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Item 1A. Risk Factors

2024-03-06 compared with 2023-03-06 · 371 added, 449 removed, 533 unchanged (61% of the section changed)

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These known material risks could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by us or on our behalf.

We are providing the following summary of the risk factors contained in this Annual Report to enhance the readability and accessibility of our risk factor disclosures.

We are providing the following summary of the risk factors contained in this Annual Report to enhance the readability and accessibility of our risk factor disclosures.

We encourage our stockholders to carefully review the full risk factors contained in this Annual Report in their entirety for additional information regarding the risks and uncertainties that could cause our actual results to vary materially from recent results or from our anticipated future results.

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Crude oil, NGL and natural gas prices are volatile.

Sustained volatility, or declines in, crude oil, NGL and natural gas prices could adversely affect HighPeak Energy’s business, financial condition and results of operations and its ability to meet its capital expenditure obligations and other financial commitments.

Reserve estimates depend on many assumptions that may turn out to be inaccurate.

Any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and present value of reserves.

HighPeak Energy’s development projects and acquisitions will require substantial capital expenditures.

HighPeak Energy may be unable to obtain required capital or financing on satisfactory terms, including as a result of recent increases in cost of capital resulting from Federal Reserve policies or otherwise, which could reduce its ability to access or increase production and reserves.

Restrictions in the Term Loan Credit Agreement, the Senior Credit Facility Agreement and any future debt agreements could limit HighPeak Energy’s growth and ability to engage in certain activities.

Our ability to repurchase shares under our recently announced share repurchase program is subject to certain considerations, and any share repurchases thereunder could increase the volatility of our stock prices and could diminish our cash reserves.

Our existing and future indebtedness may adversely affect our cash flows and ability to operate our business, remain in compliance and repay our debt.

We may not be able to generate sufficient cash to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness and may be forced to take other actions to satisfy our obligations under our debt agreements, which may not be successful.

Our results of operations and cash flows vary significantly from year to year due to the cyclical nature of the crude oil and natural gas industry.

HighPeak Energy has experienced periods of higher costs as commodity prices have risen and inflation may adversely affect our operating results, which negatively impacts our profitability, cash flow and ability to complete development activities as planned.

Continuing or worsening inflationary issues and associated changes in monetary policy have resulted in and may result in additional increases to the cost of our goods, services and personnel, which in turn could cause our capital expenditures and operating costs to rise.

Political instability or armed conflict in crude oil or natural gas producing regions, such as the ongoing war between Russia and Ukraine, and OPEC+ policy decisions could have a material adverse impact on our business, financial condition or future results.

The marketability of HighPeak Energy’s production is dependent upon transportation, storage and other facilities, certain of which it does not control.

If these facilities are unavailable, in whole or in part, HighPeak Energy’s operations could be interrupted, and its revenues reduced.

Volatility in the political, legal and regulatory environment ahead of the upcoming U.S.

presidential election and political instability or armed conflict in crude oil or natural gas producing regions, such as the ongoing war between Russia and Ukraine, the Israel-Hamas conflict and OPEC+ policy decisions could have a material adverse impact on our business, financial condition or future results.

The marketability of HighPeak Energy’s production is dependent upon transportation, storage and other facilities, certain of which it does not control.

If these facilities are unavailable, in whole or in part, HighPeak Energy’s operations could be interrupted, and its revenues reduced.

Certain factors could require HighPeak Energy to shut-in production or cease its capital expenditure program.

Certain of the undeveloped leasehold acreage of HighPeak Energy’s assets is subject to leases that will expire over the next several years unless production is established on units containing the acreage or the leases are renewed.

Certain factors could require HighPeak Energy to write-down the carrying values of its crude oil and natural gas properties, including commodity prices decreasing to a level such that future undiscounted cash flows from its properties are less than their carrying value.

Drilling for and producing crude oil and natural gas are high risk activities with many uncertainties that could adversely affect HighPeak Energy’s business, financial condition or results of operations.

Restrictions in the Credit Agreement, the indentures governing the 10.000% Senior Notes and the 10.625% Senior Notes and any future debt agreements could limit HighPeak Energy’s growth and ability to engage in certain activities.

Any significant reduction in HighPeak Energy’s borrowing base under the Credit Agreement as a result of periodic borrowing base redeterminations or otherwise may negatively impact HighPeak Energy’s ability to fund its operations.

Hedging transactions expose HighPeak Energy to counterparty credit risk and may become more costly or unavailable.

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Properties that HighPeak Energy acquires may not produce as projected, and HighPeak Energy may be unable to determine reserve potential, identify liabilities associated with such properties or obtain protection from sellers against such liabilities.

Adverse weather conditions may negatively affect HighPeak Energy’s operating results and ability to conduct drilling activities.

HighPeak Energy’s operations are substantially dependent on the availability of sand and water.

Adverse weather conditions may negatively affect HighPeak Energy’s operating results and ability to conduct drilling activities.

HighPeak Energy’s operations are substantially dependent on the availability of sand and water.

Restrictions on its ability to obtain sand and water may have an adverse effect on its financial condition, results of operations and cash flows.

The Company’s assets are located in the northeastern Midland Basin, making HighPeak Energy vulnerable to risks associated with operating in a limited geographic area.

The Company’s assets are located in the northeastern Midland Basin, making HighPeak Energy vulnerable to risks associated with operating in a limited geographic area.

Unless HighPeak Energy replaces its reserves with new reserves and develops those new reserves, its reserves and production will decline, which would adversely affect future cash flows and results of operations.

HighPeak Energy depends upon a small number of significant purchasers for the sale of most of its crude oil, NGL and natural gas production.

