HighPeak Energy, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS   Report of Independent Registered Public Accounting Firm 72     Consolidated Balance Sheets as of December 31, 2022 and 2021 73     Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021, the Period from August 22, 2020 through December 31, 2020 and the Period from January 1, 2020 through August 21, 2020 74     Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2022 and 2021 and the Period from August 22, 2020 through December 31, 2020 75     Consolidated Statements of Changes in Partners’ Capital for the Period from January 1, 2020 through August 21, 2020 76     Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021, the Period from August 22, 2020 through December 31, 2020 and the Period from January 1, 2020 through August 21, 2020 77     Notes to Consolidated Financial Statements 78     Unaudited Supplementary Data 100   72     Report of Independent Registered Public Accounting Firm   To the Stockholders and the Board of Directors of HighPeak Energy, Inc.     Opinion on the Consolidated Financial Statements   We have audited the accompanying consolidated balance sheets of HighPeak Energy, Inc. and its subsidiaries (the Company) as of December 31, 2022 and 2021 (Successor Company), and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years ended December 31, 2022 and 2021 and the period from August 22, 2020 through December 31, 2020 (Successor Company), and the consolidated statements of operations, changes in partners’ capital, and cash flows for the period from January 1, 2020 through August 21, 2020 (Predecessor Company), and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years ended December 31, 2022 and 2021 and the period from August 22, 2020 through December 31, 2020 (Successor Company) and the period from January 1, 2020 through August 21, 2020 (Predecessor Company), in conformity with accounting principles generally accepted in the United States of America.     Basis for Opinion   These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.   Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.     /s/ WEAVER AND TIDWELL, L.L.P.   We have served as the Company’s auditor since 2020.   Fort Worth, Texas   March 6, 2023   73       HighPeak Energy, Inc. Consolidated Balance Sheets (in thousands, except share data)       December 31,       2022     2021   ASSETS                 Current assets:                 Cash and cash equivalents   $ 30,504     $ 34,869   Accounts receivable     96,596       39,378   Inventory     13,275       3,304   Prepaid expenses     4,133       7,154   Derivatives     17       2,199   Deposits     —       50   Total current assets     144,525       86,954   Crude oil and natural gas properties, using the successful efforts method of accounting:                 Proved properties     2,270,236       699,701   Unproved properties     114,665       108,392   Accumulated depletion, depreciation and amortization     ( 259,962 )     ( 82,478 ) Total crude oil and natural gas properties, net     2,124,939       725,615   Other property and equipment, net     3,587       1,600   Other noncurrent assets     6,431       4,791   Total assets   $ 2,279,482     $ 818,960   LIABILITIES AND STOCKHOLDERS ’ EQUITY                 Current liabilities:                 Accounts payable – trade   $ 105,565     $ 38,144   Accrued capital expenditures     91,842       26,106   Derivatives     16,702       13,591   Revenues and royalties payable     15,623       7,502   Other accrued liabilities     15,600       6,124   Accrued interest     13,152       179   Advances from joint interest owners     7,302       10,841   Other current liabilities     343       513   Total current liabilities     266,129       103,000   Noncurrent liabilities:                 Long-term debt, net     704,349       97,929   Deferred income taxes     131,164       55,802   Asset retirement obligations     7,502       4,260   Derivatives     691       4,075   Other     —       831   Commitments and contingencies (Note 10)             Stockholders’ equity:                 Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized, none issued and outstanding at December 31, 2022 and 2021     —       —   Common stock, $ 0.0001 par value, 600,000,000 shares authorized, 113,165,027 and 96,774,185 shares issued and outstanding at December 31, 2022 and 2021, respectively     11       10   Additional paid-in capital     1,008,896       617,489   Retained earnings (accumulated deficit)     160,740       ( 64,436 ) Total stockholders’ equity     1,169,647       553,063   Total liabilities and stockholders ’ equity   $ 2,279,482     $ 818,960     The accompanying notes are an integral part of these consolidated financial statements.   74       HighPeak Energy, Inc. Consolidated Statements of Operations (in thousands, except per share data)       Year Ended December 31,     August 21, 2020 through December 31,     January 1, 2020 through August 21,       2022     2021     2020     2020       Successor     Predecessor   Operating Revenues:                                 Crude oil sales   $ 715,469     $ 210,453     $ 15,988     $ 8,069   NGL and natural gas sales     40,217       9,671       412       154   Total operating revenues     755,686       220,124       16,400       8,223   Operating Costs and Expenses:                                 Crude oil and natural gas production     69,599       25,053       2,653       4,870   Production and ad valorem taxes     38,440       10,746       886       566   Exploration and abandonments     1,149       1,549       5,032       4   Depletion, depreciation and amortization     177,742       65,201       9,877       6,385   Accretion of discount     370       167       51       89   General and administrative     12,470       8,885       2,775       4,840   Stock-based compensation     33,352       6,676       15,776       —   Total operating costs and expenses     333,122       118,277       37,050       16,754   Income (loss) from operations     422,564       101,847       ( 20,650 )     ( 8,531 ) Interest and other income     266       1       6       —   Interest expense     ( 50,610 )     ( 2,484 )     ( 8 )     —   Derivative loss, net     ( 60,005 )     ( 26,734 )     —       —   Other expense     —       ( 167 )     —       ( 76,503 ) Income (loss) before income taxes     312,215       72,463       ( 20,652 )     ( 85,034 ) Income tax expense (benefit)     75,361       16,904       ( 4,223 )     —   Net income (loss)   $ 236,854     $ 55,559     $ ( 16,429 )   $ ( 85,034 ) Earnings (loss) per share:                                 Basic net income (loss)   $ 2.04     $ 0.55     $ ( 0.18 )         Diluted net income (loss)   $ 1.93     $ 0.54     $ ( 0.18 )                                           Weighted average shares outstanding:                                 Basic     104,738       93,127       91,629           Diluted     111,164       94,772       91,629                                             Dividends declared per share   $ 0.100     $ 0.125     $ —             The accompanying notes are an integral part of these consolidated financial statements.   75       HighPeak Energy, Inc. Consolidated Statements of Changes in Stockholders ’  Equity (Successor) (in thousands)   Years ended December 31, 2022 and 2021 and Period from August 22, 2020 through December 31, 2020                       Shares Outstanding     Common Stock     Additional Paid-in- Capital     Retained Earnings (Accumulated Deficit)     Total Stockholders ’ Equity   Balance, August 21, 2020     —     $ —     $ —     $ —     $ —   HighPeak business combination with HPK LP     81,383       8       521,674       ( 90,780 )     430,902   Conversion of Pure Common Stock     1,232       —       12,324       —       12,324   Forward Purchases     8,977       1       89,768       —       89,769   Offering costs (including costs incurred at Pure prior to HighPeak business combination)     —       —       ( 21,766 )     —       ( 21,766 ) Deferred income tax liability at HighPeak business combination     —       —       ( 39,946 )     —       ( 39,946 ) Exercise of warrants     313       —       3,596       —       3,596   Stock-based compensation costs:                                         Compensation costs included in net loss     63       —       15,776       —       15,776   Net loss     —       —       —       ( 16,429 )     ( 16,429 ) Balance, December 31, 2020     91,968     $ 9     $ 581,426     $ ( 107,209 )   $ 474,226   Dividends declared ($ 0.125 per share)     —       —       —       ( 11,593 )     ( 11,593 ) Dividend equivalents declared on outstanding stock options ($ 0.125 per share)     —       —       —       ( 1,193 )     ( 1,193 ) Issuance of common stock     2,530       1       22,836       —       22,837   Exercise of warrants     554       —       5,466       —       5,466   Stock-based compensation costs:                                         Shares issued upon options being exercised     154       —       1,573       —       1,573   Restricted shares issued to outside directors     68       —       —       —       —   Restricted shares issued to employee directors     1,500       —       —       —       —   Compensation costs included in net income     —       —       6,188       —       6,188   Net income     —       —       —       55,559       55,559   Balance, December 31, 2021     96,774       10       617,489       ( 64,436 )     553,063   Dividends declared ($ 0.100 per share)     —       —       —       ( 10,623 )     ( 10,623 ) Dividend equivalents declared on outstanding stock options ($ 0.100 per share)     —       —       —       ( 1,055 )     ( 1,055 ) Stock issued for acquisitions     10,854       1       264,981       —       264,982   Stock issued in private placement     3,933       —       85,000       —       85,000   Stock issuance costs     —       —       ( 339 )     —       ( 339 ) Exercise of warrants     971       —       7,805       —       7,805   Stock-based compensation costs:                                         Shares issued upon options being exercised     12       —       120       —       120   Restricted shares issued to outside directors     21       —       —       —       —   Restricted shares issued to employees     600       —       —       —       —   Compensation costs included in net income     —       —       33,840       —       33,840   Net income     —       —       —       236,854       236,854   Balance, December 31, 2022     113,165     $ 11     $ 1,008,896     $ 160,740     $ 1,169,647     The accompanying notes are an integral part of these consolidated financial statements.   76     HighPeak Energy, Inc. Consolidated Statement of Changes in Partners' Capital (Predecessor) (in thousands)   Period from January 1, 2020 through August 21, 2020                       General Partner Capital     Limited Partners' Capital     Total Partners' Capital   Balance, December 31, 2019   $ —     $ 464,716     $ 464,716   Cash capital contributions     —       54,000       54,000   Distribution to partners     —       ( 2,780 )     ( 2,780 ) Net loss     —       ( 85,034 )     ( 85,034 ) Balance, August 21, 2020   $ —     $ 430,902     $ 430,902     The accompanying notes are an integral part of these consolidated financial statements.   77       HighPeak Energy, Inc. Consolidated Statements of Cash Flows (in thousands)       Year Ended December 31,     August 21, 2020 through December 31,     January 1, 2020 through August 21,       2022     2021     2020     2020       Successor     Predecessor   CASH FLOWS FROM OPERATING ACTIVITIES:                                 Net income (loss)   $ 236,854     $ 55,559     $ ( 16,429 )   $ ( 85,034 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:                                 Exploration and abandonment expense     146       742       4,854       4   Depletion, depreciation and amortization expense     177,742       65,201       9,877       6,385   Accretion expense     370       167       51       89   Stock-based compensation expense     33,352       6,676       15,776       —   Amortization of debt issuance costs     5,635       498       4       —   Amortization of discounts on 10.000% Senior Notes and 10.625% Senior Notes     7,735       —       —       —   Derivative-related activity     1,909       15,467       —       —   Loss on terminated acquisition     —       —       —       76,500   Deferred income taxes     75,361       16,904       ( 1,047 )     —   Changes in operating assets and liabilities:                                 Accounts receivable     ( 57,218 )     ( 31,655 )     ( 5,177 )     844   Prepaid expenses, inventory and other assets     ( 11,959 )     ( 7,053 )     ( 506 )     ( 196 ) Accounts payable, accrued liabilities and other current liabilities     34,087       24,509       ( 1,990 )     ( 2,694 ) Net cash provided by (used in) operating activities     504,014       147,015       5,413       ( 4,102 ) CASH FLOWS FROM INVESTING ACTIVITIES:                                 Additions to crude oil and natural gas properties     ( 1,046,739 )     ( 236,242 )     ( 64,947 )     ( 49,364 ) Changes in working capital associated with crude oil and natural gas property additions     128,938       37,259       ( 5,666 )     7,348   Acquisitions of crude oil and natural gas properties     ( 262,363 )     ( 54,045 )     ( 1,181 )     ( 3,338 ) Proceeds from sales of properties     —       3,366       —       —   Other property additions     ( 2,244 )     ( 709 )     ( 145 )     ( 50 ) Issuance of notes receivable     —       —       —       ( 7,482 ) Extension payment on acquisition     —       —       —       ( 15,000 ) Net cash used in investing activities     ( 1,182,408 )     ( 250,371 )     ( 71,939 )     ( 67,886 ) CASH FLOWS FROM FINANCING ACTIVITIES:                                 Borrowings under Credit Agreement     925,000       120,000       —       —   Repayments under Credit Agreement     ( 755,000 )     ( 20,000 )     —       —   Proceeds from issuance of 10.000% Senior Notes and 10.625% Senior Notes, net of discount     440,179       —       —       —   Debt issuance costs     ( 17,128 )     ( 2,169 )     ( 405 )     —   Proceeds from issuance of common stock in private placement     85,000       —       —       —   Proceeds from public stock offering     —       25,300       92,554       —   Proceeds from exercises of warrants     7,805       5,466       —       —   Proceeds from subscription receivable from exercises of warrants     —       3,596       —       —   Proceeds from exercises of stock options     120       1,573       —       —   Dividends paid     ( 10,412 )     ( 11,593 )     —       —   Dividend equivalents paid     ( 1,196 )     ( 1,037 )     —       —   Stock offering costs     ( 339 )     ( 2,463 )     ( 8,114 )     —   Cash from non-successors in HighPeak business combination     —       —       100       —   Contribution from partners     —       —       —       54,000   Distribution to partners     —       —       —       ( 2,780 ) Net cash provided by financing activities     674,029       118,673       84,135       51,220   Net (decrease) increase in cash and cash equivalents     ( 4,365 )     15,317       17,609       ( 20,768 ) Cash and cash equivalents, beginning of period     34,869       19,552       1,943       22,711   Cash and cash equivalents, end of period   $ 30,504     $ 34,869     $ 19,552     $ 1,943                                     Supplemental cash flow information:                                 Cash paid for interest   $ 24,268     $ 1,811     $ —     $ —   Cash paid for income taxes   $ —     $ —     $ —     $ —   Supplemental disclosure of non-cash transactions:                                 Stock issued for acquisitions   $ 264,982     $ —     $ —     $ —   Additions to asset retirement obligations   $ 2,879     $ 1,844     $ ( 142 )   $ 112   Subscription receivable from exercise of warrants   $ —     $ —     $ 3,596     $ —   Stock offering costs of accounting acquiree   $ —     $ —     $ ( 13,652 )   $ —     The accompanying notes are an integral part of these consolidated financial statements.   78     HIGHPEAK ENERGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         NOTE 1. Organization and Nature of Operations   HighPeak Energy, Inc. (“HighPeak Energy,” the “Company,” or the “Successor”) is a Delaware corporation, initially formed in October 2019 as a wholly owned subsidiary of Pure Acquisition Corp (“Pure”), a Delaware corporation, formed in November 2017, which was a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving Pure and one or more businesses. See Note 11 regarding the business combination which resulted in the Company becoming the parent company and Pure becoming a wholly owned subsidiary along with the businesses acquired.   HighPeak Energy’s common stock and warrants are listed and traded on the Nasdaq Global Market (the “Nasdaq”) under the ticker symbols “HPK” and “HPKEW,” respectively. The Company 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 primarily in Howard and Borden Counties. Our acreage is composed of two core areas, Flat Top primarily in the northern portion of Howard County extending into southeastern Borden, southwestern Scurry and northwestern Mitchell Counties and Signal Peak in the southern portion of Howard County.       NOTE 2. Basis of Presentation and Summary of Significant Accounting Policies   Presentation. The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, all adjustments, consisting of normal and recurring accruals considered necessary for a fair presentation, have been included. In connection with the preparation of the consolidated financial statements, the Company evaluated subsequent events after the balance sheet date of December 31, 2022, through the date of this Annual Report.   Principles of consolidation. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries since their acquisition or formation. All material intercompany balances and transactions have been eliminated. Certain reclassifications have been made to prior period amounts to conform to the current period’s presentation.   Use of estimates in the preparation of financial statements. Preparation of the Company's consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Depletion of crude oil and natural gas properties and evaluations for impairment of proved and unproved crude oil and natural gas properties, in part, is determined using estimates of proved, probable and possible crude oil, NGL and natural gas reserves. There are numerous uncertainties inherent in the estimation of quantities of proved, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved crude oil and natural gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves, commodity price outlooks and future undiscounted and discounted net cash flows. In addition, evaluations for impairment of unproved crude oil and natural gas properties on a project-by-project basis are also subject to numerous uncertainties including, among others, estimates of future recoverable reserves, results of exploration activities, commodity price outlooks, planned future sales or expirations of all or a portion of such projects. Other items subject to such estimates and assumptions include, but are not limited to, the carrying value of crude oil and natural gas properties, asset retirement obligations, equity-based compensation, fair value of derivatives and estimates of income taxes. Actual results could differ from the estimates and assumptions utilized.   