approximately 279,000 tons of sand under the contract.
There are stipulations in the agreement that reduce this commitment should we experience a downturn in crude oil prices. As of December 31, 2023, the Company has purchased approximately 1.2 million tons of frac sand under the contract.
A range of economic, competitive, business and industry factors will affect our future financial performance, and as a result, our ability to generate cash flows from operations and to pay our debt, including the 10.000% Senior Notes and 10.625% Senior Notes.
A range of economic, competitive, business and industry factors will affect our future financial performance, and as a result, our ability to generate cash flows from operations and to pay our debt.
The Credit Agreement and the indentures governing the 10.000% Senior Notes and the 10.625% Senior Notes provide that a change of control constitutes an event of default and would permit the lenders to declare the indebtedness thereunder to be immediately due and payable. Our future credit facilities may contain similar provisions.
The Term Loan Credit Agreement and the Senior Credit Facility Agreement provide that a change of control constitutes an event of default and would permit the lenders to declare the indebtedness thereunder to be immediately due and payable. Our future credit facilities may contain similar provisions.
In addition, the Credit Agreement and the indentures governing the 10.000% Senior Notes and the 10.625% Senior Notes impose certain limitations on HighPeak Energy’s ability to enter into mergers or combination transactions and on HighPeak Energy’s and its restricted subsidiaries’ ability to incur certain indebtedness, which could indirectly limit its ability to acquire assets and businesses.
In addition, the Term Loan Credit Agreement and Senior Credit Facility Agreement impose certain limitations on HighPeak Energy’s ability to enter into mergers or combination transactions and on HighPeak Energy’s and its restricted subsidiaries’ ability to incur certain indebtedness, which could indirectly limit its ability to acquire assets and businesses.
However, generally if the Company never takes delivery of any additional sand under the agreement, the monetary commitment that remains as of December 31, 2022 is approximately $4.6 million.
However, generally if the Company never takes delivery of any additional frac sand under the agreement, the monetary commitment that remains as of December 31, 2023 is approximately $9.5 million.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+1 added−0 removed3 unchanged
Biggest changeThe Company also approved a special dividend of $0.075 per share of common stock that was paid in July 2021. The decision to pay any future dividends is solely within the discretion of, and subject to approval by, our Board.
Biggest changeThe decision to pay any future dividends is solely within the discretion of, and subject to approval by, our Board.
Stock Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall the information be incorporated by reference into any future filing under the Securities Act or Exchange Act except to the extent that the Company specifically incorporate it be reference to such filing. 56 The graph below compares the cumulative total stockholder return on the Company’s common stock during the period from August 24, 2020 through December 31, 2022, with cumulative total returns during the same period for the Standard & Poor’s (“S&P”) 500 Index and the S&P Oil and Gas Exploration & Production Index.
Stock Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall the information be incorporated by reference into any future filing under the Securities Act or Exchange Act except to the extent that the Company specifically incorporate it be reference to such filing. 62 The graph below compares the cumulative total stockholder return on the Company’s common stock during the period from August 24, 2020 through December 31, 2023, with cumulative total returns during the same period for the Standard & Poor’s (“S&P”) 500 Index and the S&P Oil and Gas Exploration & Production Index.
Dividend Policy On July 6, 2021, the Company announced the initiation of a quarterly cash dividend in the amount of $0.025 per share of our common stock payable quarterly which began with the third quarter of 2021 and continued quarterly through the fourth quarter of 2022 and first quarter of 2023.
Dividend Policy On July 6, 2021, the Company announced the initiation of a quarterly cash dividend in the amount of $0.025 per share of our common stock payable quarterly which began with the third quarter of 2021 and continued quarterly through the fourth quarter of 2023.
In addition, the Credit Agreement and the indentures governing the 10.000% Senior Notes and 10.625% Senior Notes place certain restrictions on our ability to pay cash dividends.
In addition, the Term Loan Credit Agreement and the Senior Credit Facility Agreement place certain restrictions on our ability to pay cash dividends.
Holders As of March 2, 2023, there were 48 holders of record of HighPeak Energy common stock and 5 holders of record of HighPeak Energy’s warrants.
Holders As of February 29, 2024, there were 41 holders of record of HighPeak Energy common stock and 5 holders of record of HighPeak Energy’s warrants.
Added
The Company also approved a special dividend of $0.075 per share of common stock that was paid in July 2021. During the first quarter of 2024, the Company announced an increase in its quarterly cash dividends to $0.04 per share of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

74 edited+59 added−31 removed61 unchanged
Biggest changeThe primary components of the $181.3 million increase in net income include: • a $535.6 million increase in crude oil and natural gas revenues due to a 163% increase in daily sales volumes primarily due to the Company’s successful horizontal drilling program and to a lesser extent, bolt-on acquisitions, plus a 30% increase in average realized commodity prices per Boe, excluding the effect of derivatives; partially offset by: • a $112.5 million increase in DD&A expense due to a 163% increase in daily sales volumes and a 4% increase in the DD&A rate from $19.20 to $19.89 per Boe, both as a result of increased proved reserves due to the Company’s successful horizontal drilling program and to a lesser extent, bolt-on acquisitions; • a $58.5 million increase in the Company's income tax expense due to the net income experienced in 2022 compared with 2021; 59 • a $48.1 million increase in the Company's interest expense due to the issuance of the 10.000% Senior Notes and 10.625% Senior Notes, increased borrowings under the Credit Agreement and increased amortization of debt issuance costs and discounts; • a $44.5 million increase in lease operating expenses related primarily to the increased well count and production from the Company’s successful horizontal drilling program and to a lesser extent, bolt-on acquisitions; • a $33.3 million increase in net derivative losses in 2022 compared with 2021 as a result of increased hedging activity required under our debt agreements and the continued increase of crude oil prices in 2022 compared with 2021; • a $27.7 million increase in production and ad valorem taxes, primarily attributable to the 163% increase in daily sales volumes as a result of the Company’s successful horizontal drilling program and to a lesser extent, bolt-on acquisitions combined with 36% higher production and ad valorem taxes on a dollar per Boe basis due to higher overall realized prices of 30%, excluding the effects of derivatives; • a $26.7 million increase in stock-based compensation expense primarily attributable to restricted stock issued in late 2021 resulting in an entire year of amortization in 2022 compared with a partial year in 2021, additional restricted stock issued in 2022 and other stock option awards that were granted in 2022 which the majority of the stock options vested immediately causing a charge to earnings; and • a $3.6 million increase in general and administrative costs due primarily to increased salary and bonus expenditures related to a larger workforce and the continued success of the Company. • During the year ended December 31, 2022, average daily sales volumes totaled 24,485 Boepd, an increase of 163% over 2021, due to the Company's successful horizontal drilling program in the Permian Basin and to a lesser extent, bolt-on acquisitions. • Weighted average realized crude oil prices per Bbl increased during the year ended December 31, 2022 to $94.61, excluding the effects of derivatives, compared with $70.10 for 2021.