The loss of one or more of such purchasers could, among other factors, limit HighPeak Energy’s access to suitable markets for the crude oil, NGL and natural gas it produces.

HighPeak Energy may be unable to make additional attractive acquisitions or successfully integrate acquired businesses with its current assets, and any inability to do so may disrupt its business and hinder its ability to grow.

The unavailability or high cost of drilling rigs, equipment, supplies, personnel, frac crews and oilfield services due to commodity price volatility or supply constraints as a result of the conflict in Ukraine, the COVID-19 pandemic, rising interest rates and associated policies of the Federal Reserve could adversely affect HighPeak Energy’s ability to execute its development plans within its budget and on a timely basis and consequently could materially and adversely affect our cash flows and results of operations.

HighPeak Energy depends upon a small number of significant purchasers for the sale of most of its crude oil, NGL and natural gas production.

The loss of one or more of such purchasers could, among other factors, limit HighPeak Energy’s access to suitable markets for the crude oil, NGL and natural gas it produces.

HighPeak Energy may be unable to make additional attractive acquisitions or successfully integrate acquired businesses with its current assets, and any inability to do so may disrupt its business and hinder its ability to grow.

The unavailability or high cost of drilling rigs, equipment, supplies, personnel, frac crews and oilfield services due to commodity price volatility or supply constraints as a result of the conflict in Ukraine, the Israel-Hamas conflict, elevated interest rates and associated policies of the Federal Reserve could adversely affect HighPeak Energy’s ability to execute its development plans within its budget and on a timely basis and consequently could materially and adversely affect our cash flows and results of operations.

The IRA 2022 could accelerate the transition to a low carbon economy and could impose new costs on our operations.

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The operations of HighPeak Energy are subject to a variety of risks arising from climate change.

Federal, state and local legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays in the completion of crude oil and natural gas wells and adversely affect HighPeak Energy’s production.

Continued increases in interest rates could adversely affect HighPeak Energy’s business.

HighPeak Energy’s business could be adversely affected by security threats, including cyber-security threats, and related disruptions.

Risks Related to  

Ownership of our Securities

We are evaluating strategic alternatives, including a possible sale of the Company, and there can be no assurance that we will be successful in identifying or completing any strategic alternative transactions, that any such strategic alternative transactions will result in additional value for our shareholders or that the process will not have an adverse impact on our business and shareholders.

HighPeak Energy is a “controlled company” within the meaning of Nasdaq rules and qualifies for exemptions from certain corporate governance requirements.

Continued increases in interest rates could adversely affect HighPeak Energy’s business.

HighPeak Energy’s business could be adversely affected by security threats, including cyber-security threats, and related disruptions.

Risks Related to Ownership of our Securities

We are evaluating strategic alternatives, including a possible sale of our business, and there can be no assurance that we will be successful in identifying or completing any strategic alternative transactions, that any such strategic alternative transactions will result in additional value for our shareholders or that the process will not have an adverse impact on our business and shareholders.

HighPeak Energy is a “controlled company” within the meaning of Nasdaq rules and qualifies for exemptions from certain corporate governance requirements.

As a result, you do not have the same protections afforded to stockholders of companies that are not exempt from such corporate governance requirements.

Unanticipated changes in effective tax rates or laws or adverse outcomes resulting from examination of HighPeak Energy’s income or other tax returns could adversely affect HighPeak Energy’s financial condition, results of operations and cash flow.

HighPeak Energy is an emerging growth company within the meaning of the Securities Act, and if HighPeak Energy takes advantage of certain exemptions from disclosure requirements available to emerging growth companies, which could make HighPeak Energy’s common stock less attractive to investors and may make it more difficult to compare its performance with other public companies.

Risks Related to  

Risks Related to Our Business

Crude oil, NGL and natural gas prices are volatile.

Sustained volatility, or declines in, crude oil, NGL and natural gas prices could adversely affect HighPeak Energy ’

s business, financial condition and results of operations and its ability to meet its capital expenditure obligations and other financial commitments.

Sustained volatility, or declines in, crude oil, NGL and natural gas prices could adversely affect HighPeak Energy ’ s business, financial condition and results of operations and its ability to meet its capital expenditure obligations and other financial commitments.

The prices HighPeak Energy receives for its crude oil, NGL and natural gas production heavily influence its revenue, profitability, access to capital, future rate of growth and the carrying value of its properties.

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The convergence of these events, along with the significantly reduced demand because of the COVID-19 pandemic, created an unprecedented global crude oil and natural gas supply and demand imbalance, reduced global crude oil and natural gas storage capacity, caused crude oil and natural gas prices to decline significantly and resulted in continued volatility in crude oil, NGL and natural gas prices into the second quarter of 2020.

Prices have recovered to pre-pandemic levels, with the calendar month average NYMEX WTI crude oil price of $76.52 per Bbl and the last trading day NYMEX natural gas price of $6.71 per MMBtu for the month of December 2022.

Prices have recovered to pre-pandemic levels, with the calendar month average NYMEX WTI crude oil price of $72.12 per Bbl and the last trading day NYMEX natural gas price of $2.71 per MMBtu for the month of December 2023.

However, there can be no certainty that commodity prices will sustain at these levels or continue to increase.

Likewise, NGL, which are made up of ethane, propane, isobutane, normal butane and natural gasoline, each of which has different uses and pricing characteristics, have also fluctuated widely during this period.