Cash and cash equivalents. The Company’s cash and cash equivalents include depository accounts held by banks with original issuance maturities of 90 days or less. The Company’s cash and cash equivalents are generally held in financial institutions in amounts that may exceed the insurance limits of the Federal Deposit Insurance Corporation. However, management believes that the Company’s counterparty risks are minimal based on the reputation and history of the institutions selected.   79     Accounts receivable. As of December 31, 2022 and 2021, the Company’s accounts receivables primarily consist of amounts due from the sale of crude oil, NGL and natural gas of $ 81.6 million and $ 29.0 million, respectively, and are based on estimates of sales volumes and realized prices the Company anticipates it will receive, $ 4.9 million and zero , respectively, of receivables related to electric power infrastructure installed throughout Flat Top by the Company that it will be reimbursed for, current U.S. federal income tax receivables of $ 3.2 million and $ 3.2 million, respectively, joint interest receivables of $ 2.2 million and $ 3.1 million, respectively, receivables related to settlements of derivative contracts of $ 4.7 million and $ 771,000 , respectively, and receivables related to refunds from pipe suppliers of zero and $ 3.3 million, respectively. The Company’s share of crude oil, NGL and natural gas production is sold to various purchasers who must be prequalified under the Company’s credit risk policies and procedures. The Company’s credit risk related to collecting accounts receivables is mitigated by using credit and other financial criteria to evaluate the credit standing of the entity obligated to make payment on the accounts receivable, and where appropriate, the Company obtains assurances of payment, such as a guarantee by the parent company of the counterparty or other credit support. The Company routinely reviews outstanding balances and establishes allowances for bad debts equal to the estimable portions of accounts receivable for which failure to collect is considered probable. As of December 31, 2022 and 2021, the Company had no allowance for doubtful accounts.   Concentration of credit risk. 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, 2022 and 2021, sales to the Company’s largest purchaser accounted for approximately 88 % and 94 %, respectively, of the Company’s total crude oil, NGL and natural gas sales revenues. The Company generally does not require collateral and does not believe the loss of this particular purchaser would materially impact its operating results, as crude oil and natural gas are fungible products with well-established markets and numerous purchasers in various regions.   Prepaid expenses. Prepaid expenses are comprised primarily of caliche that will be used on future locations and roads in our development areas, tubulars and proppant that the Company has prepaid the suppliers to guarantee their availability when needed for our current drilling program, prepaid insurance costs that will be amortized over the life of the policies, prepaid agency fees and software maintenance fees that will be amortized over the life of the contracts. Prepaid expenses as of December 31, 2022 and 2021 are $ 4.1 million and $ 7.2 million, respectively.   Inventory. Inventory is comprised primarily of crude oil and natural gas drilling or repair items such as tubing, casing, pumps, vessels, operating supplies and ordinary maintenance materials and parts. The materials and supplies inventory is primarily acquired for use in future drilling or repair operations and is carried at the lower of cost or net realizable value, on a weighted average cost basis. Valuation allowances for materials and supplies inventories are recorded as reductions to the carrying values of the materials and supplies inventories in the Company’s consolidated balance sheet and as charges to other expense in the consolidated statements of operations. The Company’s materials and supplies inventory as of December 31, 2022 and 2021 is $ 13.3 million and $ 3.3 million, respectively, and the Company has not recognized any valuation allowance to date.   Crude oil and natural gas properties. The Company utilizes the successful efforts method of accounting for its crude oil and natural gas properties. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs and geological and geophysical expenditures are expensed.   The Company does not carry the costs of drilling an exploratory well as an asset in its consolidated balance sheet following the completion of drilling unless both of the following conditions are met: (i) the well has found a sufficient quantity of reserves to justify its completion as a producing well and (ii) the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project.   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 the economics associated with making a determination on its commercial viability. In these instances, the project’s feasibility is not contingent upon price improvements or advances in technology, but rather the Company’s ongoing efforts and expenditures related to accurately predict the hydrocarbon recoverability based on well information, gaining access to other companies’ production data in the area, transportation or processing facilities and/or getting partner approval to drill additional appraisal wells. These activities are ongoing and are being pursued constantly. Consequently, the Company’s assessment of suspended exploratory well costs is continuous until a decision can be made that the project has found sufficient proved reserves to sanction the project or is noncommercial and is charged to exploration and abandonment expense. See Note 6 for additional information.   The capitalized costs of proved properties are depleted using the unit-of-production method based on proved reserves for leasehold costs and proved developed reserves for drilling, completion and other crude oil and natural gas property costs. Costs of unproved leasehold costs are excluded from depletion until proved reserves are established or, if unsuccessful, impairment is determined.   Proceeds from the sales of individual properties are credited to proved or unproved crude oil and natural gas properties, as the case may be, if doing so does not materially impact the depletion rate of an amortization base. Generally, no gain or loss is recorded until an entire amortization base is sold. However, gain or loss is recorded from the sale of less than an entire amortization base if the disposition is significant enough to materially impact the depletion rate of the remaining properties in the amortization base.   80     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. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In these circumstances, the Company recognizes an impairment charge for the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.   Unproved crude oil and natural gas properties are periodically assessed for impairment on a project-by-project basis. These impairment assessments are affected by the estimates of future recoverable reserves, results of exploration activities, commodity price outlooks, planned future sales or expirations of all or a portion of such projects. If the estimated future net cash flows attributable to such projects are not expected to be sufficient to fully recover the costs invested in each project, the Company will recognize an impairment charge at that time.   Other property and equipment, net. Other property and equipment is recorded at cost. The carrying values of other property and equipment, net of accumulated depreciation of $ 696,000 and $ 438,000 as of December 31, 2022 and 2021, respectively, are as follows (in thousands):       December 31,       2022     2021   Land   $ 2,139     $ 1,122   Transportation equipment     691       202   Buildings     544       —   Leasehold improvements     206       143   Field equipment     6       8   Furniture and fixtures     1       —   Information technology     —       125   Total other property and equipment, net   $ 3,587     $ 1,600     Other property and equipment are depreciated over their estimated useful life on a straight-line basis. Land is not depreciated. Transportation equipment is generally depreciated over five years, buildings are generally depreciated over forty years, field equipment is generally depreciated over seven years, furniture and fixtures is generally depreciated over five years and information technology is generally depreciated over three years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the underlying terms of the associated leases.   The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recorded is measured by the amount by which the carrying amount of the asset exceeds its estimated fair value. The estimated fair value is determined using either a discounted future cash flow model or another appropriate fair value method.   Aid-in-construction assets. As of December 31, 2022 and 2021, the Company had aid-in-construction assets totaling $ 6.1 million and $ 3.9 million, respectively, included in other noncurrent assets. The Company contracted with the natural gas gatherer and processor in its Flat Top area to expand its low-pressure natural gas gathering system to transport the Company’s natural gas to its processing facility which was contracted to be expanded during the third quarter of 2022 at an additional cost to the Company of $ 2.6 million. The Company is receiving and will continue to receive payments based on gross system throughput, including any third-party natural gas that is potentially tied into the system in the future. The contract calls for future aid-in-construction fundings if expansions of the system are necessary as determined in the sole discretion of the Company.   Leases. The Company enters into leases for drilling rigs, storage tanks, equipment and buildings and recognizes lease expense on a straight-line basis over the lease term. Lease right-of-use assets and liabilities are initially recorded on the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s lease contracts do not provide an implicit discount rate, the Company uses its incremental borrowing rate, which is determined based on information available at the commencement date of a lease. Leases may include renewal, purchase or termination options that can extend or shorten the term of a lease. The exercise of those options is at the Company’s sole discretion and is evaluated at inception and throughout the contract to determine if a modification of the lease term is required. Leases with an initial term of 12 months or less are generally not recorded as lease right-of-use assets and liabilities. See Note 10 for additional information.   Current liabilities. Accounts payable, accrued liabilities and derivative liabilities included in current liabilities as of December 31, 2022 and 2021 totaled approximately $ 266.1 million and $ 103.0 million, respectively, including trade accounts payable, accrued capital expenditures, derivative liabilities, revenues and royalties payable and accruals for operating and general and administrative expenses, interest expense, operating leases, dividends and dividend equivalents and other miscellaneous items.   81     Debt issuance costs and original issue discount. The Company paid a total of $ 19.7 million in debt issuance costs, $ 17.1 million of which was incurred during the year ended December 31, 2022, related to the issuance of the 10.000 % Senior Notes and 10.625 % Senior Notes and amendments to the Credit Agreement. Amortization based on the straight-line method over the terms of the 10.000 % Senior Notes, 10.625 % Senior Notes and the Credit Agreement which approximates the effective interest method was $ 5.6 million and $ 498,000 during the years ended December 31, 2022 and 2021, respectively. In addition, the company realized $ 34.8 million in original issuer discounts on the issuance of its 10.000 % Senior Notes and 10.625 % Senior Notes that is being amortized over the life of the notes which approximates the effective interest method and was $ 7.7 million and zero during the year ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the net debt issuance costs and discount are netted against the outstanding long-term debt on the accompanying balance sheets in accordance with GAAP.   Asset retirement obligations. The Company records a liability for the fair value of an asset retirement obligation in the period in which the associated asset is acquired or placed into service if a reasonable estimate of fair value can be made. Asset retirement obligations are generally capitalized as part of the carrying value of the long-lived asset to which it relates. Conditional asset retirement obligations meet the definition of liabilities and are recorded when incurred and when fair value can be reasonably estimated. See Note 8 for additional information.   Revenue recognition . The Company follows FASB ASC 606, “Revenue from Contracts with Customers,” (“ASC 606”) whereby the Company recognizes revenues from the sales of crude oil and natural gas to its purchasers and presents them disaggregated on the Company’s consolidated statements of operations.   The Company enters into contracts with purchasers to sell its crude oil and natural gas production. Revenue on these contracts is recognized in accordance with the five-step revenue recognition model prescribed in ASC 606. Specifically, revenue is recognized when the Company’s performance obligations under these contracts are satisfied, which generally occurs with the transfer of control of the crude oil and natural gas to the purchaser. Control is generally considered transferred when the following criteria are met: (i) transfer of physical custody, (ii) transfer of title, (iii) transfer of risk of loss and (iv) relinquishment of any repurchase rights or other similar rights. Given the nature of the products sold, revenue is recognized at a point in time based on the amount of consideration the Company expects to receive in accordance with the price specified in the contract. Consideration under the crude oil and natural gas marketing contracts is typically received from the purchaser one to two months after the date of sale. As of December 31, 2022 and 2021, the Company had receivables related to contracts with purchasers of approximately $ 81.6 million and $ 29.0 million, respectively.   Crude Oil Contracts. The Company’s crude oil marketing contracts transfer physical custody and title at or near the wellhead, which is generally when control of the crude oil has been transferred to the purchaser. The crude oil produced is sold under contracts using market-based pricing which is then adjusted for the differentials based upon delivery location and crude oil quality. Since the differentials are incurred after the transfer of control of the crude oil, the differentials are included in crude oil sales on the consolidated statements of operations as they represent part of the transaction price of the contract.   Natural Gas Contracts. The majority of the Company’s natural gas is sold at the lease location, which is generally when control of the natural gas has been transferred to the purchaser. The natural gas is sold under (i) percentage of proceeds processing contracts or (ii) a hybrid of percentage of proceeds and fee-based contracts. Under the majority of the Company’s contracts, the purchaser gathers the natural gas in the field where it is produced and transports it to natural gas processing plants where NGL products are extracted. The NGL products and remaining residue natural gas are then sold by the purchaser. Under percentage of proceeds and hybrid percentage of proceeds and fee-based contracts, the Company receives a percentage of the value for the extracted liquids and the residue natural gas. Since control of the natural gas transfers upstream of the transportation and processing activities, revenue is recognized as the net amount received from the purchaser.   The Company does not disclose the value of unsatisfied performance obligations under its contracts with customers as it applies the practical exemption in accordance with ASC 606. The exemption, as described in ASC 606-10-50-14(a), applies to variable consideration that is recognized as control of the product is transferred to the customer. Since each unit of product represents a separate performance obligation, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.   Derivatives. All the Company’s derivatives are accounted for as non-hedge derivatives and are recorded at estimated fair value in the consolidated balance sheets. All changes in the fair values of its derivative contracts are recorded as gains or losses in the earnings of the periods in which they occur. The Company enters into derivatives under master netting arrangements, which, in an event of default, allows the Company to offset payables to and receivables from the defaulting counterparty. The Company classifies the fair value amounts of derivative assets and liabilities executed under master netting arrangements as net current or noncurrent derivative assets or net current or noncurrent derivative liabilities, whichever the case may be, by commodity and counterparty.   The Company’s credit risk related to derivatives is a counterparties’ failure to perform under derivative contracts owed to the Company. The Company uses credit and other financial criteria to evaluate the credit standing of, and to select, counterparties to its derivative instruments. Although the Company does not obtain collateral or otherwise secure the fair value of its derivative instruments, associated credit risk is mitigated by the Company’s credit risk policies and procedures.   82     The Company has entered into International Swap Dealers Association Master Agreements (“ISDA Agreements”) with each of its derivative counterparties. The terms of the ISDA Agreements provide the Company and the counterparties with rights of set off upon the occurrence of defined acts of default by either the Company or a counterparty to a derivative, whereby the party not in default may set off all derivative liabilities owed to the defaulting party against all derivative asset receivables from the defaulting party. See Note 5 for additional information.   Income taxes. The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the carrying amounts for income tax purposes and net operating loss and tax credit carryforwards. The amount of deferred taxes on these temporary differences is determined using the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, as applicable, based on tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date.   