Biggest changeThe primary components of the $21.0 million decrease in net income include: • a $246.7 million increase in DD&A expense due to an 86% increase in daily sales volumes as a result of the Company’s successful horizontal drilling program, in addition to a 28% increase in the DD&A rate from $19.89 to $25.51 per Boe primarily as a result of significant inflationary pressures on capital costs; • a $27.3 million increase in loss on extinguishment of debt as a result of the Company refinancing its debt which resulted in the recognition of a loss thereon, which included $22.8 million of unamortized debt issuance costs and discounts and a make whole premium on the 10.625% Senior Notes of $4.5 million; • a $97.3 million increase in interest expense due to the increase in the Company’s overall indebtedness and increased amortization of debt issuance costs and discounts; • a $75.8 million increase in lease operating expenses related primarily to the increased well count and production from the Company’s successful horizontal drilling program, increased power and chemical costs, repair and maintenance costs and other inflationary pressures; • a $20.0 million increase in production and ad valorem taxes, primarily attributable to the 86% increase in daily sales volumes as a result of the Company’s successful horizontal drilling program partially offset by 21% lower production taxes on a dollar per Boe basis due to lower overall realized prices of 21%, excluding the effects of derivatives; • an $8.3 million increase in the Company’s other expenses primarily attributable to a contract settlement and repairs made in response to a fire at one of our production facilities; • a $4.1 million increase in the Company’s general and administrative expenses primarily attributable to increased employee count, salary increases and annual bonuses in addition to increased internal and external audit costs and legal expenses as a result of the growth of the Company; and • a $4.1 million increase in exploration and abandonments expense primarily due to an increase in leasehold abandonments and plugging and abandonment expenses related to legacy vertical wells; Partially offset by: • a $355.6 million increase in crude oil, NGL and natural gas revenues due to an 86% increase in daily sales volumes resulting from the Company’s successful horizontal drilling program, partially offset by a 21% decrease in average realized commodity prices per Boe, excluding the effects of derivatives; • a $87.6 million increase in the Company’s net derivative instruments gain from a $60.0 million loss to a $27.6 million gain year over year as a result of its crude oil commodity contracts entered into and the decrease in crude oil prices thereafter; • a $9.5 million decrease in the Company’s income tax expense primarily due to the net income realized during 2023 being less than the net income realized during 2022; • a $7.4 million decrease in the Company’s stock-based compensation expense as a result of fewer stock options being issued relative to the prior period; and • a $2.6 million increase in the Company’s interest income due to the increased cash on hand (interest-bearing) subsequent to the closing of the Term Loan Credit Agreement. • During the year ended December 31, 2023, average daily sales volumes totaled 45,577 Boepd, an increase of 86% over 2022, due to the Company’s successful horizontal drilling program in the Permian Basin. • Weighted average realized crude oil prices per Bbl decreased during the year ended December 31, 2023 to $78.26, excluding the effects of derivatives, compared with $94.61 for 2022.
The Company does not carry the costs of drilling an exploratory well as an asset in its consolidated balance sheets following the completion of drilling unless both of the following conditions are met: ● The well has found a sufficient quantity of reserves to justify its completion as a producing well; and ● The Company is making sufficient progress assessing the reserves and the economic and operating viability of the project. 69 Due to the capital-intensive nature and the geographical location of certain projects, it may take an extended period of time to evaluate the future potential of an exploration project and economics associated with making a determination of its commercial viability.
The Company does not carry the costs of drilling an exploratory well as an asset in its consolidated balance sheets following the completion of drilling unless both of the following conditions are met: ● The well has found a sufficient quantity of reserves to justify its completion as a producing well; and ● The Company is making sufficient progress assessing the reserves and the economic and operating viability of the project. 77 Due to the capital-intensive nature and the geographical location of certain projects, it may take an extended period of time to evaluate the future potential of an exploration project and economics associated with making a determination of its commercial viability.
EBITDAX should not be considered in isolation or as a substitute for net income (loss), income (loss) from operations, net cash provided by operating activities, or other profitability or liquidity measures prepared under GAAP.
EBITDAX should not be considered in isolation or as a substitute for net income, income from operations, net cash provided by operating activities, or other profitability or liquidity measures prepared under GAAP.
To reduce the impact of fluctuations in crude oil, NGL and natural gas prices on revenues, the Company may periodically enter into derivative contracts with respect to a portion of its estimated crude oil, NGL and natural gas production through various transactions that fix or set a floor price for future prices received. 61 Principal Components of Cost Structure Costs associated with producing crude oil, NGL and natural gas are substantial.
To reduce the impact of fluctuations in crude oil, NGL and natural gas prices on revenues, the Company may periodically enter into derivative contracts with respect to a portion of its estimated crude oil, NGL and natural gas production through various transactions that fix or set a floor price for future prices received. 69 Principal Components of Cost Structure Costs associated with producing crude oil, NGL and natural gas are substantial.
The Company’s proved reserve information included in this Annual Report as of December 31, 2022, 2021 and 2020 was prepared by independent petroleum engineers. Because these estimates depend on many assumptions, all of which may substantially differ from future actual results, proved reserve estimates will be different from the quantities of crude oil and natural gas that are ultimately recovered.
The Company’s proved reserve information included in this Annual Report as of December 31, 2023, 2022 and 2021 was prepared by independent petroleum engineers. Because these estimates depend on many assumptions, all of which may substantially differ from future actual results, proved reserve estimates will be different from the quantities of crude oil and natural gas that are ultimately recovered.
General and administrative expenses (“G&A”) are costs incurred for overhead, including payroll and benefits for corporate staff and costs of maintaining a headquarters, costs of managing production and development operations, IT expenses and audit and other fees for professional services, including legal compliance and acquisition-related expenses. 62 Results of Operations Results of operations should be read together with the Company’s consolidated financial statements and related notes included in “Item 8.
General and administrative expenses (“G&A”) are costs incurred for overhead, including payroll and benefits for corporate staff and costs of maintaining a headquarters, costs of managing production and development operations, IT expenses and audit and other fees for professional services, including legal compliance and acquisition-related expenses. 70 Results of Operations Results of operations should be read together with the Company’s consolidated financial statements and related notes included in “Item 8.
The critical difference between the successful efforts method of accounting and the full cost method is that under the successful efforts method, exploratory dry holes and geological and geophysical exploration costs are charged against earnings during the periods in which they occur; whereas, under the full cost method of accounting, such costs and expenses are capitalized as assets, pooled with the costs of successful wells and charged against the earnings of future periods as a component of DD&A expense. 68 Proved reserve estimates.
The critical difference between the successful efforts method of accounting and the full cost method is that under the successful efforts method, exploratory dry holes and geological and geophysical exploration costs are charged against earnings during the periods in which they occur; whereas, under the full cost method of accounting, such costs and expenses are capitalized as assets, pooled with the costs of successful wells and charged against the earnings of future periods as a component of DD&A expense. 76 Proved reserve estimates.
For the years ended December 31, 2022, 2021 and 2020, revenues from our assets were derived approximately 95%, 96% and 98%, respectively, from crude oil sales and 5%, 4% and 2%, respectively, from NGL and natural gas sales. The Company is subject to credit risk resulting from the concentration of its crude oil and natural gas receivables with significant purchasers.
For the years ended December 31, 2023, 2022 and 2021, revenues from our assets were derived approximately 98%, 95% and 96%, respectively, from crude oil sales and 2%, 5% and 4%, respectively, from NGL and natural gas sales. The Company is subject to credit risk resulting from the concentration of its crude oil and natural gas receivables with significant purchasers.
The increase in ad valorem taxes per Boe for the year ended December 31, 2022, compared with 2021, was primarily due to the increase in commodity prices in 2021 and a significant number of wells that came on production during 2021 that had no ad valorem tax in 2021. 2022 was the first year these wells were assessed ad valorem taxes.
The increase in ad valorem taxes per Boe for the year ended December 31, 2023, compared with 2022, was primarily due to the increase in commodity prices in 2022 and a significant number of wells that came on production during 2022 that had no ad valorem tax in 2022. 2023 was the first year these wells were assessed ad valorem taxes.
If all or a portion of the unrecognized tax benefits is sustained upon examination by the taxing authorities, the tax benefit will be recorded as a reduction to the Company's deferred tax liability and will affect the Company's effective tax rate in the period it is recorded. As of December 2022, the Company did not have any unrecognized tax benefits.
If all or a portion of the unrecognized tax benefits is sustained upon examination by the taxing authorities, the tax benefit will be recorded as a reduction to the Company's deferred tax liability and will affect the Company's effective tax rate in the period it is recorded. As of December 2023, the Company did not have any unrecognized tax benefits.
In accordance with SEC requirements, the Company based the 2022 standardized measure on a twelve-month average of commodity prices on the first day of each month in 2022 and prevailing costs on the date of the estimate. Actual future prices and costs may be materially higher or lower than the prices and costs utilized in the estimate.
In accordance with SEC requirements, the Company based the 2023 standardized measure on a twelve-month average of commodity prices on the first day of each month in 2023 and prevailing costs on the date of the estimate. Actual future prices and costs may be materially higher or lower than the prices and costs utilized in the estimate.