The prices HighPeak Energy receives for its production, and the levels of HighPeak Energy’s production, will depend on numerous factors beyond HighPeak Energy’s control, which include the following:

worldwide and regional economic conditions, including rising interest rates and associated policies of the Federal Reserve, impacting the global supply and demand for crude oil, NGL and natural gas;

worldwide and regional economic conditions, including elevated interest rates and associated policies of the Federal Reserve, impacting the global supply and demand for crude oil, NGL and natural gas;

the price and quantity of foreign imports of crude oil, NGL and natural gas;

domestic and global political and economic conditions, such as the ongoing conflict in Ukraine, socio-political unrest and instability, terrorism or hostilities in or affecting other producing regions or countries, including the Middle East, Africa, South America and Russia;

the occurrence or threat of epidemic or pandemic diseases, such as the recent and ongoing outbreak of COVID-19, or any government response to such occurrence or threat;

domestic and global political and economic conditions, such as the upcoming U.S.

presidential election, the ongoing conflict in Ukraine, the Israel-Hamas conflict, socio-political unrest and instability, terrorism or hostilities in or affecting other producing regions or countries, including the Middle East, Africa, South America and Russia;

the occurrence or threat of epidemic or pandemic diseases, such as the recent outbreak of COVID-19, or any government response to such occurrence or threat;

actions of OPEC, its members and other state-controlled crude oil companies relating to crude oil price and production controls;

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governmental regulation and taxes.

Lower commodity prices may reduce HighPeak Energy’s cash flow and borrowing ability.

Lower commodity prices may reduce HighPeak Energy’s cash flow and access to capital markets.

If HighPeak Energy is unable to obtain needed capital or financing on satisfactory terms, its ability to develop future reserves could be adversely affected.

Also, using lower prices in estimating proved reserves may result in a reduction in proved reserve volumes due to economic limits.

In addition, sustained periods with lower crude oil and natural gas prices may adversely affect drilling economics and HighPeak Energy’s ability to raise capital, which may require it to re-evaluate and postpone or eliminate its development program, and result in the reduction of some proved undeveloped reserves and related standardized measure.

If HighPeak Energy is required to curtail its drilling program, HighPeak Energy may be unable to hold leases that are scheduled to expire, which may further reduce reserves.

As a result, a substantial or extended decline in commodity prices may materially and adversely affect HighPeak Energy’s future business, financial condition, results of operations, liquidity and ability to finance planned capital expenditures.

Reserve estimates depend on many assumptions that may turn out to be inaccurate.

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Our estimates of our SEC reserves are based upon average commodity prices over the prior 12 months, which may not reflect actual prices received for our production.

For example, our reserve volumes and PV-10 as disclosed in this Annual Report are based on assumed commodity prices of $93.67 per Bbl of crude oil and $6.358 per MMBtu of natural gas as of December 31, 2022, which are substantially higher than the December 31, 2022 front-month forward pricing of $80.26 per Bbl of crude oil and $4.475 per Mcf of natural gas.

For example, our reserve volumes and PV-10 as disclosed in this Annual Report are based on assumed commodity prices of $78.22 per Bbl of crude oil and NGL and $2.637 per MMBtu of natural gas as of December 31, 2023, which are somewhat higher than the December 31, 2023 front-month forward pricing of $71.65 per Bbl of crude oil and $2.514 per Mcf of natural gas.

Accordingly, you are cautioned not to place undue weight on our reserve volumes or PV-10 based on such pricing when evaluating our financial condition or an investment in our securities.

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Moreover, there can be no assurance that reserves will ultimately be produced or that proved undeveloped reserves will be developed within the periods anticipated.

HighPeak Energy ’

s development projects and acquisitions will require substantial capital expenditures.

HighPeak Energy ’ s development projects and acquisitions will require substantial capital expenditures.

HighPeak Energy may be unable to obtain required capital or financing on satisfactory terms, including as a result of recent increases in the cost of capital resulting from Federal Reserve policies or otherwise, which could reduce its ability to access or increase production and reserves.

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HighPeak Energy has evaluated multiple development scenarios under multiple potential commodity price assumptions.

Under its current 2023 development program, HighPeak Energy would expect to incur approximately $1.1 to $1.2 billion of capital expenditures for drilling, completion, facilities and equipping costs and $50 - $60 million for field infrastructure, land and other costs.

Under its current 2024 development program, HighPeak Energy would expect to incur approximately $450 to $525 million of capital expenditures for drilling, completion, facilities and equipping costs and $50 - $60 million for field infrastructure, land and other costs.

The ability to make these capital expenditures will be highly dependent on the price of crude oil and available funding of HighPeak Energy.

Commodity prices have recovered from their April 2020 lows, with the calendar month average NYMEX WTI price of $72.12 per Bbl and last trading day NYMEX natural gas price of $2.71 per MMBtu for the month of December 2023.

HighPeak Energy ran a four-rig program during the first half of 2022 and increased to a six-rig program beginning in July 2022, subsequent to closing the Hannathon Acquisition.

HighPeak Energy expects to average four to five (4-5) drilling rigs and two to three (2-3) frac crews during 2023.

However, HighPeak Energy recognizes that commodity prices remain highly volatile and that its liquidity is limited, and as a result, there is no certainty that HighPeak Energy will operate a four to five (4-5) rig development program in the future.

HighPeak Energy expects to fund its forecasted capital expenditures with cash on its balance sheet, cash generated by operations, through borrowings under the Credit Agreement, proceeds from the issuance and sale of the 10.000% Senior Notes and the 10.625% Senior Notes and, depending on market circumstances, potential future debt or equity offerings.

For terms of the Credit Agreement and the indentures governing the 10.000% Senior Notes and 10.625% Senior Notes, see Note 7 of Notes to Consolidated Financial Statements included in “Item 8.

Financial Statements and Supplementary Data.”

HighPeak Energy began the year with six rigs, then ran a five-rig program from February to mid-April of 2023 and subsequently decreased to a three-rig program beginning in May 2023 and a two-rig program from June 2023 to the end of October 2023 when it increased to a three-rig program through yearend.