The Company reviews its deferred tax assets for recoverability and establishes a valuation allowance based on projected future taxable income, applicable tax strategies and the expected timing of the reversals of existing temporary differences. A valuation allowance is provided when it is more likely than not (likelihood of greater than 50 percent) that some portion or all the deferred tax assets will not be realized. The Company has not established a valuation allowance as of December 31, 2022 and 2021.   The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based upon the technical merits of the position. If all or a portion of the unrecognized tax benefit is sustained upon examination by the taxing authorities, the tax benefit will be recognized as a reduction to the Company’s deferred tax liability and will affect the Company’s effective tax rate in the period it is recognized. See Note 13 for addition information.   The Company records any tax-related interest charges as interest expense and any tax-related penalties as other expense in the consolidated statements of operations of which there have been none to date.   The Predecessor recognizes in its consolidated financial statements the effect of a tax position, if that position is more likely than not to be sustained upon examination, including resolution of any appeals or litigation processes, based upon the technical merits of the position. Tax positions taken related to the Predecessor’s status as a limited partnership, and state filing requirements have been reviewed, and management is of the opinion that they would more likely than not be sustained by examination. Accordingly, the Company has not recorded an income tax liability for uncertain tax benefits for periods prior to August 21, 2020. Under the new centralized partnership audit rules effective for tax years beginning after 2017, the IRS assesses and collects underpayments of tax from the partnership instead of from each partner. The partnership may be able to pass the adjustments through to its partners by making a push-out election or, if eligible, by electing out of the centralized partnership audit rules. The collection of tax from the partnership is only an administrative convenience for the IRS to collect any underpayment of income taxes including interest and penalties. Income taxes on partnership income, regardless of who pays the tax or when the tax is paid, is attributed to the partners. Any payment made by the Company as a result of an IRS examination will be treated as an expense from the Company in the consolidated financial statements.   The Company is also subject to Texas Margin Tax. The Company realized no Texas Margin Tax in the accompanying consolidated financial statements as we do not anticipate owing any Texas Margin Tax for the periods presented.   Stock-based compensation. Stock-based compensation expense for stock option awards is measured at the grant date or modification date, as applicable, using the fair value of the award, and is recorded, net of forfeitures, on a straight-line basis over the requisite service period of the respective award. The fair value of stock option awards is determined on the grant date or modification date, as applicable, using a Black-Scholes option valuation model with the following inputs; (i) the grant date’s closing stock price, (ii) the exercise price of the stock options, (iii) the expected term of the stock option, (iv) the estimated risk-free adjusted interest rate for the duration of the option’s expected term, (v) the expected annual dividend yield on the underlying stock and (vi) the expected volatility over the option’s expected term.   Stock-based compensation for HighPeak Energy common stock issued to outside directors with no restrictions thereon, is measured at the grant date using the fair value of the award and is recognized as stock-based compensation in the accompanying financial statements immediately. Stock-based compensation for restricted stock awarded to outside directors and employee members of the Board and certain other employees is measured at the grant date using the fair value of the award and is recognized on a straight-line basis over the requisite service period of the respective award.   Segments. Based on the Company’s organizational structure, the Company has one operating segment, which is crude oil and natural gas development, exploration and production. In addition, the Company has a single, company-wide management team that allocates capital resources to maximize profitability and measures financial performance as a single enterprise.   83     Recently adopted accounting pronouncements. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848) – Deferral of the Sunset Date of Topic 848.” This update extended the use of the optional expedient through December 31, 2024. The Company adopted this update effective December 31, 2022. The adoption of this update did not have a material impact on its financial position, results of operations or liquidity.   New accounting pronouncements not yet adopted. In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805) – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This update requires the acquirer in a business combination to record contract asset and liabilities following Topic 606 – “Revenue from Contracts with Customers” at acquisition as if it had originated the contract, rather than at fair value. This update is effective for public business entities beginning after December 15, 2022 with early adoption permitted. The Company continues to evaluate the provisions of this update but does not believe the adoption will have a material impact on its financial position, results of operations or liquidity.   The Company considers the applicability and the impact of all ASUs. ASUs not discussed above were assessed and determined to be either not applicable, the effects of adoption are not expected to be material or are clarifications of ASUs previously disclosed.       NOTE 3. Acquisitions and Divestitures   Hannathon Acquisition . In June 2022, the Company closed the Hannathon Acquisition for total net consideration of $ 337.2 million after normal and customary closing adjustments, including 3,522,117 shares of HighPeak Energy common stock valued at $ 97.2 million at closing to acquire various crude oil and natural gas properties largely contiguous to its Signal Peak operating area in Howard County, including associated producing properties, water system infrastructure and in-field fluid gathering pipelines. The Hannathon Acquisition was accounted for as an asset acquisition as substantially all of the gross assets acquired are concentrated in a group of similar identifiable assets. The consideration paid was allocated to the individual assets acquired and liabilities assumed based on their relative fair values. All transaction costs associated with the Hannathon Acquisition were capitalized.   Alamo Acquisitions . In March and June 2022, the Company closed the Alamo Acquisitions in two separate deals for total net consideration of $ 156.1 million and $ 11.0 million, respectively, after normal and customary closing adjustments, including 6,960,000 and 371,517 shares of HighPeak Energy common stock valued at $ 156.6 million and $ 11.2 million, respectively, at closing to acquire various crude oil and natural gas properties contiguous to its Flat Top operating area in Borden county, including associated producing properties, water system infrastructure and in-field fluid gathering pipelines. The Alamo Acquisitions were accounted for as asset acquisitions as substantially all of the gross assets acquired are concentrated in a group of similar identifiable assets. The consideration paid was allocated to the individual assets acquired and liabilities assumed based on their relative fair values. All transaction costs associated with the Alamo Acquisitions were capitalized.   Other Acquisitions . During the year ended December 31, 2022, the Company also incurred an additional $ 23.0 million in acquisition costs to acquire various undeveloped crude oil and natural gas properties largely contiguous to its Signal Peak and Flat Top operating areas primarily in Howard and Borden counties. During the year ended December 31, 2021, the Company incurred a total of $ 54.0 million in acquisition costs related to multiple bolt-on producing property acquisitions and lease acquisitions to acquire interests in non-operated producing wells and undeveloped acreage in and around the Company’s existing properties. During the year ended December 31, 2020, the Company incurred a total of $ 4.5 million to acquire primarily undeveloped acreage, three vertical producing wells and two salt-water disposal wells in and around the Company’s existing properties.   Grenadier Acquisition. In June 2019, HighPeak Energy Assets II, LLC (“HighPeak Assets II”) signed a purchase and sale agreement with Grenadier Energy Partners II, LLC (“Grenadier”) to acquire substantially all the crude oil and natural gas assets of Grenadier, effective June 1, 2019, subject to certain customary closing adjustments for a total purchase price of $ 615.0 million. Since HighPeak Assets II was contributed to the Predecessor in the HPK LP business combination, this purchase and sale agreement became part of the Predecessor effective October 1, 2019. A nonrefundable deposit of $ 61.5 million was paid to Grenadier in 2019 in addition to a $ 15.0 million nonrefundable extension payment in 2020 to extend the potential closing to May 2020. The Grenadier Acquisition was terminated in April 2020 and was not consummated and therefore a charge to expense of $ 76.5 million was recognized during the year ended December 31, 2020.   Divestitures. During the year ended December 31, 2021, the Company realized net proceeds of $ 3.3 million, which reduced the Company’s proved properties with no gain or loss recognized when it divested of 1 gross ( 0.2 net) non-operated horizontal well and acquired 4 gross ( 3.7 gross) operated vertical wells in a trade with another operator whereby the Company traded an approximate equal number of net mineral acres to increase its working interest in certain areas of Flat Top where it serves as operator and decrease its working interest in other areas of Flat Top where the other party serves as operator.       NOTE 4. Fair Value Measurements   The Company determines fair value based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are based upon inputs that market participants use in pricing an asset or liability, which are characterized according to a hierarchy that prioritizes those inputs based on the degree to which they are observable. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect a company’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The fair value input hierarchy level to which an asset or liability measurement in its entirety falls is determined based on the lowest level input that is significant to the measurement in its entirety.   84     The three input levels of the fair value hierarchy are as follows:     ● Level 1 – quoted prices for identical assets or liabilities in active markets.   ● Level 2 – quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates) and inputs derived principally from or corroborated by observable market data by correlation or other means.   ● Level 3 – unobservable inputs for the asset or liability, typically reflecting management’s estimate of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore, determined using model-based techniques, including discounted cash flow models.   Assets and liabilities measured at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021 are as follows (in thousands):       As of December 31, 2022       Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)     Total   Assets:                                 Commodity price derivatives   $ —     $ 17     $ —     $ 17   Liabilities:                                 Commodity price derivatives – current     —       16,702       —       16,702   Commodity price derivatives – noncurrent     —       691       —       691   Total liabilities     —       17,393       —       17,393   Net recurring fair value measurements   $ —     $ ( 17,376 )   $ —     $ ( 17,376 )   85           As of December 31, 2021       Quoted Prices in Active Markets for Identical Assets (Level 1)     Significant Other Observable Inputs (Level 2)     Significant Unobservable Inputs (Level 3)     Total   Assets:                                 Commodity price derivatives   $ —     $ 2,199     $ —     $ 2,199   Liabilities:                                 Commodity price derivatives – current     —       13,591       —       13,591   Commodity price derivatives – noncurrent     —       4,075       —       4,075   Total liabilities     —       17,666       —       17,666   Net recurring fair value measurements   $ —     $ ( 15,467 )   $ —     $ ( 15,467 )   Commodity price derivatives. The Company’s commodity price derivatives are currently made up of crude oil swap contracts and deferred premium put options. The Company measures derivatives using an industry-standard pricing model that is provided by the counterparties. The inputs utilized in the third-party discounted cash flow and option-pricing models for valuing commodity price derivatives include forward prices for crude oil, contracted volumes, volatility factors and time to maturity, which are considered Level 2 inputs.   Assets and liabilities measured at fair value on a nonrecurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Specifically, (i) stock-based compensation is measured at fair value on the date of grant based on Level 1 inputs for restricted stock awards or Level 2 inputs for stock option awards based upon market data, and (ii) the estimates and fair value measurements used for the evaluation of proved property for potential impairment using Level 3 inputs based upon market conditions in the area. The Company assesses the recoverability of the carrying amount of certain assets and liabilities whenever events or changes in circumstances indicate the carrying amount of an asset or liability may not be recoverable. These assets and liabilities can include inventories, proved and unproved crude oil and natural gas properties and other long-lived assets that are written down to fair value when they are impaired or held for sale. The Company did not record any impairments to proved or unproved crude oil and natural gas properties for the periods presented in the accompanying consolidated financial statements.   Financial instruments not carried at fair value. Carrying values and fair values of financial instruments that are not carried at fair value in the consolidating balance sheets are as follows (in thousands):       As of December 31, 2022     As of December 31, 2021       Carrying Value     Fair Value     Carrying Value     Fair Value   Liabilities:                                 Long-term debt:                                 10.000% Senior Notes (a)   $ 225,000     $ 225,000     $ —     $ —   10.625% Senior Notes (a)   $ 250,000     $ 250,000     $ —     $ —       (a) Fair value is determined using Level 2 inputs. The Company’s senior unsecured notes are quoted, but not actively traded on major exchanges; therefore, fair value is based on periodic values as quoted on major exchanges. See Note 7 for additional information.   The Company has other financial instruments consisting primarily of cash and cash equivalents, accounts receivable, accounts payable, long-term debt (specifically the Credit Agreement), and other current assets and liabilities that approximate fair value due to the nature of the instrument and their relatively short maturities.   86       NOTE 5. Derivative Financial Instruments   The Company primarily utilizes commodity swap contracts and deferred premium put options to (i) reduce the effect of price volatility on the commodities the Company produces and sells, particularly on the down side, and (ii) support the Company’s capital budgeting and expenditure plans, (iii) protect the Company’s borrowing base under the Credit Agreement and (iv) support the payment of contractual obligations.   The following table summarizes the effect of derivatives on the Company’s consolidated statements of operations (in thousands):       Year Ended December 31,     August 22, 2020  through December 31,     January 1, 2020  through August 21,       2022     2021     2020     2020       Successor     Predecessor   Noncash derivative loss, net   $ ( 1,909 )   $ ( 15,467 )   $ —     $ —   Cash payments on settled derivatives, net     ( 58,096 )     ( 11,267 )     —       —   Derivative loss, net   $ ( 60,005 )   $ ( 26,734 )   $ —     $ —     Crude oil production derivatives. The Company sells its crude oil production at the lease and the sales contracts governing such crude oil production are tied directly to, or are correlated with, NYMEX WTI crude oil prices. As such, the Company uses NYMEX WTI derivative contracts to manage future crude oil price volatility.   The Company’s outstanding crude oil derivative contracts as of December 31, 2022 and the weighted average crude oil prices per barrel for those contracts are as follows:       2023   Crude Oil Price Swaps – WTI:   First Quarter     Second Quarter     Third Quarter     Fourth Quarter     Total   Volume (MBbls)     900.0       546.0       276.0       —       1,722.0   Price per Bbl   $ 73.67     $ 67.81     $ 72.30     $ —     $ 71.59         2023   Deferred Premium Put Options – WTI:   First Quarter     Second Quarter     Third Quarter     Fourth Quarter     Total   Volume (MBbls)     —       364.0       644.0       920.0       1,928.0   Price per Bbl (Put Price)   $ —     $ 61.05     $ 60.46     $ 55.97     $ 58.43   Price per Bbl (Net of Premium)   $ —     $ 56.05     $ 55.46     $ 50.97     $ 53.43         2024   Deferred Premium Put Options – WTI:   First Quarter     Second Quarter     Third Quarter     Fourth Quarter     Total   Volume (MBbls)     455.0       455.0       460.0       —       1,370.0   Price per Bbl (Put Price)   $ 51.50     $ 51.50     $ 51.50     $ —     $ 51.50   Price per Bbl (Net of Premium)   $ 46.50     $ 46.50     $ 46.50     $ —     $ 46.50     The Company uses credit and other financial criteria to evaluate the credit standings of, and to select, counterparties to its derivative financial instruments. Although the Company does not obtain collateral or otherwise secure the fair value of its derivative financial instruments, associated credit risk is mitigated by the Company’s credit risk policies and procedures.   