Although the Company expects its sources of funding will be adequate to fund its 2023 planned capital expenditures and provide adequate liquidity to fund other needs, no assurance can be given that such funding sources will be adequate to meet the Company’s future needs. 2023 capital budget .
Although the Company expects its sources of funding will be adequate to fund its 2024 planned capital expenditures and provide adequate liquidity to fund other needs, no assurance can be given that such funding sources will be adequate to meet the Company’s future needs. 2024 capital budget .
Non-GAAP Financial Measures EBITDAX represents net income (loss) before interest expense, interest and other income, income taxes, depletion, depreciation, and amortization, accretion of discount on asset retirement obligations, exploration and abandonment expense, non-cash stock-based compensation expense, derivative gains and losses net of settlements, gains and losses on divestitures and certain other items.
Non-GAAP Financial Measures EBITDAX represents net income before interest expense, interest and other income, income taxes, depletion, depreciation, and amortization, accretion of discount on asset retirement obligations, exploration and abandonment expense, non-cash stock-based compensation expense, noncash derivative gains and losses, other expense, gains and losses on divestitures and certain other items.
For example, during the period from January 1, 2018 through December 31, 2022, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $114.34, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $9.35.
For example, during the period from January 1, 2020 through December 31, 2023, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $114.34, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $9.35.
The Company has not set a timetable for the conclusion of this review, nor has it made any decisions related to any further actions or potential strategic alternatives at this time. There can be no assurance that the review will result in any transaction or other strategic change or outcome.
The Company has not set a timetable for the conclusion of this review, nor has it made any decisions related to any further actions or potential strategic alternatives at this time. There can be no assurance that the review will progress beyond this exploratory phase or result in any transaction or other strategic change or outcome.
The Company’s short-term and long-term liquidity requirements consist primarily of (i) capital expenditures, (ii) acquisitions of crude oil and natural gas properties, (iii) payments of contractual obligations and (iv) working capital obligations. Funding for these cash needs may be provided by any combination of the Company’s sources of liquidity.
The Company’s short-term and long-term liquidity requirements consist primarily of (i) capital expenditures, (ii) acquisitions of crude oil and natural gas properties, (iii) payments of contractual obligations, (iv) working capital obligations, and (v) interest payments on and amortization of its indebtedness. Funding for these cash needs may be provided by any combination of the Company’s sources of liquidity.
Financial Statements and Supplementary Data.” In addition, EBITDAX is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the crude oil and natural gas exploration and production industry, and many investors use the published research of industry research analysts in making investment decisions.
In addition, EBITDAX is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the crude oil and natural gas exploration and production industry, and many investors use the published research of industry research analysts in making investment decisions.
As of December 31, 2022, a $1.00 increase (decrease) in the forward curves associated with our crude oil commodity derivative instruments would have changed our net derivative positions for these products by approximately $5.0 million. 67 Contractual obligations. The Company’s contractual obligations include leases (primarily related to contracted drilling rigs, equipment and office facilities), capital funding obligations and other liabilities.
As of December 31, 2023, a $1.00 increase (decrease) in the forward curves associated with our crude oil commodity derivative instruments would have changed our net derivative positions for these products by approximately $6.8 million. 75 Contractual obligations. The Company’s contractual obligations include leases (primarily related to contracted drilling rigs, equipment and office facilities), capital funding obligations and other liabilities.
The Company’s capital budget for 2023 is expected to be in the range of approximately $1.1 to $1.2 billion for drilling, completion, facilities and equipping crude oil wells plus $50 to $60 million for field infrastructure buildout and other costs. The 2023 capital budget excludes acquisitions, asset retirement obligations, geological and geophysical general and administrative expenses and corporate facilities.
The Company’s capital budget for 2024 is expected to be in the range of approximately $450 to $525 million for drilling, completion, facilities and equipping crude oil wells plus $50 to $60 million for field infrastructure buildout and other costs. The 2024 capital budget excludes acquisitions, asset retirement obligations, geological and geophysical general and administrative expenses and corporate facilities.
For the year ended December 31, 2022, sales to the Company’s largest purchaser accounted for approximately 88% of the Company’s total crude oil, NGL and natural gas sales revenues.
For the year ended December 31, 2023, sales to the Company’s largest purchaser accounted for approximately 82% of the Company’s total crude oil, NGL and natural gas sales revenues.
Based on our 2022 sales volumes and excluding the effects on derivatives, a $1.00 per barrel increase (decrease) in the weighted average crude oil price for the year ended December 31, 2022 would have increased (decreased) the Company’s revenues by approximately $7.9 million and a $0.10 per Mcf increase (decrease) in the weighted average natural gas price for the year ended December 31, 2022 would have increased (decreased) the Company’s revenues by approximately $332,000.
Based on our 2023 sales volumes and excluding the effects on derivatives, a $1.00 per barrel increase (decrease) in the weighted average crude oil price for the year ended December 31, 2023 would have increased (decreased) the Company’s crude oil and NGL revenues by approximately $14.3 million and a $0.10 per Mcf increase (decrease) in the weighted average natural gas price for the year ended December 31, 2023 would have increased (decreased) the Company’s natural gas revenues by approximately $722,000.
For the year ended December 31, 2022, approximately 94% and 6% of sales volumes from the assets were attributable to liquids (both crude oil and NGL) and natural gas, respectively.
For the year ended December 31, 2023, approximately 93% and 7% of sales volumes from the assets were attributable to liquids (both crude oil and NGL) and natural gas, respectively.
For additional information on the risks, see “Part I, Item 1A. Risk Factors.” Given the dynamic nature of this situation, 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 monthly. Capital resources .
Risk Factors.” Given the dynamic nature of this situation, 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 monthly. Capital resources .
Production and ad valorem taxes are as follows (in thousands): Year Ended December 31, 2022 2021 Change Production and ad valorem taxes $ 38,440 $ 10,746 $ 27,694 In general, production taxes and ad valorem taxes are directly related to commodity price changes; however, Texas ad valorem taxes are based upon prior year commodity prices and valuations as of the first of the year, whereas production taxes are based upon current year commodity prices and sales volumes.
Production and ad valorem taxes are as follows (in thousands): Year Ended December 31, 2023 2022 Change Production and ad valorem taxes $ 58,472 $ 38,440 $ 20,032 In general, production taxes and ad valorem taxes are directly related to production and commodity price changes; however, Texas ad valorem taxes are based upon prior year commodity prices and valuations as of the first of the year, whereas production taxes are based upon current year commodity prices and sales volumes.
Conversely, for the portion of the Credit Agreement that has a floating interest rate, interest rate changes will not affect the fair value but will impact future results of operations and cash flows.
Conversely, for the portion of the Term Loan Credit Agreement and Senior Credit Facility Agreement that has a floating interest rate, interest rate changes will not affect the fair value but will impact future results of operations and cash flows. Commodity Price Risk.
The following table provides a reconciliation of our net income (GAAP) to EBITDAX (non-GAAP) for the periods presented (in thousands): Year Ended December 31, 2022 2021 Net income $ 236,854 $ 55,559 Interest expense 50,610 2,484 Interest and other income (266 ) (1 ) Income tax expense 75,361 16,904 Depletion, depreciation and amortization 177,742 65,201 Accretion of discount 370 167 Exploration and abandonment expense 1,149 1,549 Stock-based compensation 33,352 6,676 Derivative related noncash activity 1,909 15,467 Other expense — 167 EBITDAX $ 577,081 $ 164,173 Critical Accounting Estimates The Company prepares its consolidated financial statements for inclusion in this Annual Report in accordance with GAAP.