HighPeak Energy expects to average two (2) drilling rigs and one (1) frac crew during 2024.

HighPeak Energy expects to fund its forecasted capital expenditures with cash on its balance sheet, cash generated by operations, through borrowings under the Senior Credit Facility Agreement if needed and, depending on market circumstances, potential future debt or equity offerings.

For terms of the Term Loan Credit Agreement and Senior Credit Facility Agreement, see Note 7 of Notes to Consolidated Financial Statements included in “Item 8.

Financial Statements and Supplementary Data.”

Cash flows from operations are subject to significant uncertainty.

As a result, the amount of liquidity that HighPeak Energy will have in the future is uncertain.

HighPeak Energy’s financing needs may require it to alter or increase its capitalization substantially through the issuance of debt or equity securities or the sale of assets.

The availability and cost of these capital sources is cyclical, and these capital sources may not remain available, or we may not be able to obtain financing at a reasonable cost in the future.

For example, due to the high levels of inflation in the U.S., the Federal Reserve and other central banks increased interest rates multiple times in 2022, once so far in 2023 and have indicated that such increases will continue further into 2023.

Such increased interest rates may increase the cost of capital and prevent us from being able to obtain debt financing at favorable rates, or at all, which would materially impact our operations.

In addition, conditions in the global capital markets have been volatile due to the conflict in Ukraine, the COVID-19 pandemic or otherwise, making terms for certain types of financing difficult to predict, and in certain cases, resulting in certain types of financing being unavailable.

For example, due to the high levels of inflation in the U.S., the Federal Reserve and other central banks increased interest rates multiple times in 2022 and 2023, and although the Federal Reserve has indicated that such increases have ceased going into 2024, uncertainty remains as to when or if such elevated rates may be decreased.

Such increased interest rates have increased the cost of capital and may prevent us from being able to obtain debt financing at favorable rates, or at all, which would materially impact our operations.

In addition, conditions in the global capital markets have been volatile due to the conflict in Ukraine, the Israel-Hamas conflict or otherwise, making terms for certain types of financing difficult to predict, and in certain cases, resulting in certain types of financing being unavailable.

Further, the issuance of additional indebtedness would require that an additional portion of cash flow from operations be used for the payment of interest and principal on its indebtedness, thereby further reducing its ability to use cash flow from operations to fund working capital, capital expenditures and acquisitions.

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and regulatory, technological and competitive developments.

A reduction in commodity prices from current levels may result in a decrease in actual capital expenditures, which would negatively impact HighPeak Energy’s ability to increase production.

HighPeak Energy’s cash flow from operations and access to capital are subject to several variables, including:

the prices at which HighPeak Energy’s production is sold;

A reduction in commodity prices from current levels may result in a decrease in actual capital expenditures, which would negatively impact HighPeak Energy’s ability to increase production.

HighPeak Energy’s cash flow from operations and access to capital are subject to several variables, including:

the prices at which HighPeak Energy’s production is sold;

proved reserves;

the amount of hydrocarbons HighPeak Energy is able to produce from its wells;

HighPeak Energy’s ability to acquire, locate and produce new reserves;

the amount of HighPeak Energy’s operating expenses;

cash settlements from HighPeak Energy’s derivative activities;

HighPeak Energy’s ability to obtain additional debt financing, including increases to the Credit Agreement;

the duration of economic uncertainty surrounding the COVID-19 pandemic;

the duration and scope of the ongoing war between Russia and Ukraine;

the duration and uncertainty of OPEC+’s agreement not to increase production above agreed levels and the compliance by its members with their respective production quotas during the term of the agreement;

HighPeak Energy’s ability to obtain storage capacity for the crude oil it produces;

restrictions in the instruments governing HighPeak Energy’s debt on HighPeak Energy’s ability to incur additional indebtedness;

HighPeak Energy’s ability to access the public or private capital markets.

Should HighPeak Energy’s revenues or the borrowing base under the Credit Agreement decrease as a result of lower crude oil, NGL and natural gas prices, operational difficulties, declines in reserves or for any other reason, HighPeak Energy may have limited ability to obtain the capital necessary to sustain operations at expected levels.

If additional capital is needed, HighPeak Energy may not be able to obtain debt or equity financing on terms acceptable to it, if at all, due to rising interest rates and associated policies of the Federal reserve, or otherwise.

If cash flow generated by HighPeak Energy’s operations or available debt financing, including borrowings under the Credit Agreement, are insufficient to meet its capital requirements, the failure to obtain additional financing could result in a curtailment of the development of HighPeak Energy’s properties, which in turn could lead to a decline in reserves and production and could materially and adversely affect HighPeak Energy’s business, financial condition and results of operations.

HighPeak Energy’s ability to acquire, locate and produce new reserves;

the amount of HighPeak Energy’s operating expenses;

cash settlements from HighPeak Energy’s derivative activities;

restrictions on capital expenditures in certain circumstances under the Term Loan Credit Agreement or the Senior Credit Facility Agreement;

HighPeak Energy’s ability to obtain additional debt financing, including increases to the Term Loan Credit Agreement or the Senior Credit Facility Agreement;

the duration and scope of the ongoing war between Russia and Ukraine and conflict in the Middle East, including between Israel and Hamas;

HighPeak Energy’s ability to obtain storage capacity for the crude oil it produces;

restrictions in the instruments governing HighPeak Energy’s debt on HighPeak Energy’s ability to incur additional indebtedness;

HighPeak Energy’s ability to access the public or private capital markets.

Should HighPeak Energy’s revenues decrease as a result of lower crude oil, NGL and natural gas prices, operational difficulties, declines in reserves or for any other reason, HighPeak Energy may have limited ability to obtain the capital necessary to sustain operations at expected levels.