Net derivative liabilities associated with the Company’s open commodity derivatives by counterparty are as follows (in thousands):        As of December 31, 2022   Fifth Third Bank, National Association   $ ( 11,102 ) Bank of America, National Association     ( 5,054 ) Citizens Bank, National Association     ( 1,220 )     $ ( 17,376 )   87       NOTE 6. Exploratory/Extension Well Costs   The Company capitalizes exploratory/extension wells and project costs until a determination is made that the well or project has either found proved reserves, is impaired or is sold. The Company’s capitalized exploratory/extension well and project costs are included in proved properties in the consolidated balance sheets. If the exploratory/extension well or project is determined to be impaired, the impaired costs are charged to exploration and abandonments expense.   The changes in capitalized exploratory/extension well costs are as follows (in thousands):       Year Ended December 31,       2022     2021   Beginning capitalized exploratory/extension well costs   $ 28,076     $ 32,592   Additions to exploratory/extension well costs     655,294       189,859   Reclassification to proved properties     ( 496,943 )     ( 194,375 ) Exploratory/extension well costs charged to exploration and abandonment expense     —       —   Ending capitalized exploratory/extension well costs   $ 186,427     $ 28,076     All capitalized exploratory/extension well costs have been capitalized for less than one year based on the date of drilling.       NOTE 7. Long-Term Debt   The components of long-term debt, including the effects of debt issuance costs, are as follows (in thousands):       December 31,       2022     2021   Credit Agreement due 2024   $ 270,000     $ 100,000   10.625% Senior Notes, due 2024     250,000       —   10.000% Senior Notes, due 2024     225,000       —   Discounts, net (a)     ( 27,086 )     —   Debt issuance costs, net (b)     ( 13,565 )     ( 2,071 ) Total debt     704,349       97,929   Less current portion of long-term debt     —       —   Long-term debt, net   $ 704,349     $ 97,929       (a) Discounts as of December 31, 2022 and 2021 consisted of $ 34.8 million and zero , respectively, in discounts less accumulated amortization of $ 7.7 million and zero , respectively.   (b) Debt issuance costs as of December 31, 2022 and 2021 consisted of $ 19.7 million and $ 2.6 million, respectively, in costs less accumulated amortization of $ 6.1 million and $ 502,000 , respectively.   88     Credit Agreement . In December 2020, the Company entered into a Credit Agreement with Fifth Third Bank, National Association (“Fifth Third”) as the administrative agent and sole lender to establish a revolving credit facility (the “Credit Agreement”) that matures on June 17, 2024. The Credit Agreement had an initial borrowing base of $ 40.0 million. However, the Company elected to reduce the aggregate elected commitments under the Credit Agreement to $ 20.0 million. In June 2021, the Company entered into the First Amendment to, among other things, (i) complete the semi-annual borrowing base redetermination process which increased the borrowing base from $ 40.0 million to $ 125.0 million and (ii) modify the terms of the Credit Agreement to increase the aggregate elected commitments from $ 20.0 million to $ 125.0 million. A syndicate of banks joined the credit facility at differing levels of commitments with Fifth Third remaining the administrative agent. In October 2021, the Company entered into the Second Amendment to, among other things, (i) complete a semi-annual borrowing base redetermination process, which increased the borrowing base from $ 125.0 million to $ 195.0 million and (ii) modify the terms of the Credit Agreement to increase the aggregate elected commitments from $ 125.0 million to $ 195.0 million. In February 2022, the Company entered into the Third Amendment to, among other things, (i) reduce the borrowing base from $ 195.0 million to $ 138.8 million, (ii) modify the terms of the Credit Agreement to reduce the aggregate elected commitments from $ 195.0 million to $ 138.8 million, (iii) update the maturity date to a springing maturity date, which will cause the Credit Agreement to mature on October 1, 2023 if the 10.000% Senior Notes are not redeemed or refinanced by that date or the terms of the 10.000% Senior Notes have not been amended to extend the scheduled repayment thereof to no earlier than October 1, 2024, (iv) allow the Company to redeem the 10.000% Senior Notes with proceeds of a refinancing, with proceeds of an equity offering or with cash, in each case, subject to certain customary conditions and (v) replace the USD LIBOR rates with Term SOFR rates. In June 2022, the Company entered into the Fourth Amendment to, among other things, (i) increase (a) the aggregate elected commitments to $ 400.0 million, (b) the borrowing base to $ 400.0 million and (c) the maximum credit amount to $ 1.5 billion, (ii) increase the excess cash threshold to $ 75.0 million, (iii) modify the affirmative hedging requirement so that if total debt to EBITDAX is greater than 1.25 to 1.00 but less than or equal to 1.75 to 1.00, notional volumes covering the first 24 months following the measurement date shall be hedged in an amount equal to not less than 25% of the projected production and if total debt to EBITDAX is greater than 1.75 to 1.00, notional volumes covering the first 24 months following the measurement date shall be hedged in an amount equal to not less than 50% of the projection production and (iv) increase the number of banks included in the syndicate at differing levels of commitments, with Fifth Third remaining the administrative agent. In October 2022, the Company entered into the Fifth Amendment to, among other things, (i) increase the elected commitments to $ 525 million and the borrowing base to $ 550 million, (ii) require an additional borrowing base redetermination on or about December 1, 2022, (iii) modify the permitted dividends and distributions conditions such that minimum availability under the credit facility must be 25% percent (as opposed to 30% before giving effect to the Fifth Amendment) and (iv) appoint Wells Fargo Bank, National Association (“Wells Fargo”) as the new administrative agent to replace Fifth Third. In addition, in connection with the Fifth Amendment, to the extent the Company incurs any additional specified unsecured senior, senior subordinated or subordinated future indebtedness in an aggregate amount of up to $250.0 million before June 30, 2023, the Company’s obligation to reduce the borrowing base by an amount equal to 25% of the principal amount of such additional future indebtedness shall be waived. In connection with the Fifth Amendment, the lenders waived two technical events of default existing with the Credit Agreement, as it existed prior to giving effect to the Fifth Amendment, related to entering into and maintaining certain minimum hedges as of the fiscal quarters ending June 30, 2022 and September 30, 2022 and complying with the required current ratio as of the fiscal quarter ending September 30, 2022. In October 2022, the Company entered into the Sixth Amendment to, among other things, (i) change the period to 120 days following the maturity date for which there can be no scheduled principal payments, mandatory redemption or maturity date for the 10.000% Senior Notes (as defined in the Credit Agreement) and the Specified Senior Notes (as defined in the Credit Agreement), (ii) clarify that the Specified Senior Notes are subject to the restriction on the voluntary redemption by the Company of certain specified additional debt, including the 10.000% Senior Notes, (iii) add a permitted lien basket in connection with the escrow account to be opened in connection with the Specified Senior Notes and (iv) provide for an exception for the restriction on mandatory redemptions of the Specified Senior Notes in connection with the special mandatory redemption provided for with respect to the Specified Senior Notes. In December 2022, the Company entered into the Seventh Amendment to, among other things, increase the amount of Specified Senior Notes from $ 225.0 million to $ 250.0 million.   The borrowing capacity under the Credit Agreement is equal to the lowest of (i) the borrowing base (which stands at $ 550 .0 million as of December 31, 2022), (ii) the aggregate elected commitments (which stands at $ 525.0 million as of December 31, 2022) and (iii) $ 1.5 billion. As of December 31, 2022 and 2021, the Company had $ 270.0 million and $ 100.0 million, respectively, outstanding borrowings under the Credit Agreement. Borrowings under the Credit Agreement prior to February 2022 bore interest, at the option of the Company, based on (a) a rate per annum equal to the higher of (i) the prime rate announced from time to time by Fifth Third, (ii) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System during the last preceding business day plus 0.5 percent and (iii) the Adjusted LIBO Rate for one-month Interest Period, plus a margin (the “Applicable Margin”) which was determined by the Borrowing Base Utilization Percentage as defined in the Credit Agreement or (b) the LIBO Rate for a one, three or six month Interest Period multiplied by the Statutory Reserve Rate. As of February 2022, borrowings under the Credit Agreement bear interest at the option of the Company, based on (a) the prime rate announced from time to time by the administrative agent or (b) a rate equal to the higher of (i) zero percent per annum and (ii) SOFR relating to quotations for 1 or 3 months. Letters of credit outstanding under the Credit Agreement are subject to a per annum fee, representing the Applicable Margin plus 0.125 percent. The Company also pays commitment fees on undrawn amounts under the Credit Agreement equal to 0.50 percent. Borrowings under the Credit Agreement are secured by a first lien security interest on substantially all assets of the Company and its restricted subsidiaries, including mortgages on the Company’s and its restricted subsidiaries’ crude oil and natural gas properties. The Credit Agreement is scheduled to have the borrowing base redetermined in early 2023 and semiannually in April and October thereafter. Additionally, the Company and Wells Fargo each have the option for a wild card evaluation between redeterminations.   The Credit Agreement requires the maintenance of a ratio of total debt to EBITDAX, subject to certain adjustments, not to exceed 3.00 to 1.00 as of the last day of any fiscal quarter and a current ratio, subject to certain adjustments, of at least 1.00 to 1.00 as of the last day of any fiscal quarter.   The Company has limited equity cure rights for a breach of the above-listed financial covenants. Additionally, the Credit Agreement contains additional restrictive covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional indebtedness, incur additional liens, make investments and loans, enter into mergers and acquisitions, make or declare dividends and other payments, enter into certain hedging transactions, sell assets and engage in transactions with affiliates. The Credit Agreement contains customary mandatory prepayments, including a monthly mandatory prepayment if the Consolidated Cash Balance (as defined in the Credit Agreement) is in excess of $ 75.0 million. In addition, the Credit Agreement is subject to customary events of default, including a change in control. If an event of default occurs and is continuing, the administrative agent or the majority of the lenders may accelerate any amounts outstanding and terminate lender commitments.   89     10.000% Senior Notes. In February 2022, the Company issued $ 225.0 million aggregate principal amount of its 10.00 0% Senior Notes due 2024 (“10.000% Senior Notes”), which will mature on February 15, 2024. The Company received proceeds, net of $ 22.1 million of issuance costs and discounts, of $ 202.9 million. The net proceeds were used to pay down the balance of the Credit Agreement to zero at closing and to fund our ongoing capital development program with subsequent draws on the Credit Agreement. Interest on the 10.000% Senior Notes will be payable on February 15 and August 15 of each year. The indenture governing the 10.000% Senior Notes contains restrictive covenants that limit the ability of the Company and, with respect to certain restrictive covenants, its restricted subsidiaries to, among other things, incur indebtedness, incur liens, make investments and loans, enter into mergers and acquisitions, make or declare dividends and other payments, sell assets and engage in transactions with affiliates. In addition, the indenture governing the 10.000% Senior Notes contains customary events of default, including payment events of default and events of default upon certain bankruptcy and insolvency events of default. If a bankruptcy or insolvency-related event of default occurs, the principal of, and accrued and unpaid interest on all outstanding 10.000% Senior Notes will become immediately due and payable. With respect to certain other events of default, the trustee may, in certain circumstances, pursue any available remedy to collect the payment of principal of, premium, if any, on and interest, if any, on the 10.000% Senior Notes or enforce performance of any provisions of the 10.000% Senior Notes or the indenture governing such notes.   10.625% Senior Notes. In November 2022 and December 2022, the Company issued $ 225.0 million and $ 25.0 million, respectively, for a total of $ 250 million aggregate principal amount of its Senior Notes due 2024 (“ 10.625 % Senior Notes”), which will mature on November 15, 2024. The Company received proceeds, net of $ 26.3 million of issuance costs and discounts, of approximately $ 223.7 million. The net proceeds were used to reduce the outstanding balance of the Credit Agreement at closing and for general corporate purposes. Interest on the 10.625% Senior Notes will be payable on May 15 and November 15 of each year. The indentures governing the 10.625% Senior Notes contain restrictive covenants that limit the ability of the Company and, with respect to certain restrictive covenants, its restricted subsidiaries to, among other things, incur indebtedness, incur liens, make investments and loans, enter into mergers and acquisitions, make or declare dividends and other payments, sell assets and engage in transactions with affiliates. In addition, the indentures governing the 10.625% Senior Notes contain customary events of default, including payment events of default and events of default upon certain bankruptcy and insolvency events of default. If a bankruptcy or insolvency-related event of default occurs, the principal of, and accrued and unpaid interest on all outstanding 10.625% Senior Notes will become immediately due and payable. With respect to certain other events of default, the trustee may, in certain circumstances, pursue any available remedy to collect the payment of principal of, premium, if any, on and interest, if any, on the 10.625% Senior Notes or enforce performance of any provisions of the 10.625% Senior Notes or the indenture governing such notes.   The Credit Agreement and the indentures governing the 10.00 0% Senior Notes and 10.625 % Senior Notes have hedging obligations to which the Company adheres.       NOTE 8. Asset Retirement Obligations   The Company’s asset retirement obligations primarily relate to the future plugging and abandonment of wells and related facilities. Market risk premiums associated with asset retirement obligations are estimated to represent a component of the Company’s credit-adjusted risk-free rate that is utilized in the calculations of asset retirement obligations.   Asset retirement obligations activity is as follows (in thousands):       Year Ended December 31,       2022     2021   Beginning asset retirement obligations   $ 4,260     $ 2,293   Liabilities incurred from new wells     573       980   Liabilities assumed in acquisitions     3,219       981   Liabilities divested     —       ( 6 ) Dispositions     —       ( 25 ) Revision of estimates (a)     ( 920 )     ( 130 ) Accretion of discount     370       167   Ending asset retirement obligations   $ 7,502     $ 4,260     (a) The revisions to the Company’s asset retirement obligation estimates are primarily due to changes in estimated costs based on experience with the properties and their expected useful lives.   As of December 31, 2022 and 2021, all asset retirement obligations are considered noncurrent and classified as such in the accompanying consolidated balance sheet.       NOTE 9. Incentive Plans   401(k) Plan. The HighPeak Energy Employees, Inc 401(k) Plan (the “401(k) Plan”) is a defined contribution plan established under Section 401 of the Internal Revenue Code of 1986, as amended (the “Code”). All regular full-time and part-time employees of the Company are eligible to participate in the 401(k) Plan after three continuous months of employment with the Company. Participants may contribute up to 80 percent of their annual base salary into the 401(k) Plan. Matching contributions are made to the 401(k) Plan in cash by the Company in amounts equal to 100 percent of a participant’s contributions to the 401(k) Plan up to four percent of the participant’s annual base salary (the “Matching Contribution”). Each participant’s account is credited with the participant’s contributions, Matching Contributions and allocations of the 401(k) Plan’s earnings. Participants are fully vested in their account balances at their eligibility date. During the year ended December 31, 2022 and 2021 and the period from August 22, 2020 through December 31, 2020, the Company contributed $ 358,000 , $ 227,000 and $ 49,000 to the 401(k) Plan, respectively.   90     Long-Term Incentive Plan. The Company’s Second Amended & Restated Long Term Incentive Plan (“LTIP”) provides for the grant of stock options, dividend equivalents, cash awards and substitute awards to officers and employees of the Company, as well as stock awards to directors of the Company. The number of shares available for grant pursuant to awards under the LTIP as of December 31, 2022 are as follows:       December 31,       2022     2021   Approved and authorized awards     14,340,324       12,376,766   Awards issued under plan     ( 13,769,191 )     ( 11,614,506 ) Awards available for future grant     571,133       762,260     Stock Options. Stock option awards were granted to employees on August 24, 2020, November 4, 2021, May 4, 2022 and August 15, 2022. Stock-based compensation expense related to the Company’s stock option awards for the years ended December 31, 2022, 2021 and period from August 22, 2020 through December 31, 2020 was $ 18.1 million, $ 4.6 million and $ 15.5 million, respectively, and as of December 31, 2022 and 2021 there was $ 1.1 million and $ 1.8 million, respectively, of unrecognized stock-based compensation expense related to unvested stock option awards. The unrecognized compensation expense will be recognized on a straight-line basis over the remaining vesting periods of the awards, which is a period of less than two years.   