The following table provides a reconciliation of our net income (GAAP) to EBITDAX (non-GAAP) for the periods presented (in thousands): Year Ended December 31, 2023 2022 2021 Net income $ 215,866 $ 236,854 $ 55,559 Interest expense 147,901 50,610 2,484 Interest and other income (2,908 ) (266 ) (1 ) Income tax expense 65,905 75,361 16,904 Depletion, depreciation and amortization 424,424 177,742 65,201 Accretion of discount 522 370 167 Exploration and abandonment expense 5,234 1,149 1,549 Stock-based compensation 25,957 33,352 6,676 Derivative related noncash activity (51,796 ) 1,909 15,467 Loss on extinguishment of debt 27,300 — — Other expense 8,262 — 167 EBITDAX $ 866,667 $ 577,081 $ 164,173 Critical Accounting Estimates The Company prepares its consolidated financial statements for inclusion in this Annual Report in accordance with GAAP.
However, commodity markets, unavailability or high cost of drilling rigs, equipment, supplies, personnel, frac crews and oilfield services or supply constraints remain subject to heightened levels of uncertainty as a result of the conflict in Ukraine, the COVID-19 pandemic, rising interest rates and associated policies of the Federal Reserve, which could adversely affect HighPeak Energy’s ability to execute.
However, commodity markets, unavailability or high cost of drilling rigs, equipment, supplies, personnel, frac crews and oilfield services or supply constraints remain subject to heightened levels of uncertainty as a result of the war in Ukraine, the conflict between Israel and Hamas, elevated interest rates and associated policies of the Federal Reserve, which could adversely affect HighPeak Energy’s ability to execute on its capital plan.
The increase in workover costs year over year can be attributed to the wells getting older and beginning to need more repair and maintenance from time to time. Production and ad valorem taxes.
This is largely due to the aforementioned curtailed production during 2023. The increase in workover costs year over year can be attributed to wells getting older and beginning to need more repair and maintenance from time to time. Production and ad valorem taxes.
Additionally, commodity prices are subject to heightened levels of uncertainty related to geopolitical issues such as the ongoing armed conflict between Russia and Ukraine. The realized prices we receive for our production also depend on numerous factors that are typically beyond our control.
Commodity prices have improved from historic lows in 2020 resulting from the impacts of the COVID-19 pandemic. Additionally, commodity prices are subject to heightened levels of uncertainty related to geopolitical issues such as the ongoing armed conflict between Russia and Ukraine. The realized prices we receive for our production also depend on numerous factors that are typically beyond our control.
See the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 7, 2022 for a discussion of the Company’s 2021 results of operations compared with the Company’s 2020 results of operations.
See the Company ’ s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 6, 2023 for a discussion of the Company ’ s 2022 results of operations compared with the Company ’ s 2021 results of operations.
Additionally, the COVID-19 pandemic remains a global health crisis and continues to evolve. Despite continuing impacts of these and other factors and future uncertainty, we expect to maintain 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.
Despite continuing impacts of these and other factors and future uncertainty, we expect to maintain 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.
However, there are many factors and consequences beyond the Company's control, such as policies of the Biden Administration, economic downturn or potential recession, geo-political risks and additional actions by businesses, OPEC and other cooperating countries, and governments in response to the COVID-19 pandemic, that may have an impact on the Company’s future results and drilling plans.
However, there are many factors and consequences beyond the Company’s control, such as policies of the Biden Administration, economic downturn or potential recession, geo-political risks and additional actions by businesses, and OPEC and other cooperating countries, that may have an impact on the Company’s future results and drilling plans. For additional information on the risks, see “Part I, Item 1A.
Weighted average realized NGL prices per Bbl increased during the year ended December 31, 2022 to $35.67, compared with $35.11 for 2021.
Weighted average realized NGL prices per Bbl decreased during the year ended December 31, 2023 to $21.51, compared with $35.67 for 2022.
The Company’s significant financing activities are as follows: • 2022: The Company (i) borrowed $925.0 million and repaid $755.0 million for a net increase in long-term debt related to the Credit Agreement of $170.0 million, (ii) issued an aggregate principal amount of $225.0 million ($210.2 million net of discounts) of its 10.000% Senior Notes and an aggregate principal amount of $250.0 million ($230.0 million net of discounts) of its 10.625% Senior Notes, (iii) received $85.0 million from the issuance of 3,933,376 shares of common stock in a private placement, (iv) received $7.9 million in proceeds from the exercises of warrants and stock options of the Company, (v) paid dividends to its common stockholders of $10.4 million and dividend equivalents to certain holders of vested stock options of $1.2 million and (vi) spent $17.1 million on debt issuance costs related to amendments to increase its borrowing capacity under the Credit Agreement and the issuance of the 10.000% Senior Notes and 10.625% Senior Notes. • 2021: The Company (i) borrowed $120.0 million and repaid $20.0 million for a net increase in long-term debt of $100.0 million under the Credit Agreement, (ii) received $22.8 million from the issuance of 2,530,000 shares of common stock, net of issuance costs, (iii) received $10.6 million in proceeds from the exercises of warrants and stock options of the Company, (iv) paid dividends to its common stockholders of $11.6 million and dividend equivalents to certain holders of vested stock options of $1.0 million and (v) spent $2.2 million on debt issuance costs related to amendments to increase its borrowing capacity under the Credit Agreement.
The Company’s significant financing activities are as follows: • 2023: The Company (i) borrowed $1.4 billion and repaid $1.0 billion for a net increase in long-term debt related to the now refinanced debt in the form of the Term Loan Credit Agreement of $425.0 million, (ii) received $155.8 million from the issuance of 14,835,000 shares of common stock in a public offering, (iii) received $4.2 million in proceeds from the exercises of warrants and stock options of the Company, (iv) paid dividends to its common stockholders of $11.9 million and dividend equivalents to certain holders of vested stock options of $1.3 million, (v) spent $28.4 million on debt issuance costs primarily related to the issuance of the Term Loan Credit Agreement and to a lesser extent the new Senior Credit Facility Agreement and amendments to increase its borrowing capacity under the Prior Credit Agreement, (vi) spent $5.4 million in stock offering costs related to the public offering and (vii) spent $4.5 million in make whole payments to retire the 10.625% Senior Notes early. • 2022: The Company (i) borrowed $925.0 million and repaid $755.0 million for a net increase in long-term debt related to the Prior Credit Agreement of $170.0 million, (ii) issued an aggregate principal amount of $225.0 million ($210.2 million net of discounts) of its 10.000% Senior Notes and an aggregate principal amount of $250.0 million ($230.0 million net of discounts) of its 10.625% Senior Notes, (iii) received $85.0 million from the issuance of 3,933,376 shares of common stock in a private placement, (iv) received $7.9 million in proceeds from the exercises of warrants and stock options of the Company, (v) paid dividends to its common stockholders of $10.4 million and dividend equivalents to certain holders of vested stock options of $1.2 million and (vi) spent $17.1 million on debt issuance costs related to amendments to increase its borrowing capacity under the Prior Credit Agreement and the issuance of the 10.000% Senior Notes and 10.625% Senior Notes.
Because EBITDAX excludes some, but not all items that affect net income (loss) and may vary among companies, the EBITDAX amounts presented may not be comparable to similar metrics of other companies. The Credit Agreement provides a material source of liquidity for us.
Because EBITDAX excludes some, but not all items that affect net income and may vary among companies, the EBITDAX amounts presented may not be comparable to similar metrics of other companies.
The Company’s primary sources of short-term liquidity are (i) cash and cash equivalents, including cash proceeds from our recent $225.0 million and $25.0 million offerings of 10.625% Senior Notes in November 2022 and December 2022, respectively, (ii) net cash provided by operating activities, (iii) unused borrowing capacity under the Credit Agreement, (iv) on an opportunistic basis, other issuances of debt or equity securities and (v) other sources, such as sales of nonstrategic assets.
The Company’s primary sources of short-term liquidity are (i) cash and cash equivalents, including remaining cash proceeds from our recent $1.2 billion Term Loan Credit Agreement, (ii) net cash provided by operating activities, (iii) unused borrowing capacity under the Senior Credit Facility Agreement, (iv) on an opportunistic basis, other issuances of debt or equity securities and (v) other sources, such as sales of nonstrategic assets.