If additional capital is needed, HighPeak Energy may not be able to obtain debt or equity financing on terms acceptable to it, if at all, due to elevated interest rates and associated policies of the Federal reserve, or otherwise.

If cash flow generated by HighPeak Energy’s operations or available debt financing, including borrowings under the Credit Agreements, are insufficient to meet its capital requirements, the failure to obtain additional financing could result in a curtailment of the development of HighPeak Energy’s properties, which in turn could lead to a decline in reserves and production and could materially and adversely affect HighPeak Energy’s business, financial condition and results of operations.

If HighPeak Energy seeks and obtains additional financing, subject to the restrictions in the instruments governing its existing debt, the addition of new debt to existing debt levels could intensify the operational risks that HighPeak Energy will face.

Further, adding new debt could limit HighPeak Energy’s ability to service existing debt service obligations.

Restrictions in the Term Loan Credit Agreement, the Senior Credit Facility Agreement and any future debt agreements could limit HighPeak Energy ’ s growth and ability to engage in certain activities.

The terms and conditions governing the Term Loan Credit Agreement, the Senior Credit Facility Agreement and any future additional indebtedness are expected to:

require HighPeak Energy to dedicate a portion of cash flow from operations to service its debt, thereby reducing the cash available to finance operations and other business activities and could limit its flexibility in planning for or reacting to changes in its business and the industry in which it operates;

increase vulnerability to economic downturns and adverse developments in HighPeak Energy’s business;

place restrictions on HighPeak Energy’s ability to engage in certain business activities, including without limitation, to raise capital, obtain additional financing (whether for working capital, capital expenditures or acquisitions) or to refinance indebtedness, grant or incur liens on assets, pay dividends or make distributions in respect of its capital stock, make investments, amend or repay subordinated indebtedness, sell or otherwise dispose of assets, businesses or operations and engage in business combinations or other fundamental changes;

potentially place HighPeak Energy at a competitive disadvantage relative to competitors with lower levels of indebtedness in relation to their overall size or less restrictive terms governing their indebtedness;

limit management’s discretion in operating HighPeak Energy’s business.

Our debt instruments also contain provisions that could have the effect of making it more difficult for a third party to acquire control of us.

The Term Loan Credit Agreement and the Senior Credit Facility Agreement provide that a change of control constitutes an event of default and would permit the lenders to declare the indebtedness thereunder to be immediately due and payable.

Our future credit facilities may contain similar provisions.

The need to repay all such indebtedness may deter potential third parties from acquiring us.

HighPeak Energy’s ability to meet its expenses and its current and future debt obligations and comply with the covenants and restrictions contained therein will depend on its future performance, which will be affected by financial, business, economic, industry, regulatory and other factors, many of which are beyond HighPeak Energy’s control.

If market or other economic conditions deteriorate, HighPeak Energy’s ability to comply with these covenants may be impaired.

HighPeak Energy cannot be certain that its cash flow will be sufficient to enable it to pay the principal and interest on its debt and meet its other obligations.

If HighPeak Energy does not have enough money, HighPeak Energy may be required to refinance all or part of its debt, sell assets, borrow more money or raise equity.

HighPeak Energy may not be able to refinance its debt, sell assets, borrow more money or raise equity on terms acceptable to it, or at all.

For example, HighPeak Energy’s future debt agreements may require the satisfaction of certain conditions, including coverage and leverage ratios, to borrow money.

HighPeak Energy’s future debt agreements may also restrict the payment of dividends and distributions by certain of its subsidiaries to it, which could affect its access to cash.

In addition, HighPeak Energy’s ability to comply with the financial and other restrictive covenants in the agreements governing its indebtedness will be affected by the levels of cash flow from operations and future events and circumstances beyond HighPeak Energy’s control.

Breach of these covenants or restrictions could result in an event of default under HighPeak Energy’s existing and/or future financing arrangements, which, if not cured or waived, could permit the lenders to accelerate all indebtedness outstanding thereunder.

Upon acceleration, the debt would become immediately due and payable, together with accrued and unpaid interest, and any lenders’ commitment to make further loans to HighPeak Energy may terminate.

Even if new financing were then available, it may not be on terms that are acceptable to HighPeak Energy.

Additionally, upon the occurrence of an event of default under HighPeak Energy’s financing agreements, the affected lenders may exercise remedies, including through foreclosure, on the collateral, if any, securing any such secured financing arrangements.

Moreover, any subsequent replacement of HighPeak Energy’s financing arrangements may require it to comply with more restrictive covenants which could further restrict business operations.

The Company had an aggregate maximum commitment amount of $100.0 million and commitment amount of $75.0 million with respect to the Senior Credit Facility Agreement as of December 31, 2023.

The Term Loan Credit Agreement also limits the amounts HighPeak Energy can borrow under the Senior Credit Facility Agreement to $100.0 million.

We recently adopted a share repurchase program that authorizes us to repurchase up to an aggregate $75.0 million of shares of our common stock.

Our repurchase program expires December 31, 2024 and does not obligate HighPeak to repurchase any specific dollar amount or to acquire any specific number of shares and will depend upon, among other things, our earnings, liquidity, capital requirements, financial condition and other factors deemed relevant by our board of directors.

Additionally, our Term Loan Credit Agreement limits our ability to repurchase shares of our common stock.

Further, our share repurchases could affect our share trading prices, increase their volatility, reduce our cash reserves and may be suspended or terminated at any time, which may result in a decrease in the trading prices of our stock.

Our Board of Directors may amend or suspend the share repurchase program at any time in its discretion.

We can provide no assurances that we will repurchase shares of our common stock within the authorized amount or at all.