The Company estimates the fair values of stock options granted on the grant date using a Black-Scholes option valuation model, which requires the Company to make several assumptions. The expected term of options granted was determined based on the simplified method of the midpoint between the vesting dates and the contractual term of the options. The risk-free interest rate is based on the U.S. treasury yield curve rate for the expected term of the option at the date of grant and the volatility was based on the volatility of either an index of exploration and production crude oil and natural gas companies or on a peer group of companies with similar characteristics of the Company on the date of grant since the Company had minimal or did not have any trading history. More detailed stock options activity and details are as follows:       Stock Options     Average Exercise Price     Remaining Term in Years     Intrinsic Value (in thousands)   Outstanding at August 22, 2020     —                           Awards granted     9,705,495     $ 10.00                   Outstanding at December 31, 2020     9,705,495     $ 10.00       9.7     $ 57,942   Awards granted     442,500       14.36                   Exercised     ( 154,268 )   $ 10.00                   Forfeitures     ( 10,000 )   $ 10.00                   Outstanding at December 31, 2021     9,983,727     $ 10.19       8.7     $ 44,395   Awards granted     1,564,500       25.09                   Exercised     ( 12,000 )   $ 10.00                   Forfeitures     ( 18,999 )   $ 18.66                   Outstanding at December 31, 2022     11,517,228     $ 12.20       7.9     $ 128,429                                     Vested at December 31, 2021     8,551,077     $ 10.13       8.7     $ 38,556   Exercisable at December 31, 2021     8,551,077     $ 10.13       8.7     $ 38,556                                     Vested at December 31, 2022     11,304,747     $ 12.02       7.9     $ 127,591   Exercisable at December 31, 2022     11,304,747     $ 12.02       7.9     $ 127,591     Restricted Stock Issued to Employee Members of the Board. A total of 1,500,500 shares of restricted stock was approved by the Board to be granted to certain employee members of the Board of the Company on November 4, 2021, which vest on the three -year anniversary of such grant assuming the employees remain in his or her position as of the anniversary date. Therefore, stock-based compensation expense of $ 7.2 million and $ 1.2 million was recognized during the years ended December 31, 2022 and 2021, respectively, and the remaining $ 13.2 million will be recognized over the remaining restricted period, which was based upon the closing price of the stock on the date of the restricted stock issuance. The Board also cancelled the previously issued equity-based liability bonuses and approved a total of 600,000 shares of restricted stock to be granted to certain employees of the Company on June 1, 2022, which vest on November 4, 2024, assuming the employees remain in his or her position as of that date and cancelled certain contractual equity-based bonuses to such employees. Therefore, stock-based compensation expense of $ 7.3 million and $ 488,000 was recognized during the years ended December 31, 2022 and 2021, respectively, and the remaining $ 12.9 million will be recognized over the remaining restricted period, which was based upon the closing price of the stock on the date of the restricted stock issuance.   91     Stock Issued to Outside Directors. A total of 21,184 shares of restricted stock was approved by the Board to be granted to the outside directors of the Company on June 1, 2022, which will vest at the next annual meeting, assuming the Board members maintain their positions on the Board. Therefore, stock-based compensation expense of $ 427,000 was recognized during the year ended December 31, 2022 and the remaining $ 305,000 will be recognized between January and June 2023, which was based upon the closing price of the stock on the date of the restricted stock issuance. In addition, a total of 67,779 shares of restricted stock was approved by the Board to be granted to the outside directors of the Company on June 1, 2021, which vested in January 2022. Therefore, the remaining stock-based compensation expense of $ 284,000 was recognized during the year ended December 31, 2022, which was based upon the closing price of the stock on the date of the restricted stock issuance.   Stock was issued to the outside directors of the Company in November 2020 in the amount of 12,500 shares for each outside director, totaling 62,500 shares. There were no restrictions of these shares. Therefore stock-based compensation expense was recognized immediately upon the issuance of these shares in the amount of $ 302,000 which was based upon the closing price of the stock on the date the stock issuance was approved by the Board of the Company.       NOTE 10. Commitments and Contingencies   Leases. The Company follows ASC Topic 842, “Leases” to account for its operating and finance leases. Therefore, as of December 31, 2022 the Company had right-of-use assets totaling $ 333,000 included in other noncurrent assets and operating lease liabilities totaling $ 343,000 , included in other current liabilities, and as of December 31, 2021 the Company had right-of-use assets totaling $ 852,000 included in other noncurrent assets and operating lease liabilities totaling $ 856,000 , $ 513,000 of which are included in other current liabilities and $ 343,000 of which are included in other noncurrent liabilities on the accompanying consolidated balance sheets. The Company does not currently have any finance right-of-use leases. Maturities of the operating lease obligations are as follows (in thousands):       December 31, 2022   2023   $ 349   Total lease payments     349   Less present value discount     ( 6 ) Present value of lease liabilities   $ 343     Legal actions. From time to time, the Company may be a party to various proceedings and claims incidental to its business. While many of these matters involve inherent uncertainty, the Company believes that the amount of the liability, if any, ultimately incurred with respect to these proceedings and claims will not have a material adverse effect on the Company’s consolidated financial position as a whole or on its liquidity, capital resources or future annual results of operations. The Company records reserves for contingencies when information available indicates that a loss is probable, and the amount of the loss can be reasonably estimated.   Indemnifications. The Company has agreed to indemnify its directors, officers and certain employees and agents with respect to claims and damages arising from acts or omissions taken in such capacity, as well as with respect to certain litigation.   Environmental. Environmental expenditures that relate to an existing condition caused by past operations and have no future economic benefits are expensed. Environmental expenditures that extend the life of the related property or mitigate or prevent future environmental contamination are capitalized. Liabilities for expenditures that will not qualify for capitalization are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated. Such liabilities are undiscounted unless the timing of cash payments for the liability is fixed or reliably determinable. Environmental liabilities normally involve estimates that are subject to revision until settlement or remediation occurs.   Crude oil delivery commitments. In May 2021, the Company entered into a crude oil marketing contract with DK Trading & Supply, LLC (“Delek”) as the purchaser and DKL Permian Gathering, LLC (“DKL”) as the gatherer and transporter. The contract includes the Company’s current and future crude oil production from the majority of its horizontal wells in Flat Top where DKL is continually constructing a crude oil gathering system and custody transfer meters to most of the Company’s central tank batteries. The contract contains a minimum volume commitment commencing October 2021 based on the gross barrels delivered at the Company’s central tank battery facilities and is 5,000 Bopd for the first year, 7,500 Bopd for the second year and 10,000 Bopd for the remaining eight years of 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, 2022, the Company has delivered approximately 22,800 Bopd under the contract. The remaining monetary commitment as of December 31, 2022, if the Company never delivers any additional volumes under the agreement, is approximately $ 18.3 million.   92     Natural gas purchasing replacement contract. In May 2021, the Company entered into a replacement natural gas purchase contract with WTG Gas Processing, L.P. (“WTG”) as the gatherer, processor and purchaser of the Company’s current and future gross natural gas production in Flat Top. The replacement contract provides the Company with improved natural gas and NGL pricing and requires WTG to expand its current low-pressure gathering system, which eliminates the need for in-field compression in Flat Top to accommodate the Company’s increased natural gas production volumes based on the current plan of development. The Company will provide WTG with certain aid-in-construction payments to be reimbursed over time based on throughput through the system. The replacement contract does not contain any minimum volume commitments.   Power contracts. In June 2021, the Company entered into a contract with Priority Power Management, LLC (“Priority Power”) whereby Priority Power will develop an electric high-voltage (“EHV”) substation, medium voltage distribution systems and a 13-megawatt direct current solar photovoltaic facility located on approximately 80 acres of land owned by the Company north of Big Spring, Texas in Howard County to provide for the Company’s electrical power needs in its Flat Top operating area including powering drilling rigs and day-to-day operations. The EHV substation was interconnected with the ERCOT transmission grid in May 2022 via the local electric utility, has an initial capacity of up to fifty megavolt amperes and was designed for future expansion capability. The solar generation facility will be interconnected with the medium voltage distribution system that will be energized from the new EHV substation. Priority Power will develop, finance, engineer, construct, operate and maintain the project facilities.   Also in June 2021, the Company entered into a contract with Oncor Electric Delivery Company, LLC (“Oncor”) to construct certain facilities to deliver electricity to the aforementioned substation. In conjunction with this contract, the Company issued a $ 1.9 million letter of credit to Oncor until such time as the Company’s load meets or exceeds 12 megawatts as measured during any fifteen (15) minute interval on or before May 20, 2023. This requirement was met in late 2022 and the letter of credit was released during the fourth quarter of 2022 accordingly.   Finally, in June 2022, the Company entered into a contract with TXU Energy Retail Company LLC (“TXU”) to provide a block of electric power via the aforementioned transmission system at an attractive variable rate, which fluctuates based on the usage by the Company through May 31, 2032. In conjunction with this contract, the Company issued a $ 1.7 million letter of Credit in lieu of a deposit to TXU that is cancellable at the end of the contract term.   Sand commitments. The Company is party to an agreement whereby it has agreed to purchase at least 600,000 tons of sand over a two-year period beginning at the commencement date of the sand mine being operational, which was late in the second quarter of 2022. 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. 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.       NOTE 11. Related Party Transactions   Water Treatment. In September 2021, the Company entered into a contract with Pilot Exploration, Inc., (“Pilot”), whose President and CEO is an outside director of the Company, to deploy Pilot’s proprietary water treatment technology in the Company’s Flat Top area to treat up to 25,000 barrels of produced water per day that can be reused in the Company’s completion operations or sold to third parties for their completion operations. This contract was set to expire on March 1, 2022, however it was extended to October 1, 2022 based on the early results of the project. During the year ended December 31, 2022, the Company paid $ 2.0 million to Pilot for such services.   In May 2022, the Company entered into an agreement with Pilot to utilize Pilot’s proprietary water treatment technology in the Company’s Flat Top area to treat produced water such that it can be reused in the Company’s completion operations or sold to third parties for their completion operations. During the one-year term of the agreement, beginning on October 1, 2022, the Company has agreed to a minimum volume commitment of 29.2 million barrels of produced water while maintaining the ability to bank excess produced water processed each month toward the minimum volume commitment. During the year ended December 31, 2022, the Company paid $ 1.6 million to Pilot for such services. The monetary commitment, if the Company never delivers any additional produced water to be treated under the agreement, is approximately $ 4.4 million.   93     HighPeak Business Combination. On August 21, 2020, the Company completed the HighPeak business combination between the Company, Pure, HPK LP, HighPeak I, and HighPeak II. HighPeak I and HighPeak II contributed their partnership interests in HPK LP to the Company in return for 76,383,054 shares of publicly traded common stock of the Company. The table below shows the construction of the beginning balance sheet of the Company on August 22, 2020 upon the closing of the HighPeak business combination (in thousands).       (a)     (b)     (c)     (d)     (e)     (f)               HPK LP     Pure     HighPeak Employees, Inc.     Issuance of HighPeak Energy Common Stock     Cash Offering Costs     Deferred Tax Liability     Beginning Balance Sheet on August 22, 2020   Cash and cash equivalents   $ 1,943     $ 1     $ 99     $ 92,554     $ ( 8,114 )   $ —     $ 86,483   Accounts receivable     3,001       —       26       —       —       —       3,027   Total current assets     4,944       1       125       92,554       ( 8,114 )     —       89,510   Total crude oil and natural gas properties, net     452,039       —       —       —       —       —       452,039   Other property and equipment, net     436       —       —       —       —       —       436   Total assets   $ 457,419     $ 1     $ 125     $ 92,554     $ ( 8,114 )   $ —     $ 541,985   Current liabilities   $ 35,794     $ 2,025     $ 77     $ ( 9,538 )   $ —     $ —     $ 28,358   Deferred income tax liability     —       —       —       —       —       39,946       39,946   Notes payable (receivable)     ( 11,675 )     11,675       —       —       —       —       —   Asset retirement obligations     2,398       —       —       —       —       —       2,398   Partners' capital     521,682       —       —       ( 521,682 )     —       —       —   Common stock     —       —       —       9       —       —       9   Additional paid-in capital     —       ( 13,699 )     48       623,765       ( 8,114 )     ( 39,946 )     562,054   Accumulated deficit     ( 90,780 )     —       —       —       —       —       ( 90,780 ) Total stockholders' equity/partner's capital     430,902       ( 13,699 )     48       102,092       ( 8,114 )     ( 39,946 )     471,283   Total liabilities and stockholders' equity/partners' capital   $ 457,419     $ 1     $ 125     $ 92,554     $ ( 8,114 )   $ —     $ 541,985     (a) Represents HPK LP’s condensed consolidated balance sheet estimated as of August 21, 2020. (b) Represents Pure’s condensed consolidated balance sheet estimated as of August 21, 2020 after taking into account: (i) the closing of its trust account, (ii) the redemption of Pure’s Class A Common Stock by the former public stockholders of Pure that elected to redeem, (iii) paying out the cash consideration to those former public stockholders of Pure who elected to remain and (iv) the conversion of the remaining shares of Pure’s Class A Common Stock to HighPeak Energy common stock upon the closing of the HighPeak business combination. The $ 13.7 million reduction to equity is considered noncash offering costs on the condensed consolidated statement of changes in stockholders’ equity. (c) Represents the balance sheet of HighPeak Energy Employees, Inc which was acquired by the Company for $ 10.00 upon the closing of the HighPeak business combination. (d) Represents the issuance by the Company of 91,592,354 shares of common stock, 10,538,183 warrants and 10,209,300 Contingent Value Rights upon the closing of the HighPeak business combination. The reduction to accounts payable of $ 9.5 million represents those vendors of HPK LP that purchased shares under the Forward Purchase Agreement Amendment (as defined below) in the HighPeak business combination in lieu of being paid cash for the majority of their outstanding balances. (e) Represents the cash costs paid for the offering of the aforementioned shares in addition to the cash costs that had previously been incurred by Pure of $ 13.7 million in column (b). (f) Represents the beginning deferred tax liability of the Company given the combination of all the entities, most of which originated from HPK LP which was a partnership for U.S. federal income tax purposes and therefore did not record a deferred tax liability.   Pursuant to the Business Combination Agreement, among other things, (a) MergerSub merged with and into Pure, with Pure surviving as a wholly owned subsidiary of the Company, (b) each outstanding share of Pure’s Class A Common Stock and Pure’s Class B Common Stock (other than certain shares of Pure’s Class B Common Stock that were surrendered for cancellation by Pure’s Sponsor) were converted into the right to receive (A) one share of HighPeak Energy common stock (and cash in lieu of fractional shares), and (B) solely with respect to each outstanding share of Pure’s Class A Common Stock, (i) a cash amount, without interest, equal to $ 0.62 , which represented the amount by which the per-share redemption value of Pure’s Class A Common Stock that exceeded $ 10.00 per share at the closing, without interest, in each case, totaling approximately $ 767,902 , (ii) one Contingent Value Right (“CVR”) for each one whole share of HighPeak Energy common stock (excluding fractional shares) issued to holders of Pure’s Class A Common Stock pursuant to clause (A), representing the right to receive additional shares of HighPeak Energy common stock (or such other specified consideration as is specified with respect to certain events) under certain circumstances, if necessary, to satisfy a 10 % preferred simple annual return, subject to a floor downside per-share price of $ 4.00 , as measured at the applicable maturity, which occurred on August 21, 2022 and (iii) one warrant to purchase HighPeak Energy common stock for each one whole share of HighPeak Energy common stock (excluding fractional shares) issued to holders of Pure’s Class A Common Stock pursuant to clause (A), (c) the HPK Contributors (A) contributed their limited partner interests in HPK LP to the Company in exchange for HighPeak Energy common stock and the general partner interests in HPK LP to a wholly owned subsidiary of the Company in exchange for no consideration, and (B) contributed the outstanding Sponsor Loans (as defined in the Business Combination Agreement) in exchange for HighPeak Energy common stock and such Sponsor Loans were cancelled in connection with the closing of the HighPeak business combination and (d) following the consummation of the foregoing transactions, the Company caused HPK LP to merge with and into the HighPeak Energy Acquisition (as successor to Pure) and all interests in HPK LP were cancelled in exchange for no consideration.   