In addition, if we are in default under the Credit Agreement and are unable to obtain a waiver of that default from our lenders, lenders under that facility and under the indentures governing each series of our outstanding 10.000% Senior Notes and 10.625% Senior Notes, would be entitled to exercise all of their remedies for default.
In addition, if we are in default under the Term Loan Credit Agreement and the Senior Credit Facility Agreement and are unable to obtain a waiver of that default from our lenders, lenders under those agreements would be entitled to exercise all of their remedies for default.
HighPeak Energy expects to fund its forecasted capital expenditures with cash on its balance sheet, cash generated by operations, through borrowings under the Credit Agreement, and, depending on market circumstances, potential future debt or equity offerings. The Company’s capital expenditures for the year ended December 31, 2022 were $1.0 billion, excluding acquisitions.
HighPeak Energy expects to fund its forecasted capital expenditures with cash on its balance sheet, cash generated by operations and borrowings under the Senior Credit Facility Agreement, if needed. The Company’s capital expenditures for the year ended December 31, 2023 were $1.0 billion, excluding acquisitions.
If the Company decides not to pursue additional appraisal activities or development of these fields, the costs of these wells will be charged to exploration and abandonment expense.
The ultimate disposition of these well costs is dependent on the results of future drilling activity and development decisions. If the Company decides not to pursue additional appraisal activities or development of these fields, the costs of these wells will be charged to exploration and abandonment expense.
It should not be assumed that the standardized measure included in this Annual Report as of December 31, 2022 is the current market value of the Company’s estimated proved reserves.
We cannot predict the amounts or timing of future reserve revisions or removals. It should not be assumed that the standardized measure included in this Annual Report as of December 31, 2023 is the current market value of the Company’s estimated proved reserves.
Under the terms of our Credit Agreement, the 10.000% Senior Notes and the 10.625% Senior Notes, if we fail to comply with the covenants that establish a maximum permitted ratio of total debt, as defined in the Credit Agreement, to EBITDAX, we would be in default, an event that would prevent us from borrowing under the Credit Agreement and would therefore materially limit a significant source of our liquidity.
Under the terms of our Term Loan Credit Agreement and the Senior Credit Facility Agreement, if we fail to comply with the covenants that establish a maximum permitted ratio of total net leverage or a minimum permitted ratio of asset coverage, we would be in default, an event that would accelerate repayments under the Term Loan Credit Agreement and prevent us from borrowing under the Senior Credit Facility Agreement and would therefore materially limit a significant source of our liquidity.
Year Ended December 31, 2022 2021 Change Income tax expense (in thousands) $ 75,361 $ 16,904 $ 58,457 Effective income tax rate 24.1 % 16.7 % 7.4 % The change in income tax expense during the year ended December 31, 2022, compared with 2021, was due to increased net income during the year ended December 31, 2022 compared with 2021.
Year Ended December 31, 2023 2022 Change Income tax expense (in thousands) $ 65,905 $ 75,361 $ (9,456 ) Effective income tax rate 23.4 % 24.1 % (0.7) % The change in income tax expense during the year ended December 31, 2023, compared with 2022, was due to decreased net income during the year ended December 31, 2023 compared with 2022.
DD&A expense is as follows (in thousands): Year Ended December 31, 2022 2021 Change DD&A expense $ 177,742 $ 65,201 $ 112,541 DD&A expense per Boe is as follows: Year Ended December 31, 2022 2021 % Change DD&A expense per Boe $ 19.89 $ 19.20 4 % The increase in DD&A expense is primarily due to the increased production associated with our successful horizontal drilling program and bolt-on acquisitions.
DD&A expense is as follows (in thousands): Year Ended December 31, 2023 2022 Change DD&A expense $ 424,424 $ 177,742 $ 246,682 DD&A expense per Boe is as follows: Year Ended December 31, 2023 2022 % Change DD&A expense per Boe $ 25.51 $ 19.89 28 % The increase in DD&A expense is primarily due to the increased production associated with our successful horizontal drilling program.
Interest Rate Risk. We are exposed to market risk due to the floating interest rate associated with any outstanding balance on the Credit Agreement. As of December 31, 2022, we had a $270.0 million outstanding balance on the Credit Agreement.
Interest Rate Risk. We are exposed to market risk due to the floating interest rate associated with any outstanding balance on the Term Loan Credit Agreement and the Senior Credit Facility Agreement. As of December 31, 2023, we had a $1.2 billion outstanding balance on the Term Loan Credit Agreement and zero outstanding on the Senior Credit Facility Agreement.
The markets for the commodities produced by our industry strengthened in 2021 and remained strong in 2022 as a result of increased demand outpacing increased supply for each of the commodities we produce.
The markets for the commodities produced by our industry strengthened in 2021 and continued to remain strong through 2023 and into 2024, although the market has decreased from 2022 levels overall, as a result of increased demand outpacing increased supply for each of the commodities we produce.
We are also subject to financial covenants under our Credit Agreement based on EBITDAX ratios and debt covenants under the indentures governing the 10.000% Senior Notes and 10.625% Senior Notes based on consolidated leverage indebtedness to forward EBITDAX ratios as further described in Note 7 of Notes to Consolidated Financial Statements included in “Item 8.
We are also subject to financial covenants under our Term Loan Credit Agreement and Senior Credit Facility Agreement based on EBITDAX ratios as further described in Note 7 of Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report.
The increase in net cash flow provided by operating activities for the year ended December 31, 2022, compared with 2021, was primarily due to an increase in cash flow from the statement of operations related mostly to increased revenues associated with increased production volumes as a result of our successful horizontal drilling program and to a lesser extent, bolt-on acquisitions, coupled with an increase in accounts payable and accrued liabilities primarily as a result of increased drilling and completion activities, increased operating and general and administrative expenses and increased revenues payable to partners and royalty owners.
The increase in net cash flow provided by operating activities for the year ended December 31, 2023, compared with 2022, was primarily due to an increase in cash flow from the statement of operations related mostly to increased revenues associated with increased production volumes as a result of our successful horizontal drilling program, coupled with a positive working capital change of $52.5 million.
Production and ad valorem taxes per Boe are as follows: Year Ended December 31, 2022 2021 % Change Production taxes per Boe $ 4.04 $ 3.09 31 % Ad valorem taxes per Boe $ 0.26 $ 0.07 271 % $ 4.30 $ 3.16 36 % Production taxes per Boe for the year ended December 31, 2022, compared with 2021, increased primarily due to the 30% overall increase in commodity prices.
Production and ad valorem taxes per Boe are as follows: Year Ended December 31, 2023 2022 % Change Production taxes per Boe $ 3.19 $ 4.04 (21 )% Ad valorem taxes per Boe $ 0.32 $ 0.26 23 % $ 3.51 $ 4.30 (18 )% Production taxes per Boe for the year ended December 31, 2023, compared with 2022, decreased primarily due to the 21% overall decrease in realized sales prices.
Derivative loss, net is as follows (in thousands): Year Ended December 31, 2022 2021 Change Noncash derivative loss, net $ (1,909 ) $ (15,467 ) $ 13,558 Cash payments on settled derivative instruments, net (58,096 ) (11,267 ) (46,829 ) Derivative loss, net $ (60,005 ) $ (26,734 ) $ (33,271 ) 65 The Company primarily utilizes commodity swap contracts and deferred premium puts to (i) reduce the effect of price volatility on the commodities the Company produces and sells or consumes, (ii) support the Company’s annual capital budget and expenditure plans and (iii) reduce commodity price risk associated with certain capital projects.
Derivative loss, net is as follows (in thousands): Year Ended December 31, 2023 2022 Change Noncash gain (loss) on derivative instruments, net $ 51,796 $ (58,096 ) $ 109,892 Cash paid on settlement of derivative instruments, net (24,194 ) (1,909 ) (22,285 ) Gain (loss) on derivative instruments, net $ 27,602 $ (60,005 ) $ 87,607 73 The Company primarily utilizes commodity swap contracts, enhanced collars and deferred premium puts to (i) reduce the effect of price volatility on the commodities the Company produces and sells, (ii) support the Company’s annual capital budget and expenditure plans and (iii) reduce commodity price risk associated with certain capital projects.