Our existing and future indebtedness may adversely affect our cash flows and ability to operate our business, remain in compliance and repay our debt.

As of December 31, 2022, we had $745.0 million of total indebtedness, including $225.0 million outstanding of our 10.000% Senior Notes, $250.0 million outstanding of our 10.625% Senior Notes and $270.0 million of indebtedness outstanding under our Credit Agreement, and available capacity under our Credit Agreement of $252.6 million.

The entirety of our $745.0 million of total indebtedness is maturing in 2024.

If (i) the terms of the 10.000% Senior Notes are not amended to extend the scheduled repayment thereof to no earlier than October 1, 2024 or (ii) the 10.000% Senior Notes are not redeemed or refinanced prior to October 1, 2023, then pursuant to the terms of the Credit Agreement, in each case, all our outstanding borrowings under the Credit Agreement will mature and become due on October 1, 2023.

Among other events of default, an event of default will occur under the Credit Agreement if HighPeak Energy should fail to make any payment (whether of principal or interest and regardless of amount) in respect of any material debt (including under the 10.000% Senior Notes and 10.625% Senior Notes), when and as the same shall become due and payable and such failure to pay continues beyond any applicable grace period, or any event or condition occurs that results in any material debt becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any material debt or any trustee or agent on its or their behalf to cause any material debt to become due, or to require the redemption thereof or any offer to redeem to be made in respect thereof, prior to its scheduled maturity or require HighPeak Energy to make an offer in respect thereof and such event or condition continues beyond any applicable grace period.

In September 2023, in connection with the entry into the Term Loan Credit Agreement, the Prior Credit Agreement was terminated.

As of December 31, 2023, we had $1.2 billion of total indebtedness, including $1.2 billion outstanding of our Term Loan Credit Agreement and no indebtedness outstanding under our Senior Credit Facility Agreement, and available capacity under our Senior Credit Facility Agreement of approximately $68.9 million.

The entirety of our $1.2 billion of total indebtedness is maturing in 2026.

Among other events of default, an event of default will occur under the Term Loan Credit Agreement and the Senior Credit Facility Agreement if HighPeak Energy should fail to make any payment (whether of principal or interest and regardless of amount) in respect of any material debt, when and as the same shall become due and payable and such failure to pay continues beyond any applicable grace period, or any event or condition occurs that results in any material debt becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any material debt or any trustee or agent on its or their behalf to cause any material debt to become due, or to require the redemption thereof or any offer to redeem to be made in respect thereof, prior to its scheduled maturity or require HighPeak Energy to make an offer in respect thereof and such event or condition continues beyond any applicable grace period.

In the event of a default under these circumstances, lenders could terminate their commitments to lend or accelerate the loans and declare all amounts borrowed due and payable.

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limiting our ability to borrow additional funds;

preventing us from raising the funds necessary to repurchase notes tendered to us if there is a change of control, which could constitute a default under the indentures governing the 10.000% Senior Notes and 10.625% Senior Notes and the Credit Agreement;

decreasing our ability to compete effectively or operate successfully under adverse economic and industry conditions.

Our results of operations and cash flows vary significantly from year to year due to the cyclical nature of the crude oil and natural gas industry.

We expect our results of operations and cash flows to vary significantly from year to year due to the cyclical nature of the crude oil and natural gas industry.

As a result, the amount of debt that we can manage in some periods may not be appropriate for us in other periods.

In addition, our future cash flows may be insufficient to meet our debt obligations and commitments, including the 10.000% Senior Notes and 10.625% Senior Notes.

In addition, our future cash flows may be insufficient to meet our debt obligations and commitments.

Any insufficiency could negatively impact our business.

A range of economic, competitive, business and industry factors will affect our future financial performance, and as a result, our ability to generate cash flows from operations and to pay our debt, including the 10.000% Senior Notes and 10.625% Senior Notes.

A range of economic, competitive, business and industry factors will affect our future financial performance, and as a result, our ability to generate cash flows from operations and to pay our debt.

Many of these factors, such as crude oil, NGL and natural gas prices, regulatory factors, economic and financial conditions in our industry and the global economy or competitive initiatives of our competitors, are beyond our control.

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We cannot assure you that any refinancing or debt restructuring would be possible, that any assets could be sold or that, if sold, the timing of the sales and the amount of proceeds realized from those sales would be favorable to us or that additional financing could be obtained on acceptable terms.

Our inability to generate sufficient cash flows to satisfy our debt obligations, including our obligations under the 10.000% Senior Notes and 10.625% Senior Notes, or to obtain alternative financing, could materially and adversely affect our business, financial condition, results of operations and prospects.

Our inability to generate sufficient cash flows to satisfy our debt obligations, or to obtain alternative financing, could materially and adversely affect our business, financial condition, results of operations and prospects.

Our ability to restructure or refinance our indebtedness will depend on the condition of the capital markets and our financial condition at such time.

Any refinancing of our indebtedness could be at higher interest rates and could require us to comply with more onerous covenants, which could further restrict our business operations.

The terms of existing or future debt instruments, including the indentures governing the 10.000% Senior Notes and 10.625% Senior Notes, may restrict us from adopting some of these alternatives.

The terms of existing or future debt instruments, may restrict us from adopting some of these alternatives.

In addition, any failure to make payments of interest or principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness.

In the absence of sufficient cash flows and capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations.

We may not be able to refinance our indebtedness, sell assets or issue equity, or borrow more funds on terms acceptable to us, if at all.

In addition, if we fail to comply with the covenants or other terms of our Credit Agreement, our lenders will have the right to accelerate the maturity of that debt and foreclose upon the collateral, if any, securing that debt.