94     HighPeak I and HighPeak II collectively received 76,383,054 shares of HighPeak Energy common stock pursuant to the Business Combination Agreement. Further, certain of the Company’s executive officers and directors received the consideration provided by the HighPeak business combination through their ownership of Pure’s Class A Common Stock. Steven W. Tholen, the Company’s Chief Financial Officer received 5,000 shares of HighPeak Energy common stock, 5,000 CVRs and 5,000 warrants in exchange for shares of Pure’s Class A Common Stock owned by him prior to the HighPeak business combination. Michael L. Hollis, the Company’s President and member of the Company’s board of directors (the “Board”), received 16,802 shares of HighPeak Energy common stock, 16,802 CVRs and 20,382 warrants in exchange for shares of Pure’s Class A Common Stock and Pure’s warrants, respectively, owned by him prior to the HighPeak business combination. Further, Rodney L. Woodard, the Chief Operating Officer of the Company, received 14,000 shares of HighPeak Energy common stock, 14,000 CVRs and 14,000 warrants in exchange for shares of Pure’s Class A Common Stock and Pure’s warrants, respectively, owned by him prior to the HighPeak business combination.   Unaudited Pro Forma Operating Results. The following unaudited pro forma combined financial information has been prepared as if the HighPeak business combination and the HPK LP business combination had taken place on January 1, 2020. The unaudited pro forma consolidated financial information has been prepared using the reverse merger business combination method of accounting in accordance with GAAP. The information reflects pro forma adjustments based on available information and certain assumptions that the Company believes are reasonable and the estimated tax impacts of the pro forma adjustments.   The pro forma condensed combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the business combinations taken place on January 1, 2020; furthermore, the financial information is not intended to be a projection of future results (in thousands, except per share amounts).       (Unaudited Pro Forma) Year Ended December 31, 2020   Total revenues   $ 24,623   Net loss attributable to Common Stock     ( 23,310 ) Basic and diluted net loss per share     ( 0.25 )   Contingent Value Rights. At the closing of the HighPeak business combination, the Company entered into the Contingent Value Rights Agreement (the “CVR Agreement”) by and among, the Company, Pure’s Sponsor, HighPeak I, HighPeak II (together with HighPeak I, the “CVR Sponsors”) and Continental Stock Transfer & Trust Company, in its capacity as Rights Agent (the “Rights Agent”) whereby it issued 10,209,300 CVRs. The CVR Agreement provided for, among other things, the CVRs, which represented contractual rights to receive a contingent payment (in the form of additional shares of HighPeak Energy common stock, or as otherwise specified in the CVR Agreement) in certain circumstances that were issued to the holders of shares of Pure’s Class A Common Stock that participated in the HighPeak business combination and certain qualified institutional buyers and accredited investors, including certain affiliates and officers of the Company, that purchased forward purchase units of the Company pursuant to the Forward Purchase Agreement Amendment. Pursuant to the CVR Agreement, holders of CVRs in whose name a CVR was registered in the CVR registrar maintained by the Rights Agent at any date of determination were provided with a significant valuation protection through the opportunity to obtain additional contingent consideration in the form of additional shares of HighPeak Energy common stock if the trading price of HighPeak Energy’s common stock was below the price that would provide the holders of CVRs with a 10 % preferred simple annual return on their shares of common stock held at Closing (based on a $ 10.00 per share price at the closing of the HighPeak business combination), subject to a floor downside per-share price of $ 4.00 (the “Preferred Returns”), either at (i) the date to be specified by the CVR Sponsors, which occurred on August 21, 2022. If any additional shares of HighPeak Energy common stock were issued to Qualifying CVR Holders pursuant to the CVR Agreement, the CVR Sponsors collectively forfeited an equivalent number of shares they own that are currently in escrow to the Company for cancellation. The Preferred Returns could entitle a Qualifying CVR Holder to receive up to 2.125 shares of HighPeak Energy common stock per CVR. Following the closing, the CVR Sponsors collectively placed 21,694,763 shares in escrow, which equaled the maximum number of additional shares of HighPeak Energy common stock issuable pursuant to the CVR Agreement. The CVRs expired on August 22, 2022 and the 21,694,763 shares held in escrow were released to the CVR Sponsors.   95     Stockholders ’ Agreement. At the closing of the HighPeak business combination, Pure’s Sponsor, HighPeak I, HighPeak II, HighPeak Energy III, LP and Jack Hightower (collectively, with each of their respective affiliates and permitted transferees, the “Principal Stockholder Group”), on the one hand, and the Company, on the other hand, entered into a Stockholders’ Agreement (the “Stockholders’ Agreement”), which governs certain rights and obligations following the HighPeak business combination. Under the Stockholders’ Agreement, the Principal Stockholder Group will be entitled, based on its percentage ownership of the total amount of HighPeak Energy common stock issued and outstanding immediately following the closing (the “Original Shares”) and provided that the Original Shares constitute not less than the percentage of the then outstanding total voting securities of the Company set forth below, to nominate a number of directors for appointment to the Board as follows:     ● for so long as (i) the Principal Stockholder Group beneficially owns at least 35 % of the Original Shares and (ii) the Original Shares constitute at least 30 % of the Company’s then-outstanding voting securities, the Principal Stockholder Group can designate up to four (4) nominees, and if the Principal Stockholder Group owns less than 50% of the total outstanding voting securities, at least one nominee shall be independent as defined by applicable listing standards;   ● for so long as (i) the Principal Stockholder Group beneficially owns less than 35% but at least 25 % of the Original Shares and (ii) the Original Shares constitute at least 25 % of the Company’s then-outstanding voting securities, the Principal Stockholder Group can designate up to three (3) nominees;   ● for so long as (i) the Principal Stockholder Group beneficially owns less than 25% but at least 15 % of the Original Shares and (ii) the Original Shares constitute at least 15 % of the Company’s then-outstanding voting securities, the Principal Stockholder Group can designate up to two (2) nominees; and   ● if (i) the Principal Stockholder Group beneficially owns less than 15% but at least 5 % of the Original Shares and (ii) the Original Shares constitute at least 7.5 % of the Company’s then-outstanding voting securities, the Principal Stockholder Group can designate one (1) nominee.   If at any time the Principal Stockholder Group owns less than 5% of the Original Shares or the Original Shares constitute less than 7.5% of the Company’s then-outstanding voting securities, it will cease to have any rights to designate individuals for nomination to the Board.   For so long as the Principal Stockholder Group has the right to designate at least one director for nomination under the Stockholders’ Agreement, the Company will take all Necessary Action (as defined therein) to ensure that the number of directors serving on the Board shall not exceed seven (7). For so long as the Principal Stockholder Group owns a number of shares of HighPeak Energy common stock equal to at least (i) 20 % of the Original Shares and (ii) 7.5 % of the then-outstanding voting securities of the Company, the Company and the Principal Stockholder Group shall have the right to have a representative appointed to serve on each committee of the Board (other than the audit committee) for which any such representative is eligible pursuant to applicable laws and the Nasdaq. For so long as the Principal Stockholder Group has the right to designate one or more individuals for nomination to the Board, the Principal Stockholder Group shall have the right to appoint one (1) non-voting observer to the Board.   The Stockholders’ Agreement also includes customary restrictions on the transfer of equity securities to certain persons acquiring beneficial ownership. Pursuant to the Stockholders’ Agreement, the Principal Stockholder Group will agree not to transfer, directly or indirectly, any equity securities of the Company for a period of 180 days after the Closing, subject to certain customary exceptions. The Stockholders’ Agreement will terminate as to each stockholder upon the time at which the Principal Stockholder Group no longer has the right to designate an individual for nomination to the Board under the Stockholders’ Agreement and as to a member of the Principal Stockholder Group that no longer owns any of the Original Shares.   Registration Rights Agreement. At the closing of the HighPeak business combination, the Company entered into the Registration Rights Agreement (the “Registration Rights Agreement”), by and among the Principal Stockholder Group and certain other security holders named therein, pursuant to which the Company will be obligated, subject to the terms thereof and in the manner contemplated thereby, to register for resale under the Securities Act of 1933, as amended (the “Securities Act”) all or any portion of the shares of HighPeak Energy common stock that the holders named thereto hold as of the date of such agreement and that they may acquire thereafter, including upon the conversion, exchange or redemption of any other security therefor (the “Registrable Securities”). The Company has agreed to file and cause to become effective a registration statement covering the Registrable Securities held by such holder making a demand for registration, provided that no fewer than the amount of Registrable Securities representing the lesser of (i) $ 25 million or (ii) all Registrable Securities owned by such holder, as applicable, are covered under the holder’s demand for registration. The holders can submit a request beginning immediately after the HighPeak business combination. Under the Registration Rights Agreement, the holders also have “piggyback” registration rights exercisable at any time that allow them to include the shares of HighPeak Energy common stock that they own in certain registrations initiated by the Company, provided that such holder elects to include its Registrable Securities in an amount not less than $ 5 million. Subject to customary exceptions, holders will also have the right to request one or more underwritten offerings of Registrable Securities, provided, that, they hold at least $5 million in Registrable Securities and each such offering include a number of Registrable Securities equal to the lesser of (i) $25 million and (ii) all of the Registrable Securities owned by such holders as of the date of the request. In the event that the sale of registered securities under a registration statement would require disclosure of certain material non-public information not otherwise required to be disclosed, the Company may postpone the effectiveness of the applicable registration statement or require the suspension of sales thereunder. The Company may not delay or suspend a registration statement on more than two (2) occasions for more than sixty (60) consecutive calendar days or more than ninety (90) total calendar days, in each case, during any twelve (12) month period.   96     Forward Purchases. In connection with the closing of the HighPeak business combination, the Company also issued shares of HighPeak Energy common stock, warrants and CVRs (the “Forward Purchases”) to certain qualified institutional buyers and accredited investors (the “Forward Purchase Investors”) pursuant to that certain Amended & Restated Forward Purchase Agreement, dated as of July 24, 2020 (the “Forward Purchase Agreement Amendment”), by and among the Company, each party designated as a purchaser therein (including purchasers that subsequently joined prior to the closing of the HighPeak business combination as parties thereto), HighPeak Energy Partners, LP, and, solely for the limited purposes specified therein, Pure.   Prior to the closing of the HighPeak business combination, and subsequent to the Company’s entry into the Forward Purchase Agreement Amendment, an aggregate of 8,976,875 forward purchase units (with each forward purchase unit consisting of one share of HighPeak Energy common stock, one warrant and one CVR), for aggregate consideration of approximately $ 89.8 million in a private placement pursuant to the Assignment and Joinder agreements under and pursuant to the Forward Purchase Agreement Amendment. The proceeds from the Forward Purchases were used to fund a portion of the minimum equity consideration condition to closing required to effect the HighPeak business combination pursuant to the Business Combination Agreement.   Equity Offering. On October 25, 2021, the Company completed an underwritten public offering of 2,530,000 shares of its common stock pursuant to a Registration Statement on Form S-1 (File No. 333-258853) filed with the SEC on October 19, 2021 and a Registration Statement on Form S-1MEF (File No. 333-260394) filed with the SEC on October 20, 2021. Michael L. Hollis, President of HighPeak Energy, participated in the offering and purchased an aggregate of 45,454 shares at the initial public offering price per share. The underwriters received a reduced underwriting discount on the shares purchased by Michael L. Hollis.   General and Administrative Expenses. The general partner of HPK LP utilized HighPeak Energy Management, LLC (the “Management Company”) to provide services and assistance to conduct, direct and exercise full control over the activities of HPK LP per its Partnership Agreement. However, the Management Company is funded via payments from the parent companies of HighPeak I and HighPeak II pursuant to their respective Limited Partnership Agreements, as amended. Therefore, HPK LP reimbursed the parent companies of HighPeak I and HighPeak II for actual costs incurred by the Management Company. During the period from January 1, 2020 through August 21, 2020, HPK LP paid $ 2.4 million each to the parent companies of HighPeak I and HighPeak II of which $ 4.7 million is included in general and administrative expenses in the accompanying results of operations for the period from January 1, 2020 through August 21, 2020. Effective upon closing of the HighPeak business combination, the Management Company is no longer being paid by the Company as all costs directly attributable to the Company are paid by the Company going forward.   Private Investment in Public Equity. On August 22 and 23, 2022, HighPeak Energy entered into multiple Subscription Agreements (the “Subscription Agreements”) with certain accredited investors (collectively, the “Investors”) pursuant to which, among other things, the Investors agreed to subscribe for and purchase, and the Company agreed to issue and sell to the Investors, an aggregate 2,855,162 newly issued shares of the Company’s common stock at a price per share of $ 21.61 (as determined by the 5-day volume weighted average trading price per share for the five trading days immediately prior to (and excluding) August 22, 2022), for aggregate gross proceeds of approximately $ 61.7 million. The Company used the proceeds of the Private Placement for general corporate purposes. The transactions contemplated by the Subscription Agreements closed in multiple closings on or about September 2, 2022, subject to customary closing conditions.   As part of the private placement, certain related persons of the Company participated as investors, and such participation was approved by the Board pursuant to and in accordance with the terms of the Related Party Transactions Policy adopted by the Board on August 21, 2020. Specifically, Messrs. Jack Hightower (the Company’s Chief Executive Officer), Michael Hollis (the Company’s President), Steven Tholen (the Company’s Chief Financial Officer), Rodney Woodard (the Company’s Chief Operating Officer) and John Paul DeJoria as trustee for the John Paul DeJoria Family Trust (a greater than ten percent (10%) holder of the Company’s outstanding common stock) entered into Subscription Agreements to purchase 462,749 , 46,276 , 9,255 , 23,138 and 2,313,744 shares of common stock, respectively, in each case on substantially the same terms as other investors in the private placement. In addition, each Subscription Agreement with an investor other than Messrs. Hightower and DeJoria (each of which has existing registration rights with respect to the Company’s securities) provides for customary registration rights with respect to the shares issued thereunder, including the right to have such shares registered for resale on a “shelf” registration statement.       NOTE 12. Major Customers   Delek accounted for approximately 88 % and 94 % of the Company’s revenues during the years ended December 31, 2022 and 2021, respectively. Delek accounted for approximately 98 % of the Company’s revenues during the period from August 22, 2020 through December 31, 2020. Delek and Enlink Crude Purchasing, LLC accounted for approximately 49 % and 44 %, respectively, of the Company’s revenues during the period from January 1, 2020 through August 21, 2020. Based on the current demand for crude oil and natural gas and the availability of other purchasers, management believes the loss of this major purchaser would not have a material adverse effect on our financial condition and results of operations because crude oil and natural gas are fungible products with well-established markets and numerous purchasers.       NOTE 13. Income Taxes   Enactment of the Inflation Reduction Act of 2022. On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA 2022”). The IRA 2022, among other tax provisions, imposes a 15 percent corporate alternative minimum tax on corporations with book financial statement income in excess of $1.0 billion, effective for tax years beginning after December 31, 2022. The IRA 2022 also establishes a one percent excise tax on stock repurchases made by publicly traded U.S. corporations, effective for stock repurchases in excess of an annual limit of $1.0 million after December 31, 2022. The IRA 2022 did not impact the Company’s current year tax provision or the Company’s consolidated financial statements. The Company is evaluating the accounting and disclosure implications of the IRA 2022 on its future filings.   