The increase in DD&A expense per Boe can be primarily attributed to inflationary pressures and acquisitions, including new leasehold. General and administrative expense.
The increase in DD&A expense per Boe can be primarily attributed to inflationary pressures and lower well performance as we test new areas and new geologic horizons. General and administrative expense.
The increase in net cash used in investing activities for the year ended December 31, 2022, compared with 2021, was primarily due to increases in additions to crude oil and natural gas properties as the Company significantly increased its drilling and completion program in 2022 compared to 2021.
Investing activities. The slight decrease in net cash used in investing activities for the year ended December 31, 2023, compared with 2022, was primarily due to a decrease in additions to crude oil and natural gas properties including drilling and completion operations and acquisitions in total. Financing activities.
Crude oil and natural gas production costs are as follows (in thousands): Year Ended December 31, 2022 2021 Change Crude oil and natural gas production costs $ 69,599 $ 25,053 $ 44,546 63 Crude oil and natural gas production costs per Boe are as follows: Year Ended December 31, 2022 2021 % Change Lease operating expense $ 7.49 $ 7.28 3 % Workover costs 0.30 0.10 200 % $ 7.79 $ 7.38 6 % Lease operating expense per Boe for 2022 increased slightly compared with 2021.
Crude oil and natural gas production costs are as follows (in thousands): Year Ended December 31, 2023 2022 Change Crude oil and natural gas production costs $ 145,362 $ 69,599 $ 75,763 71 Crude oil and natural gas production costs per Boe are as follows: Year Ended December 31, 2023 2022 % Change Lease operating expense $ 8.04 $ 7.49 7 % Workover costs 0.70 0.30 133 % $ 8.74 $ 7.79 12 % Lease operating expense per Boe for 2023 increased slightly compared with 2022.
The weighted average prices are as follows: Year Ended December 31, 2022 2021 % Change Crude oil per Bbl $ 94.61 $ 70.10 35 % NGL per Bbl $ 35.67 $ 35.11 2 % Natural gas per Mcf $ 5.36 $ 3.88 38 % Total per Boe $ 84.56 $ 64.82 30 % The increase in prices for crude oil, NGL and natural gas for the year ended December 31, 2022, compared with 2021 was due to a higher commodity price environment.
The weighted average prices, excluding the effects of derivatives, are as follows: Year Ended December 31, 2023 2022 % Change Crude oil per Bbl $ 78.26 $ 94.61 (17 )% NGL per Bbl $ 21.51 $ 35.67 (40 )% Natural gas per Mcf $ 1.56 $ 5.36 (71 )% Total per Boe $ 66.80 $ 84.56 (21 )% The decrease in prices for crude oil, NGL and natural gas for the year ended December 31, 2023, compared with 2022 was due to a lower commodity price environment.
Additionally, the impact of inflation as well as rising interest rates continue to have a negative impact on our cash flows and results of operations. Outlook HighPeak Energy’s financial position and future prospects, including its revenues, operating results, profitability, liquidity, future growth and the value of its assets, depend heavily on prevailing commodity prices.
The Company continues to assess and monitor the impact of these factors and consequences on the Company and its operations. Outlook HighPeak Energy’s financial position and future prospects, including its revenues, operating results, profitability, liquidity, future growth and the value of its assets, depend heavily on prevailing commodity prices.
As of December 31, 2022, HighPeak Energy was developing its properties using six (6) drilling rigs and three (3) frac fleets and expects to average four to five (4-5) drilling rigs and two to three (2-3) frac crews during 2023.
As of December 31, 2023, HighPeak Energy was developing its properties using three (3) drilling rigs and one (1) frac crew and expects to average two (2) drilling rigs and one (1) frac crew during 2024 under our current development plan.
For additional information on the risks, see “Part I, Item 1A. Risk Factors.” Given the dynamic nature of this situation, 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 monthly.
For additional information on the risks, see “Part I, Item 1A. Risk Factors.” Given the dynamic nature of this situation, the Company is maintaining flexibility in its capital plan as indicated by its recent shift to an anticipated two (2) drilling rig program for 2024.
Crude oil, NGL and natural gas revenues are as follows (in thousands): Year Ended December 31, 2022 2021 Change Crude oil, NGL and natural gas revenues $ 755,686 $ 220,124 $ 535,562 Average daily sales volumes are as follows: Year Ended December 31, 2022 2021 % Change Crude Oil (Bbls) 20,718 8,225 152 % NGL (Bbls) 2,249 613 267 % Natural Gas (Mcf) 9,105 2,795 226 % Total (Boe) 24,485 9,304 163 % The increase in average daily Boe sales volumes for the year ended December 31, 2022, compared with 2021 was due to the Company’s successful horizontal drilling program and to a lesser extent, bolt-on acquisitions.
Crude oil, NGL and natural gas revenues are as follows (in thousands): Year Ended December 31, 2023 2022 Change Crude oil, NGL and natural gas revenues $ 1,111,293 $ 755,686 $ 355,607 Average daily sales volumes are as follows: Year Ended December 31, 2023 2022 % Change Crude Oil (Bbls) 38,041 20,718 84 % NGL (Bbls) 4,239 2,249 88 % Natural Gas (Mcf) 19,777 9,105 117 % Total (Boe) 45,577 24,485 86 % The increase in average daily Boe sales volumes for the year ended December 31, 2023, compared with 2022 was due to the Company’s successful horizontal drilling program.
General and administrative expense and stock-based compensation expense are as follows (in thousands): Year Ended December 31, 2022 2021 Change General and administrative expense $ 12,470 $ 8,885 $ 3,585 Stock-based compensation expense $ 33,352 $ 6,676 $ 26,676 General and administrative expense per Boe is as follows: Year Ended December 31, 2022 2021 % Change General and administrative expense per Boe $ 1.40 $ 2.62 (47 )% The increase in general and administrative expense for the year ended December 31, 2022 is primarily as a result of increased employee count, salary increases and annual bonuses.
General and administrative expense and stock-based compensation expense are as follows (in thousands): Year Ended December 31, 2023 2022 Change General and administrative expense $ 16,598 $ 12,470 $ 4,128 Stock-based compensation expense $ 25,957 $ 33,352 $ (7,395 ) General and administrative expense per Boe is as follows: Year Ended December 31, 2023 2022 % Change General and administrative expense per Boe $ 1.00 $ 1.40 (29 )% The increase in general and administrative expense for the year ended December 31, 2023 is primarily as a result of increased employee count, salary increases and annual bonuses in addition to an increase in internal and external audit costs and legal expenses related to the growth of the Company.
Our Credit Agreement allows us to fix the interest rate for all or a portion of the principal balance of the Credit Agreement for a period up to three months. To the extent that the interest rate is fixed, interest rate changes will affect the Credit Agreement’s fair value but will not impact results of operations or cash flows.
To the extent that the interest rate is fixed, interest rate changes will affect the Term Loan Credit Agreement’s and Senior Credit Facility Agreement’s fair value but will not impact results of operations or cash flows.
Additionally, the Board is evaluating a range of strategic alternative transactions to maximize shareholder value, including the potential sale of the Company. Strategic Alternatives. On January 23, 2023, the Company announced the intention of its Board to initiate a process to evaluate certain strategic alternatives to maximize shareholder value, including a potential sale of the Company.
Strategic Alternatives On January 23, 2023, the Company announced the intention of its Board to initiate a process to evaluate certain strategic alternatives to maximize shareholder value, including a potential sale of the Company. Texas Capital Securities and Wells Fargo Securities, LLC have been retained as a financial advisors with respect to this strategic alternatives process.
The budget above assumes that the Company will operate an average of four to five (4-5) drilling rigs and an average of two to three (2-3) frac fleets in the Permian Basin during 2023.
The budget above assumes that the Company will operate an average of two (2) drilling rigs and an average of one (1) frac crew during 2024.