In addition, if we fail to comply with the covenants or other terms of our Credit Agreements, our lenders will have the right to accelerate the maturity of that debt and foreclose upon the collateral, if any, securing that debt.

Realization of any of these factors could adversely affect our financial condition.

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and increased taxes.

Such costs may rise faster than increases in HighPeak Energy’s revenue if commodity prices rise, thereby negatively impacting its profitability, cash flow and ability to complete development activities as scheduled and on budget.

A high rate of inflation may have an adverse effect on HighPeak Energy’s operating results and this impact may be magnified to the extent that HighPeak Energy’s ability to participate in the commodity price increases is limited by its derivative activities, if any.

Although the U.S.

inflation rate has been showing signs of cooling in the second half of 2022, it had been steadily increasing since 2021.

These inflationary pressures have resulted in and may result in additional increases to the costs of our oilfield goods, services and personnel, which would in turn cause our capital expenditures and operating costs to rise.

Sustained levels of high inflation have likewise caused the U.S.

Federal Reserve and other central banks to increase interest rates multiple times in 2022 and the U.S.

Federal Reserve has indicated its intention to continue to raise benchmark interest rates into 2023 in an effort to curb inflationary pressure on the costs of goods and services across the U.S., which could have the effects of raising the cost of capital and depressing economic growth, either of which—or the combination thereof—could hurt the financial and operating results of our business.

Elevated inflation rates throughout 2023 and inflationary pressures have resulted in and may result in additional increases to the costs of our oilfield goods, services and personnel, which would in turn cause our capital expenditures and operating costs to rise.

Due to the high levels of inflation in the U.S., the Federal Reserve and other central banks increased interest rates multiple times in 2022 and 2023, and although the Federal Reserve has indicated that such increases have ceased going into 2024, uncertainty remains as to when or if such elevated rates may be decreased.

To the extent rates remain high, this could have the effects of raising the cost of capital and depressing economic growth, either of which—or the combination thereof—could hurt the financial and operating results of our business.

To the extent elevated inflation remains, we may experience further cost increases for our operations, including oilfield services, labor costs and equipment if our drilling activity increases.

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We cannot predict any future trends in the rate of inflation, and a significant increase in inflation, to the extent we are unable to recover higher costs through higher crude oil and natural gas prices and revenues, would negatively impact our business, financial condition and results of operations.

These risks are not the only risks facing the Company.

Additional risks and uncertainties not currently known to the Company or that it currently deems to be immaterial also may have a material adverse effect on the Company's business, financial condition or future results.

Our business, financial condition and future results are subject to political and economic risks and uncertainties, including instability resulting from civil unrest, political demonstrations, mass strikes or armed conflict or other crises in crude oil or natural gas producing areas such as the ongoing war between Russia and Ukraine.

In late February 2022, Russian military forces commenced a military operation and invasion against Ukraine.

Volatility in the political, legal and regulatory environments ahead of the upcoming U.S.

Our business, financial condition and future results are subject to political and economic risks and uncertainties, including volatility in the political, legal and regulatory environments ahead of the upcoming U.S.

presidential election and instability resulting from civil unrest, political demonstrations, mass strikes or armed conflict or other crises in crude oil or natural gas producing areas such as the ongoing war between Russia and Ukraine and the Israel-Hamas conflict.

The United States and other countries and certain international organizations have imposed broad-ranging and severe economic sanctions on Russia and certain Russian individuals, banking entities and corporations as a response, and additional sanctions may be imposed in the future.

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The length, impact, and outcome of the ongoing war between Russia and Ukraine is highly unpredictable, and such events or any further hostilities in Ukraine or elsewhere could severely impact the world economy and may adversely affect our financial condition.

While the Company does not have operations overseas, the conflict elevates the likelihood of supply chain disruptions, heightened volatility in crude oil and natural gas prices and negative effects on our ability to raise additional capital when required and could have a material adverse impact on our business, financial condition or future results.

In addition, due to the above and other factors, crude oil and natural gas prices increased significantly during 2022, reaching a high of almost $128.00 per Bbl at one point, primarily due to global supply and demand imbalances.

Furthermore, escalations of the Israel-Hamas conflict may result in heightened geopolitical risks for crude oil and natural gas markets, given the significant share of global oil supply in the Middle East.

While the Company does not have operations overseas, these conflicts elevate the likelihood of supply chain disruptions, heightened volatility in crude oil and natural gas prices and negative effects on our ability to raise additional capital when required and could have a material adverse impact on our business, financial condition or future results.

Currently, global crude oil inventories are low relative to historical levels and supply from OPEC+ and other crude oil producing nations are not expected to be sufficient to meet forecasted crude oil demand growth for the next few years.

It is believed that many OPEC+ countries will be unable to increase their production levels or even produce at expected levels due to their lack of capital investments in developing incremental crude oil supplies over the past few years.

In October 2022, OPEC+ determined to reduce production beginning in November 2022 through December 2023 by 2 million Bopd, due to the uncertainty surrounding the global economic and crude oil market outlooks.

In November 2023, OPEC+ determined to reduce production beginning in early 2024 by 2.2 million Bopd, due to the uncertainty surrounding the global economic and crude oil market outlooks.

Furthermore, sanctions and import bans on Russian crude oil have been implemented by various countries in response to the war in Ukraine, further impacting global crude oil supply.

Still, crude oil and natural gas prices have recently declined from the highs experienced in second quarter of 2022 and could decrease or increase with any changes in demand due to, among other things, uncertainty and volatility from global supply chain disruptions attributable to the pandemic, the ongoing conflict in Ukraine, international sanctions, speculation as to future actions by OPEC+, developing COVID-19 variants and the potential for a widespread COVID-19 outbreak, increasing inflation and government efforts to reduce inflation, and possible changes in the overall health of the global economy, including a prolonged recession.