97     The Company’s income tax expense attributable to income from operations consisted of the following (in thousands):       Year Ended December 31,     August 22, 2020 through December 31,       2022     2021     2020   Current income tax expense:                         Federal   $ —     $ —     $ (3,176 ) State     —       —       —   Total current income tax expense     —       —       ( 3,176 ) Deferred income tax expense:                         Federal     73,026       15,084       ( 1,047 ) State     2,335       1,820       —   Deferred income tax expense     75,361       16,904       ( 1,047 ) Total income tax expense   $ 75,361     $ 16,904     $ ( 4,223 )   The reconciliation between the income tax expense computed by multiplying pre-tax income by the U.S. federal statutory rate and the reported amounts of income tax expense is as follows (in thousands, except rate):       Year Ended December 31,     August 22, 2020 through December 31,       2022     2021     2020   Income tax expense at U.S. federal statutory rate   $ 65,565     $ 15,217     $ ( 4,337 ) Limited tax benefit due to wage and stock-based compensation     7,362       ( 51 )     127   State deferred income taxes     2,335       1,730       —   Other     99       8       ( 13 ) Income tax expense   $ 75,361     $ 16,904     $ ( 4,223 ) Effective income tax rate     24.1 %     23.3 %     20.4 %   The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities were as follows as of December 31, 2022 and 2021 (in thousands):       December 31,       2022     2021   Deferred tax assets:                 Interest expense limitations   $ 10,623     $ —   Net operating loss carryforwards     5,496       2,870   Stock-based compensation     4,102       4,373   Unrecognized derivative losses     3,756       3,248   Other     32       31   Less: Valuation allowance     —       —   Deferred tax assets     24,009       10,522   Deferred tax liabilities:                 Crude oil and natural gas properties, principally due to differences in basis and depreciation and the deduction of intangible drilling costs for tax purposes     ( 155,169 )     ( 66,324 ) Unrecognized derivative gains     ( 4 )     —   Deferred tax liabilities     ( 155,173 )     ( 66,324 ) Net deferred tax liabilities   $ ( 131,164 )   $ ( 55,802 )   The effective income tax rate differs from the U.S. statutory rate of 21 percent primarily due to reversing a portion of its deferred tax asset related to stock-based compensation, deferred state income taxes and other permanent differences between GAAP income and taxable income. Periods prior to August 22, 2020 are not shown because the Predecessor was treated as a partnership for U.S. federal income tax purposes and therefore does not record a provision for U.S. federal income tax because the partners of the Predecessor report their share of the Predecessor's income or loss on their respective income tax returns. The Predecessor was required to file tax returns on Form 1065 with the IRS. The 2019 through 2021 tax years remain open to examination.   98     As required by ASC Topic 740, “Income Taxes,” (“ASC 740”) the Company uses reasonable judgments and makes estimates and assumptions related to evaluating the probability of uncertain tax positions. The Company bases its estimates and assumptions on the potential liability related to an assessment of whether the income tax position will “more likely than not” be sustained in an income tax audit. Based on that analysis, the Company believes the Company has not taken any material uncertain tax positions, and therefore has not recorded an income tax liability related to uncertain tax positions. However, if actual results materially differ, the Company’s effective income tax rate and cash flows could be affected in the period of discovery or resolution. The Company also reviews the estimates and assumptions used in evaluating the probability of realizing the future benefits of the Company’s deferred tax assets and records a valuation allowance when the Company believes that a portion or all the deferred tax assets may not be realized. If the Company is unable to realize the expected future benefits of its deferred tax assets, the Company is required to provide a valuation allowance. The Company uses its history and experience, overall profitability, future management plans, tax planning strategies, and current economic information to evaluate the amount of valuation allowance to record. As of December 31, 2022 and 2021, the Company had not recorded a valuation allowance for deferred tax assets arising from its operations because the Company believed they met the “more likely than not” criteria as defined by the recognition and measurement provisions of ASC 740. The Company reversed a portion of its deferred tax asset related to stock-based compensation based on the assumption that the tax deduction will be subject to IRC Section 162(m) limits when the stock options are exercised and the restricted stock vests. IRC Section 162(m) limits compensation deductions to $1.0 million per year for certain Company executives. This resulted in a $ 3.4 million reduction in the deferred tax asset and reduced the amount of income tax benefit realized during the year ended December 31, 2022.   The Company is also subject to Texas Margin Tax. The Company realized no current Texas Margin Tax in the accompanying consolidated financial statements as we do not anticipate owing any Texas Margin Tax for 2022 or 2021. However, the Company has recognized a deferred Texas Margin Tax liability of $ 4.1 million and $ 1.8 million as of December 31, 2022 and 2021, respectively, in the accompanying consolidated financial statements.       NOTE 14. Earnings Per Share   The Company uses the two-class method of calculating earnings per share because certain of the Company’s stock-based awards qualify as participating securities.   The Company’s basic earnings per share attributable to common stockholders is computed as (i) net income as reported, (ii) less participating basic earnings (iii) divided by weighted average basic common shares outstanding. The Company’s diluted earnings per share attributable to common stockholders is computed as (i) basic earnings attributable to common stockholders, (ii) plus reallocation of participating earnings (iii) divided by weighted average diluted common shares outstanding.   The following table reconciles the Company’s earnings from operations and earnings attributable to common stockholders to the basic and diluted earnings used to determine the Company’s earnings per share amounts for the years ended December 31, 2022 and 2021 under the two-class method (in thousands):       Year Ended December 31,     August 22, 2020 through December 31,       2022     2021     2020   Net income (loss) as reported   $ 236,854     $ 55,559     $ ( 16,429 ) Participating basic earnings (a)     ( 22,991 )     ( 4,674 )     —   Basic earnings attributable to common stockholders     213,863       50,885       ( 16,429 ) Reallocation of participating earnings     401       58       —   Diluted net income (loss) attributable to common stockholders   $ 214,264     $ 50,943     $ ( 16,429 )                           Basic weighted average shares outstanding     104,738       93,127       91,629   Dilutive warrants and unvested stock options     4,304       145       —   Dilutive unvested restricted stock     2,122       1,500       —   Diluted weighted average shares outstanding     111,164       94,772       91,629       (a) Certain unvested restricted stock awarded to outside directors represent participating securities because they participate in nonforfeitable dividends with the common equity holders of the Company. Vested stock options represent participating securities because they participate in dividend equivalents with the common equity holders of the Company. Participating earnings represent the distributed and undistributed earnings of the Company attributable to the participating securities. Certain unvested restricted stock awarded to outside directors, employee members of the Board and certain employees do not represent participating securities because, while they participate in dividends with the common equity holders of the Company, the dividends associated with such unvested restricted stock are forfeitable in connection with the forfeitability of the underlying restricted stock. Unvested stock options do not represent participating securities because, while they participate in dividend equivalents with the common equity holders of the Company, the dividend equivalents associated with unvested stock options are forfeitable in connection with the forfeitability of the underlying stock options.   99     The calculation for weighted average shares reflects shares outstanding over the reporting period based on the actual number of days the shares were outstanding.       NOTE 15. Stockholders ’ Equity   Issuance of Common Stock. On March 25, 2022, June 21, 2022 and June 27, 2022, respectively, the Company issued 6,960,000 , 371,517 and 3,522,117 shares of HighPeak Energy common stock related to the aforementioned crude oil and natural gas property acquisitions. On June 1, 2022, the Company issued 21,184 and 600,000 shares of restricted stock to outside directors and certain employees, respectively. On September 2, 2022, the Company closed an aggregate $ 85.0 million private placement of 3,933,376 newly issued shares of HighPeak Energy common stock at a price per share of $ 21.61 as determined by the 5-day volume weighted average closing price per share for the five days immediately prior to (and excluding) August 22, 2022. The initial closings occurred on August 22, 2022, with the final closings on September 2, 2022. The remaining 982,648 shares of HighPeak Energy common stock issued during the year ended December 31, 2022 were the result of warrants ( 970,648 shares) and stock options ( 12,000 shares) being exercised.   On June 1, 2021 and November 4, 2021, the Company issued 67,779 and 1,500,500 shares of restricted stock to outside directors and employee members of the Board, respectively. In October 2022, the Company issued 2,530,000 shares of its common stock in a public offering discussed below. The remaining 708,341 shares of HighPeak Energy common stock issued during the year ended December 31, 2021 were the result of warrants ( 554,073 shares) and stock options ( 154,268 shares) being exercised.   Public Offering of Common Stock. On October 25, 2021, the Company completed the offering of 2,530,000 shares of its common stock, at a price to the public of $ 10.00 per share, pursuant to a Registration Statement on Form S-1 (File No. 333-258853) filed on October 19, 2021 and a Registration Statement on Form S-1MEF (File No. 333-260394) filed with the SEC on October 20, 2021. The net proceeds to the Company from the offering, after deducting the underwriting discounts and commissions and other offering expenses, were approximately $ 22.8 million.   Dividends and dividend equivalents . In October 2022, the Board declared a quarterly dividend of $ 0.025 per share of common stock outstanding which resulted in a total of $ 2.8 million in dividends being paid on November 23, 2022. In addition, under the terms of the LTIP, the Company paid a dividend equivalent per share to all vested stock option holders of $ 280,000 in November 2022 and will accrue a dividend equivalent per share to all unvested stock option holders which is payable upon vesting of up to an additional $ 5,000 , assuming no forfeitures. In addition, the Company will accrue an additional combined $ 53,000 in dividends on the restricted stock issued to directors, management directors and certain employees that will be payable upon vesting.   In July 2022, the Board declared a quarterly dividend of $ 0.025 per share of common stock outstanding which resulted in a total of $ 2.7 million in dividends being paid on August 25, 2022. In addition, under the terms of the LTIP, the Company paid a dividend equivalent per share to all vested stock option holders of $ 263,000 in August 2022 and will accrue a dividend equivalent per share to all unvested stock option holders which is payable upon vesting of up to an additional $ 4,000 , assuming no forfeitures. In addition, the Company will accrue an additional combined $53,000 in dividends on the restricted stock issued to directors, management directors and certain employees that will be payable upon vesting.   In April 2022, the Board declared a quarterly dividend of $ 0.025 per share of common stock outstanding which resulted in a total of $ 2.6 million in dividends being paid on May 25, 2022. In addition, under the terms of the LTIP, the Company paid a dividend equivalent per share to all vested stock option holders of $ 214,000 in May 2022 and will accrue a dividend equivalent per share to all unvested stock option holders which is payable upon vesting of up to an additional $ 2,000 , assuming no forfeitures. In addition, the Company will accrue an additional combined $ 53,000 in dividends on the restricted stock issued to management directors and certain employees that will be payable upon vesting.   In January 2022, the Board approved a quarterly dividend of $ 0.025 per share of common stock outstanding which resulted in a total of $ 2.4 million in dividends being paid on February 25, 2022. In addition, under the terms of the LTIP, the Company paid a dividend equivalent per share to all vested stock option holders and accrued a dividend equivalent per share to all unvested stock option holders payable upon vesting, which equates to a total payment of $ 214,000 in February 2022 and up to an additional $ 2,000 , assuming no forfeitures. In addition, the Company accrued an additional combined $ 53,000 in dividends on the restricted stock issued to management directors and certain employees that will be payable upon vesting.   100     In September 2021, the Board approved a quarterly dividend of $ 0.025 per share of common stock outstanding which resulted in a total of $ 2.3 million in dividends being paid on October 25, 2021. In addition, under terms of the LTIP, the Company paid a dividend equivalent per share to all vested stock option holders and accrued a dividend equivalent per share to all unvested stock option holders payable upon vesting, which equated to a total payment of $ 207,000 during the year ended December 31, 2021 and an additional $ 31,000 in August 2022.   In July 2021, the Board approved a quarterly dividend of $ 0.025 and a special dividend of $ 0.075 per share of common stock outstanding which resulted in a total of $ 9.3 million in dividends being paid on July 26, 2021. In addition, under the terms of the LTIP, the Company paid a dividend equivalent per share to all vested stock option holders and accrued a dividend equivalent per share to all unvested stock option holders payable upon vesting, which equated to a total payment of $ 830,000 during the year ended December 31, 2021 and an additional $ 125,000 in August 2022.   Outstanding Securities. At December 31, 2022 and 2021, the Company had 113,165,027 and 96,774,185 shares of common stock outstanding, respectively, and 8,285,272 and 9,500,166 warrants outstanding, respectively, with an exercise price of $ 11.50 per share that expire on August 21, 2025.       NOTE 16. Partners ’ Capital (Predecessor)   Allocation of partner ’ s net profits and losses. Net income or loss and net gain or loss on investments of the Predecessor for the period are allocated among its partners in proportion to the relative capital contributions made to the Predecessor. The Predecessor realized a net loss of $ 85.0 million for the period from January 1, 2020 through August 21, 2020.   Partner ’ s distributions. The proceeds distributable by the Predecessor (which shall include all proceeds attributable to the disposition of investments, net of expenses) is distributable in accordance with their respective Partnership Agreements. The Predecessor made distributions to partners of $ 2.8 million during the period from January 1, 2020 through August 21, 2020.       NOTE 17. Subsequent Events   Dividends and dividend equivalents. In January 2023, the Board approved a quarterly dividend of $ 0.025 per share of common stock outstanding which resulted in a total of $ 2.8 million in dividends being paid on February 24, 2023. In addition, under the terms of the LTIP, the Company paid a dividend equivalent per share to all vested stock option holders of $ 283,000 in February 2023 and will accrue a dividend equivalent per share to all unvested stock option holders which is payable upon vesting of up to an additional $ 7,000 , assuming no forfeitures. In addition, the Company will accrue an additional combined $ 53,000 in dividends on the restricted stock issued to directors, management directors and certain employees that will be payable upon vesting.       NOTE 18 – Supplemental Crude Oil and Natural Gas Disclosures (Unaudited)   The Company only has one reportable operating segment, which is crude oil and natural gas development, exploration and production in the U.S. See the Company’s accompanying consolidated statements of operations for information about results of operations for crude oil and natural gas producing activities.   