Proved crude oil and natural gas properties are reviewed for impairment at the level at which depletion of proved properties is calculated. See Note 2 of Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” for additional information. Impairment of unproved crude oil and natural gas properties.
See Note 2 of Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” for additional information. Impairment of unproved crude oil and natural gas properties. At December 31, 2023, the Company carried unproved property costs of $72.7 million. Management assesses unproved crude oil and natural gas properties for impairment on a project-by-project basis.
In addition, results of drilling, testing and production after the date of an estimate may justify material revisions, positively or negatively, to the estimate of proved reserves.
In addition, results of drilling, testing and production after the date of an estimate may justify material revisions, positively or negatively, to the estimate of proved reserves. For the years ended December 31, 2023, 2022 and 2021, net downward revisions of our proved reserves totaled approximately 16,093 MBoe, 9,211 MBoe and 1,658 MBoe, respectively.
See the Company ’ s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 7, 2022 for a discussion of the Company's 2021 results of operations compared with the Company's 2020 results of operations. Overview HighPeak Energy, Inc., a Delaware corporation, was formed in October 2019.
Financial Statements and Supplementary Data” of this Annual Report. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 6, 2023 for a discussion of the Company’s 2022 results of operations compared with the Company’s 2021 results of operations.
Weighted average realized natural gas prices per Mcf increased to $5.36 during the year ended December 31, 2022, compared with $3.88 during 2021. • Cash provided by operating activities totaled $504.0 million for the year ended December 31, 2022. • The Company increased its borrowing capacity under the Credit Agreement to $525.0 million with $270.0 million drawn as of December 31, 2022.
Weighted average realized natural gas prices per Mcf decreased to $1.56 during the year ended December 31, 2023, compared with $5.36 during 2022. • Cash provided by operating activities totaled $756.4 million for the year ended December 31, 2023, compared with $504.0 million for the year ended December 31, 2022. 67 Derivative Financial Instruments Derivative financial instrument exposure.
Changes in interest rates do not impact the amount of interest we pay on our fixed-rate 10.000% Senior Notes and 10.625% Senior Notes but can impact their fair values. Commodity Price Risk. The prices we receive for our crude oil, NGL and natural gas production directly impact our revenue, profitability, access to capital, and future rate of growth.
The prices we receive for our crude oil, NGL and natural gas production directly impact our revenue, profitability, access to capital, and future rate of growth.
The Company reviews its proved properties to be held and used whenever management determines that events or circumstances indicate that the recorded carrying value of the properties may not be recoverable.
The Company performs assessments of its long-lived assets to be held and used, including proved crude oil and natural gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable.
As of December 31, 2022, the assets consisted of two highly contiguous leasehold positions of approximately 125,730 gross (107,704 net) acres, approximately 56% of which were held by production, with an average working interest of 86%. Our acreage is composed of two core areas, Flat Top to the north and Signal Peak to the south.
As of December 31, 2023, the assets consisted of two highly contiguous leasehold positions of approximately 143,187 gross (131,636 net) acres, approximately 64% of which were held by production, with an average working interest of 92%.
As of December 31, 2022, the Company had $745.0 million in outstanding borrowings and approximately $252.6 million available to borrow under the Credit Agreement. The Company also had unrestricted cash on hand of $30.5 million as of December 31, 2022. Cash flows from operating, investing and financing activities are summarized below (in thousands).
As of December 31, 2023, the Company had $1.2 billion in outstanding borrowings under the Term Loan Credit Agreement and approximately $68.9 million available to borrow under the Senior Credit Facility Agreement. The Company also had unrestricted cash on hand of $194.5 million as of December 31, 2023.
The Company may also, from time to time, utilize interest rate contracts to reduce the effect of interest rate volatility on the Company’s indebtedness. The above mark-to-market loss and cash settlements relate to crude oil and natural gas derivative swap contracts. Income tax expense.
The Company’s Term Loan Credit Agreement and Senior Credit Facility Agreement require the Company to hedge certain quantities of its projected crude oil production. The Company may also, from time to time, utilize natural gas contracts or interest rate contracts to reduce the effect of interest rate volatility on the Company’s indebtedness.
Year Ended December 31, 2022 2021 Change Net cash provided by operating activities $ 504,014 $ 147,015 $ 356,999 Net cash used in investing activities $ (1,182,408 ) $ (250,371 ) $ (932,037 ) Net cash provided by financing activities $ 674,029 $ 118,673 $ 555,356 66 Operating activities.
Year Ended December 31, 2023 2022 Change Net cash provided by operating activities $ 756,389 $ 504,014 $ 252,375 Net cash used in investing activities $ (1,125,935 ) $ (1,182,408 ) $ 56,473 Net cash provided by financing activities $ 533,557 $ 674,029 $ (140,472 ) 74 Operating activities.
Interest expense is as follows (in thousands): Year Ended December 31, 2022 2021 Change Interest expense on 10.000% Senior Notes $ 19,625 $ — $ 19,625 Interest expense on Credit Agreement 14,022 1,986 12,036 Interest expense on 10.625% Senior Notes 3,593 — 3,593 Amortization of discounts 7,735 498 7,237 Amortization of debt issuance costs 5,635 — 5,635 $ 50,610 $ 2,484 $ 48,126 The increase in interest expense can be attributed to increased borrowings under the Credit Agreement and the issuance of $225.0 million of the Company’s 10.000% Senior Notes in February 2022 and $250.0 million of the Company’s 10.625% Senior Notes in November and December 2022.
Interest expense is as follows (in thousands): Year Ended December 31, 2023 2022 Change Interest expense on Term Loan Credit Agreement $ 47,820 $ — $ 47,820 Interest expense on Prior Credit Agreement 30,493 14,022 16,471 Interest expense on 10.625% Senior Notes 27,064 3,593 23,471 Interest expense on 10.000% Senior Notes 15,875 19,625 (3,750 ) Interest expense on Senior Credit Facility Agreement 98 — 98 Amortization of discounts 15,140 7,735 7,405 Amortization of debt issuance costs 11,411 5,635 5,776 $ 147,901 $ 50,610 $ 97,291 The increase in interest expense can be primarily attributed to higher interest rates in 2023 compared to 2022, but more importantly, to increased borrowings under the Term Loan Credit Agreement beginning in September 2023, increased borrowings under the Prior Credit Agreement throughout 2023 until September 2023 when it was paid in full and the issuance of $250.0 million of the Company’s 10.625% Senior Notes in late-2022 that were also paid off in September 2023.
At December 31, 2022, the Company carried unproved property costs of $114.7 million. Management assesses unproved crude oil and natural gas properties for impairment on a project-by-project basis. Management's impairment assessments include evaluating the results of exploration activities, management's price outlooks and planned future sales or expiration of all or a portion of such projects. Suspended wells.
Management's impairment assessments include evaluating the results of exploration activities, management's price outlooks and planned future sales or expiration of all or a portion of such projects. Suspended wells. The Company suspends the costs of exploratory wells that discover hydrocarbons pending a final determination of the commercial potential of the discovery.
Exploration and abandonment expense details are as follows (in thousands): Year Ended December 31, 2022 2021 Change Geologic and geophysical personnel costs $ 1,003 $ 807 $ 196 Geologic and geophysical data costs 146 487 (341 ) Abandoned leasehold costs — 235 (235 ) Plugging and abandonment expense — 20 (20 ) Exploration and abandonments expense $ 1,149 $ 1,549 $ (400 ) The decrease in exploration and abandonment expenses is primarily the result of a reduction in the purchase of geologic and geophysical data and no abandoned leasehold costs in 2022 compared with $235,000 in 2021 partially offset by increased geologic and geophysical personnel costs. 64 Depletion, depreciation and amortization expense.
Exploration and abandonment expense details are as follows (in thousands): Year Ended December 31, 2023 2022 Change Abandoned leasehold costs $ 3,372 $ — $ 3,372 Geologic and geophysical personnel costs 993 1,003 (10 ) Plugging and abandonment expense 745 — 745 Geologic and geophysical data costs 124 146 (22 ) Exploration and abandonments expense $ 5,234 $ 1,149 $ 4,085 The increase in exploration and abandonment expenses is primarily the result of $3.4 million in abandoned leasehold costs related to undeveloped acreage that was not in an area where the Company had current plans to drill and thus the leases were allowed to expire.