Net Capitalized Costs   The following table reflects the capitalized costs of crude oil and natural gas properties and the related accumulated depletion (in thousands):       December 31,       2022     2021   Proved properties   $ 2,270,236     $ 699,701   Unproved properties     114,665       108,392   Total capitalized costs     2,384,901       808,093   Less: accumulated depletion     ( 259,962 )     ( 82,478 ) Net capitalized costs   $ 2,124,939     $ 725,615     101     Cost Incurred in Crude Oil and Natural Gas Property Acquisition, Exploration and Development   The following table reflects costs incurred in crude oil and natural gas property acquisition, development and exploratory activities (in thousands):       Year Ended December 31,     August 22, 2020 through December 31,     January 1, 2020 through August 21,       2022     2021     2020     2020       Successor     Predecessor   Acquisition costs:                                 Proved properties   $ 352,791     $ 33,253     $ —     $ 585   Unproved properties     174,554       20,792       1,181       2,753   Total acquisition costs     527,345       54,045       1,181       3,338   Exploration costs     655,433       190,346       52,837       48,801   Development costs     391,298       45,852       11,757       863   Crude oil and natural gas expenditures     1,574,076       290,243       65,775       53,002   Asset retirement obligations, net     2,879       1,844       ( 105 )     98   Total costs incurred   $ 1,576,955     $ 292,087     $ 65,670     $ 53,100     Results of Operations for Crude Oil, NGL and Natural Gas Producing Activities   The following table reflects the Company’s results of operations for crude oil, NGL and natural gas producing activities (in thousands):       Year Ended December 31,     August 22, 2020 through December 31,     January 1, 2020 through August 21,       2022     2021     2020     2020       Successor     Predecessor   Crude oil, NGL and natural gas sales   $ 755,686     $ 220,124     $ 16,400     $ 8,223   Lease operating expenses     69,599       25,053       2,653       4,870   Production and ad valorem taxes     38,440       10,746       886       566   Exploration and abandonment expense     1,149       1,549       5,032       4   Depletion, depreciation and amortization expense     177,742       65,201       9,877       6,385   Accretion of discount on asset retirement obligations     370       167       51       89   Income tax expense (benefit)     98,361       24,656       ( 441 )     —   Results of operations from crude oil and natural gas production activities   $ 370,025     $ 92,752     $ ( 1,658 )   $ ( 3,691 )   Crude Oil, NGL and Natural Gas Reserves   Proved reserves were estimated in accordance with guidelines established by the SEC, which require that reserve estimates be prepared under existing economic and operating conditions based upon the 12-month unweighted average of the first day of the month spot prices prior to the end of the reporting period. These prices as of December 31, 2022, 2021 and 2020 were $ 93.67 , $ 66.56 and $ 39.57 per barrel for crude oil and $ 6.358 , $ 3.598 and $ 1.985 per MMBtu for natural gas, respectively. The estimated realized prices used in computing the Company’s reserves as of December 31, 2022 were as follows: (i) $ 94.59 per barrel of crude oil, (ii) $ 36.69 per barrel of NGL, and (iii) $ 4.871 per Mcf of natural gas. The estimated realized prices used in computing the Company’s reserves as of December 31, 2021 were as follows: (i) $ 66.10 per barrel of crude oil, (ii) $ 29.76 per barrel of NGL, and (iii) $ 0.786 per Mcf of natural gas. The estimated realized prices used in computing the Company’s reserves as of December 31, 2020 were as follows: (i) $ 38.08 per barrel of crude oil, (ii) $ 12.27 per barrel of NGL, and (iii) ($1.304) per Mcf of natural gas. All prices are net of adjustments for regional basis differentials, treating costs, transportation, gas shrinkage, gas heating value (BTU content) and/or crude quality and gravity adjustments.   102     The proved reserve estimates as of December 31, 2022, 2021 and 2020 were prepared by Cawley, Gillespie & Associates, Inc. (“CG&A”), independent reserve engineers, and reflect the Company’s current development plans. All estimates of proved reserves are determined according to the rules prescribed by the SEC in existence at the time estimates were made. These rules require that the standard of “reasonable certainty” be applied to proved reserve estimates, which is defined as having a high degree of confidence that the quantities will be recovered. A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as more technical and economic data becomes available, a positive or upward revision or no revision is much more likely than a negative or downward revision. Estimates are subject to revision based upon a number of factors, including many factors beyond the Company’s control, such as reservoir performance, prices, economic conditions, and government restrictions. In addition, results of drilling, testing, and production subsequent to the date of an estimate may justify revision of that estimate.   Reserve estimates are often different from the quantities of crude oil and natural gas that are ultimately recovered. Estimating quantities of proved crude oil and natural gas reserves is a complex process that involves significant interpretations and assumptions and cannot be measured in an exact manner. It requires interpretations and judgment of available technical data, including the evaluation of available geological, geophysical and engineering data. The accuracy of any reserve estimate is highly dependent on the quality of available data, the accuracy of the assumptions on which they are based upon, economic factors, such as crude oil and natural gas prices, production costs, severance and excise taxes, capital expenditures, workover and remedial costs, and the assumed effects of governmental regulation. In addition, due to the lack of substantial, if any, production data, there are greater uncertainties in estimating PUD reserves, proved developed non-producing reserves and proved developed reserves that are early in their production life. As a result, the Company’s reserve estimates are inherently imprecise.   The meaningfulness of reserve estimates is highly dependent on the accuracy of the assumptions on which they were based. In general, the volume of production from crude oil and natural gas properties the Company owns declines as reserves are depleted. Except to the extent the Company conducts successful exploration and development activities or acquires additional properties containing proved reserves, or both, the Company’s proved reserves will decline as reserves are produced.   The following table reflects changes in proved reserves during the periods indicated:       Crude Oil     NGL     Natural Gas     Total   Predecessor                                 Proved Reserves on December 31, 2019     9,372       1,349       4,654       11,497   Purchase of reserves-in-place     44       —       36       50   Extensions and discoveries     1,008       67       252       1,117   Revisions of previous estimates     ( 1,555 )     ( 374 )     ( 1,144 )     ( 2,120 ) Production     ( 236 )     ( 20 )     ( 87 )     ( 270 ) Proved Reserves on August 21, 2020     8,633       1,022       3,711       10,274                                     Successor                                 Proved Reserves on August 22, 2020     8,633       1,022       3,711       10,274   Extensions and discoveries     11,977       1,433       5,215       14,279   Revisions of previous estimates     ( 1,180 )     ( 277 )     ( 875 )     ( 1,603 ) Production     ( 398 )     ( 18 )     ( 112 )     ( 435 ) Proved Reserves on December 31, 2020     19,032       2,160       7,939       22,515   Extensions and discoveries     36,867       4,845       19,529       44,967   Purchase of reserves-in-place     973       631       2,910       2,089   Sales of minerals-in-place     ( 238 )     ( 44 )     ( 139 )     ( 305 ) Revisions of previous estimates     ( 1,807 )     10       842       ( 1,657 ) Production     ( 3,002 )     ( 224 )     ( 1,020 )     ( 3,396 ) Proved Reserves on December 31, 2021     51,825       7,378       30,061       64,213   Extensions and discoveries     47,677       6,162       24,887       57,987   Purchase of reserves-in-place     13,031       3,467       14,448       18,906   Revisions of previous estimates     ( 6,155 )     ( 1,817 )     ( 7,435 )     ( 9,211 ) Production     ( 7,562 )     ( 821 )     ( 3,323 )     ( 8,937 ) Proved Reserves on December 31, 2022     98,816       14,369       58,638       122,958     103     On December 31, 2022, the Company had approximately 122,958 MBoe of proved reserves. For the year ended December 31, 2022, extensions and discoveries increased proved reserves by 57,987 MBoe as a result of: (i) drilling 37 gross ( 32.1 net) exploratory/extension wells that were on production as of December 31, 2022, (ii) 16 gross ( 14.8 net) exploratory/extension wells that were in the final stages of completion as of December 31, 2022, and (iii) the addition of 80 gross ( 75.2 net) PUDs. The Company also acquired 18,906 MBoe of reserves as part of its acquisition activities during the year ended December 31, 2022. Downward revisions of previous estimates of 9,211 MBoe for the year ended December 31, 2022 were primarily the result of negative revisions of 10,418 MBoe due to technical revisions attributable to decreased well performance and adjustments to our PUD estimates, partially offset by positive revisions of approximately 1,116 MBoe related to increases in crude oil, NGL and natural gas realized prices and positive revisions of approximately 91 MBoe primarily due to increased forecasted operating expenses. The aforementioned net increase in proved reserves was partially offset by 8,937 MBoe in production during the year ended December 31, 2022. The Company’s current development plan reflects allocation of capital with a focus on efficiencies, recoveries and rates of return.   On December 31, 2021, the Company had approximately 64,213 MBoe of proved reserves. For the year ended December 31, 2021, extensions and discoveries increased proved reserves by 44,967 MBoe as a result of: (i) drilling 22 gross ( 17.8 net) exploratory wells that were on production as of December 31, 2021, (ii) 15 gross ( 11.0 net) exploratory wells that were in the final stages of completion as of December 31, 2021, and (iii) the addition of 53 gross ( 41.5 net) PUDs. The Company also acquired 2,089 MBoe of reserves as part of its acquisition activities and sold assets with proved reserves totaling 305 MBoe during the year ended December 31, 2021 in an acreage trade with an industry partner. Downward revisions of previous estimates of 1,657 MBoe for the year ended December 31, 2021 were primarily the result of: (i) negative revisions of 2,529 MBoe due to technical revisions attributable to decreased well performance and adjustments to our PUD estimates, (ii) negative revisions of approximately 85 MBoe primarily due to increased forecasted operating expenses and (iii) partially offset by positive revisions of approximately 957 MBoe related to increases in crude oil, NGL and natural gas realized prices. The aforementioned net increase in proved reserves was partially offset by 3,396 MBoe in production during the year ended December 31, 2021. The Company’s current development plan reflects allocation of capital with a focus on efficiencies, recoveries and rates of return.   On December 31, 2020, the Company had approximately 22,515 MBoe of proved reserves. Effective August 21, 2020, the HighPeak business combination included estimated proved reserves totaling 10,274 MBoe. For the period from August 22, 2020 to December 31, 2020, extensions and discoveries increased proved reserves by 14,279 MBoe as a result of: (i) drilling 3 gross ( 3.0 net) exploratory wells that were on production as of December 31, 2020, (ii) 9 gross ( 8.9 net) exploratory wells that were in the final stages of completion as of December 31, 2020, and (iii) the addition of 15 gross ( 12.4 net) PUDs. Downward revisions of previous estimates of 1,603 MBoe for the period from August 22, 2020 to December 31, 2020 were primarily the result of: (i) negative revisions of 1,112 MBoe due to technical revisions attributable to decreased well performance and adjustments to our PUD estimates, (ii) negative revisions of 409 MBoe related to PUDs removed from the development program, (iii) negative revisions of approximately 98 MBoe primarily due to decreases in crude oil, NGL and natural gas prices and increased price differentials and (iv) partially offset by positive revisions of approximately 16 MBoe related to decreased forecasted operating expenses. The net increase in proved reserves was partially offset by 435 MBoe in production during the period from August 22, 2020 to December 31, 2020.   On August 21, 2020, the Company had approximately 10,274 MBoe of proved reserves. During the period from December 31, 2019 to August 21, 2020, the Company acquired interests in three ( 3 ) producing vertical wells near its area of operation which included estimated proved reserves totaling 50 MBoe. For the period from December 31, 2019 to August 21, 2020, extensions and discoveries increased proved reserves by 1,117 MBoe as a result of: (i) drilling 3 gross ( 3.0 net) exploratory wells that were on production as of August 21, 2020. Revisions of previous estimates of 2,120 MBoe for the period from December 31, 2019 to August 21, 2020 were primarily the result of: (i) negative revisions totaling approximately 1,975 MBoe due to technical revisions attributable to decreased well performance of offset horizontal wells resulting in lessoned projected performance, (ii) negative revisions of approximately 173 MBoe primarily due to decreases in crude oil, NGL and natural gas prices and increased price differentials, and (iii) partially offset by positive revisions of 28 MBoe due to decreased forecasted operating expenses. Adding to the net decrease in proved reserves was 270 MBoe in production during the period from December 31, 2019 to August 21, 2020.   The following table sets forth the Company’s estimated quantities of proved developed and proved undeveloped crude oil, NGL and natural gas reserves:       December 31,       2022     2021     2020     2019       Successor     Predecessor   Proved Developed Reserves (1)                                 Crude oil (MBbl)     47,845       22,610       8,730       4,091   NGL (MBbl)     7,968       3,540       957       548   Natural gas (MMcf)     32,669       14,611       3,572       1,952   Total (MBoe)     61,258       28,585       10,282       4,964   Proved Undeveloped Reserves                                 Crude oil (MBbl)     50,971       29,215       10,302       5,281   NGL (MBbl)     6,401       3,838       1,203       801   Natural gas (MMcf)     25,969       15,450       4,367       2,702   Total (MBoe)     61,700       35,628       12,233       6,533   Total Proved Reserves                                 Crude oil (MBbl)     98,816       51,825       19,032       9,372   NGL (MBbl)     14,369       7,378       2,160       1,349   Natural gas (MMcf)     58,638       30,061       7,939       4,654   Total (MBoe)     122,958       64,213       22,515       11,497       (1) As of December 31, 2022, 2021, 2020 and 2019, proved developed reserves includes proved developed non-producing reserves of 7,417 , 6,884 , 4,517 and 3,101 MBbl of crude oil, 927 , 793 , 517 and 447 MBbl of NGL and 3,641 , 3,222 , 1,912 and 1,454 MMcf of natural gas, respectively.   104     On December 31, 2022, the Company’s estimated PUD reserves were approximately 61,700 MBoe, a 26,072 MBoe increase over the reserve estimate at December 31, 2020 of 35,628 MBoe. The following table includes the changes in PUD reserves for 2022 (in MBoe):   Beginning proved undeveloped reserves on December 31, 2021     35,628   Undeveloped reserves transferred to proved developed     ( 15,446 ) Revisions     ( 3,178 ) Purchase of reserves-in-place     7,302   Extensions and discoveries     37,394   Ending proved undeveloped reserves on December 31, 2022     61,700     Standardized Measure of Discounted Future Net Cash Flows   The following table reflects the Company’s standardized measure of discounted future net cash flows relating from its proved crude oil, natural gas and NGL reserves (in thousands):       December 31,       2022     2021     2020   Future cash inflows   $ 10,159,310     $ 3,668,535     $ 740,859   Future production costs     ( 2,289,852 )     ( 824,865 )     ( 217,025 ) Future development costs (3)     ( 983,732 )     ( 432,370 )     ( 117,887 ) Future income tax expense     ( 1,102,156 )     ( 431,737 )     ( 25,824 ) Future net cash flows     5,783,570       1,979,563       380,123   Discount to present value at 10% annual rate     ( 2,367,062 )     ( 860,754 )     ( 157,931 ) Standardized measure of discounted future net cash flows (3)   $ 3,416,508     $ 1,118,809     $ 222,192     The following table reflects the principal changes in the standardized measure of discounted future net cash flows attributable to the Company’s proved reserves (in thousands):       Year Ended December 31,       2022     2021     2020 (2) Standardized measure of discounted future net cash flows, beginning of year   $ 1,118,809     $ 222,192     $ 140,021   Sales of crude oil and natural gas, net of production costs     ( 647,647 )     ( 184,325 )     ( 15,648 ) Extensions and discoveries, net of future development costs (3)     1,785,822       987,689       172,478   Net changes in prices and production costs     909,053       272,889       ( 50,728 ) Changes in estimated future development costs (3)     ( 23,647 )     ( 13,551 )     6,466   Purchases of minerals-in-place     499,478       31,353       600   Sales of reserves-in-place     —       ( 3,067 )     —   Revisions of previous quantity estimates     ( 354,868 )     ( 40,466 )     ( 41,646 ) Accretion of discount     134,338       23,419       14,134   Net changes in income taxes (1)     ( 315,478 )     ( 212,574 )     ( 10,675 ) Net changes in timing of production and other     310,648       35,250       7,190   Standardized measure of discounted future net cash flows, end of year (3)   $ 3,416,508     $ 1,118,809     $ 222,192       (1) Effective with the HighPeak business combination that closed on August 21, 2020, the crude oil and natural gas properties became owned by HighPeak Energy, which is treated as a corporation for U.S. federal income tax purposes. As such, the “Net change in income taxes” in the table above for the year ended December 31, 2020 reflects the change in tax status applicable to the operations of the crude oil and natural gas properties. Prior to the HighPeak business combination, the Predecessor was treated as a partnership for U.S. federal income tax purposes. Accordingly, federal taxable income and losses relating to the operation of the crude oil and natural gas properties were reported on the income tax returns of the Predecessor’s partners. The Predecessor was subject to margin / franchise taxes in Texas, which is reflected as “Net change in income taxes” in the table above.   (2) The year ended December 31, 2020 in the table above reflects the change in standardized measure from that of HPK LP, our Predecessor, as of December 31, 2019 to that of the Company as of December 31, 2020 and amounts are combined for the period from January 1, 2020 to August 21, 2020 of HPK LP and from August 22, 2020 to December 31, 2020 of the Company. There was no third-party reserve report prepared as of August 21, 2020 from which to compute a standardized measure from as of that date. We believe the table above accurately reflects the change in standardized measure for the Predecessor and Successor in a meaningful context.   (3) The standardized measure of discounted future net cash flows reflects, within the category for future development costs, all estimated future costs that will be incurred to settle our asset retirement obligations, including costs for dismantlement, restoration, and abandonment of the existing wells (including both active and inactive wells on leases and future proved undeveloped locations), in each case in compliance with FASB ASC 932-235-50-36.     105       ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   None.