Removed
Based on first quarter 2023 commodity prices and other factors, the Company currently plans to average four to five (4-5) drilling rigs and two to three (2-3) frac fleets on its properties in the Permian Basin during 2023.
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Overview HighPeak Energy, Inc., a Delaware corporation, was formed in October 2019, is an independent crude oil and natural gas exploration and production company that explores for, develops and produces crude oil, NGL and natural gas in the Permian Basin in West Texas, more specifically, the Midland Basin.
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The Company does not intend to comment further until it determines that further disclosure is appropriate or necessary. 58 Acquisitions During the year ended December 31, 2022, the Company incurred a total of $527.3 million in acquisition costs to acquire various crude oil and natural gas properties largely contiguous to its Signal Peak and Flat Top operating areas primarily in Howard and Borden counties, consisting of approximately 45,101 net acres and associated producing properties, water system infrastructure and in-field fluid gathering pipelines.
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Our acreage is composed of two core areas, Flat Top primarily in the northern portion of Howard County extending into southern Borden County, southwest Scurry County and northwest Mitchell County and Signal Peak in the southern portion of Howard County.
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Included in the acquisition costs is the issuance of 10,853,634 shares of HighPeak Energy common stock valued at $265.0 million on the respective closing dates.
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Prices for the commodities produced by our industry improved from historic lows in 2020, with crude oil and natural gas prices reaching their highest average annual price since 2014 in 2022 before cooling off slightly in 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe Company does not enter into any commodity derivative instruments, including derivatives, for speculative or trading purposes. Counterparty and Customer Credit Risk. The Company’s derivative contracts, if any, expose it to credit risk in the event of nonperformance by counterparties.
Biggest changeThe Company’s Term Loan Credit Agreement and Senior Credit Facility Agreement require the Company to hedge certain quantities of its projected crude oil production. The Company does not enter into any commodity derivative instruments, including derivatives, for speculative or trading purposes. Counterparty and Customer Credit Risk.
Due to this volatility, the Company uses commodity derivative instruments, such as collars, puts and swaps, to hedge price risk associated with a portion of anticipated production.
Due to this volatility, the Company uses commodity derivative instruments, such as collars, puts, swaps and basis swaps, to hedge price risk associated with a portion of anticipated production.
During the period from January 1, 2018 through December 31, 2022, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $114.34, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $9.35.
During the period from January 1, 2020 through December 31, 2023, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $114.34, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $9.35.
These instruments provide only partial price protection against declines in crude oil and natural gas prices and may partially limit the Company’s potential gains from future increases in prices. The Company enters into hedging arrangements to protect its capital expenditure budget and to protect its Credit Agreement borrowing base.
These instruments provide only partial price protection against declines in crude oil and natural gas prices and may partially limit the Company’s potential gains from future increases in prices. The Company enters into hedging arrangements to protect its capital expenditure budget.
These hedging instruments allow the Company to reduce, but not eliminate, the potential effects of the variability in cash flow from operations due to fluctuations in crude oil and natural gas prices, provide increased certainty of cash flows for its drilling program and protect the Credit Agreement borrowing base.
These hedging instruments allow the Company to reduce, but not eliminate, the potential effects of the variability in cash flow from operations due to fluctuations in crude oil and natural gas prices and provide increased certainty of cash flows for its drilling program.
The Company also has fixed rate debt but does not currently utilize derivative instruments to manage the economic effect of changes in interest rates. The impact of a 1% increase in interest rates on our outstanding debt as of December 31, 2022 would have resulted in an annual increase in interest expense of approximately $2.0 million. 71
The Company also periodically has fixed rate debt but does not currently utilize derivative instruments to manage the economic effect of changes in interest rates. The impact of a 1% increase in interest rates on our outstanding debt as of December 31, 2023 would have resulted in an annual increase in interest expense of approximately $12.0 million. 79
A $1.00 per barrel increase (decrease) in the weighted average crude oil price for the year ended December 31, 2022 would have increased (decreased) the Company’s revenues by approximately $7.9 million, excluding the effects of derivatives, and a $0.10 per Mcf increase (decrease) in the weighted average natural gas price for the year ended December 31, 2022 would have increased (decreased) the Company’s revenues by approximately $332,000, excluding the effects of derivatives.
A $1.00 per barrel increase (decrease) in the weighted average crude oil price for the year ended December 31, 2023 would have increased (decreased) the Company’s crude oil and NGL revenues by approximately $14.3 million, excluding the effects of derivatives, and a $0.10 per Mcf increase (decrease) in the weighted average natural gas price for the year ended December 31, 2023 would have increased (decreased) the Company’s natural gas revenues by approximately $722,000, excluding the effects of derivatives.
Interest Rate Risk. At December 31, 2022, we had $270 million outstanding under the Credit Agreement and $252.6 million of available borrowing capacity. The Company is subject to interest rate risk on its variable rate debt from our Credit Agreement.
Interest Rate Risk. At December 31, 2023, we had $1.2 billion outstanding under the Term Loan Credit Agreement and had $68.9 million of available borrowing capacity under the Senior Credit Facility Agreement. The Company is subject to interest rate risk on its variable rate debt from our Term Loan Credit Agreement and Senior Credit Facility Agreement.
It is anticipated that any counterparties to HighPeak Energy’s derivative contracts would have investment grade ratings. The Company’s principal exposures to credit risk are through receivables from the sale of crude oil and natural gas production due to the concentration of its crude oil and natural gas receivables with a few significant customers.
The Company’s principal exposures to credit risk are through receivables from the sale of crude oil and natural gas production due to the concentration of its crude oil and natural gas receivables with a few significant customers.
It is anticipated that if the Company enters into any commodity contracts, the collateral for the outstanding borrowings under the Credit Agreement may be used as collateral for the Company’s commodity derivatives. The Company evaluates the credit standing of its counterparties as it deems appropriate.
The Company’s derivative contracts, if any, expose it to credit risk in the event of nonperformance by counterparties. It is anticipated that if the Company enters into any commodity contracts, the collateral for the outstanding borrowings under the Credit Agreements may be used as collateral for the Company’s commodity derivatives.
The average forward prices based on December 31, 2022 market quotes were as follows: Year Ending December 31 2023 Year Ending December 31, 2024 Average forward NYMEX crude oil price per Bbl $ 78.96 $ 73.90 Average forward NYMEX natural gas price per MMBtu $ 4.22 $ 4.27 The average forward purchase prices based on March 2, 2022 market quotes were as follows: Remainder of 2022 Year Ending December 31, 2023 Average forward NYMEX crude oil price per Bbl $ 77.02 $ 72.62 Average forward NYMEX natural gas price per MMBtu $ 3.31 $ 3.81 Credit risk.
The average forward prices based on December 31, 2023 market quotes were as follows: Year Ending December 31 2024 Year Ending December 31, 2025 Average forward NYMEX crude oil price per Bbl $ 71.30 $ 65.10 Average forward NYMEX natural gas price per MMBtu $ 2.67 $ 3.49 The average forward purchase prices based on March 1, 2024 market quotes were as follows: Remainder of 2024 Year Ending December 31, 2025 Average forward NYMEX crude oil price per Bbl $ 75.97 $ 70.74 Average forward NYMEX natural gas price per MMBtu $ 2.51 $ 3.46 Credit risk.
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The Company’s Credit Agreement and the indentures governing the Company’s 10.000% Senior Notes and 10.625% Senior Notes require the Company to hedge certain quantities of its projected crude oil production, in the case of the Credit Agreement, if its ratio of debt to EBITDAX is greater than a certain ratio.
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The Company evaluates the credit standing of its counterparties as it deems appropriate. It is anticipated that any counterparties to HighPeak Energy’s derivative contracts would have investment grade ratings.

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