Still, crude oil and natural gas prices have declined from the highs experienced in second quarter of 2022 and could decrease or increase with any changes in demand due to, among other things, uncertainty and volatility from global supply chain disruptions attributable to the pandemic, the ongoing conflict in Ukraine, the Israel-Hamas conflict, international sanctions, speculation as to future actions by OPEC+, increasing inflation and government efforts to reduce inflation, and possible changes in the overall health of the global economy, including a prolonged recession.

Further, the volatility in crude oil and natural gas prices could accelerate a transition away from fossil fuels, resulting in reduced demand over the longer term.

To what extent these and other external factors (such as government action with respect to climate change regulation) ultimately impact our future business, liquidity, financial condition, and results of operations is highly uncertain and dependent on numerous factors, including future developments, which are not within our control and cannot be accurately predicted.

The marketability of HighPeak Energy ’

s production  

dependent upon transportation, storage and other facilities, certain of which it  

If these facilities are unavailable, in whole or in part, HighPeak Energy ’

s operations could be interrupted, and its revenues reduced.

The marketability of HighPeak Energy’s crude oil and natural gas production depends in part upon the availability, proximity and capacity of transportation, processing and storage facilities owned and operated by third parties.

The marketability of HighPeak Energy ’ s production is dependent upon transportation, storage and other facilities, certain of which it does not control.

If these facilities are unavailable, in whole or in part, HighPeak Energy ’ s operations could be interrupted, and its revenues reduced.

Any significant interruption in service from, damage to, or lack of available capacity in these systems and facilities may result in the shutting-in of producing wells or the delay or discontinuance of development plans for our properties.

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In addition, even if these systems and facilities remain open generally, certain quality specifications implemented thereby may restrict our ability to utilize such systems and facilities.

Further, insufficient production from wells to support the construction of pipeline facilities by purchasers or a significant disruption in the availability of HighPeak Energy’s or third-party transportation facilities or other production facilities could adversely impact HighPeak Energy’s ability to deliver to market or produce crude oil and natural gas and thereby cause a significant interruption in HighPeak Energy’s operations.

If, in the future, HighPeak Energy is unable, for any sustained period, to implement acceptable delivery or transportation arrangements or encounters production related difficulties, it may be required to shut-in or curtail production.

Any such shut-in or curtailment, or an inability to obtain favorable terms for delivery of the crude oil and natural gas produced from HighPeak Energy’s fields, would materially and adversely affect its financial condition and results of operations.

Production may be interrupted, or shut-in, from time to time for numerous reasons, including as a result of weather conditions, accidents, loss of pipeline, gathering, processing or transportation system access or capacity, field labor issues or strikes, or we might voluntarily curtail production in response to market or other conditions.

Production may be interrupted, or shut-in, from time to time for numerous reasons, including as a result of weather conditions, accidents, loss of pipeline, gathering, processing or transportation system access or capacity, various contaminants, field labor issues or strikes, or we might voluntarily curtail production in response to market or other conditions.

Some of these risks may be exacerbated by other risks that we face.

For instance, the potential exists for some of our wells to produce high levels of hydrogen sulfide, a highly toxic, naturally-occurring gas frequently associated with crude oil and natural gas production.

Safe handling of hydrogen sulfide gas requires highly skilled operations and field personnel as well as specialized infrastructure, treating facilities, disposal facilities, and/or third-party sour gas takeaway.

If we are unable to successfully secure adequate treatment and/or sour gas takeaway capacity from third parties when and if necessary, our production may be adversely impacted.

If a substantial amount of our production is interrupted at the same time, it could adversely affect our cash flows and results of operations.

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To the extent adopted, such production limits could not only reduce our revenue, but also, if wells are required to be shut-in for extended periods of time due to such production limits, result in expenditures related to well plugging and abandonment.

Cost increases necessary to bring wells back online may be significant enough that such wells would become uneconomic at low commodity price levels, which may lead to decreases in HighPeak Energy’s proved reserve estimates and potential impairments and associated charges to its earnings.

HighPeak Energy curtailed the majority of its production in April 2020.

However, prices increased, and HighPeak Energy management began returning its wells to production in mid-July 2020.

As of December 31, 2022, HighPeak Energy was running a six-rig program and expects to average four to five (4-5) drilling rigs and two to three (2-3) frac crews during 2023 under our current development plan.

As of December 31, 2023, HighPeak Energy was running a three-rig program and expects to average two (2) drilling rigs and one (1) frac crew during 2024 under our current development plan.

HighPeak Energy will continue to monitor the extent by which prices continue to increase and/or stabilize as we execute our capital expenditure program.

Any shut-in or curtailment of the crude oil, NGL and natural gas produced from HighPeak Energy’s fields could adversely affect its financial condition and results of operations.

Certain of the undeveloped leasehold acreage of HighPeak Energy ’

s assets is subject to leases that will expire over the next several years unless production is established on units containing the acreage or the leases are renewed.

As of December 31, 2022, approximately 56% of HighPeak Energy’s acreage was held by production.

The leases for net acreage not held by production will expire at the end of their primary term unless production is established in paying quantities under the units containing these leases or the leases are extended or renewed.

From 2023 through 2025, approximately 18%, 11% and 12%, respectively, of the acreage associated with the leases are set to expire.

Any shut-in or curtailment of the crude oil, NGL and natural gas produced from HighPeak Energy’s fields could adversely affect its financial condition and results of operations.

Certain of the undeveloped leasehold acreage of HighPeak Energy ’ s assets is subject to leases that will expire over the next several years unless production is established on units containing the acreage or the leases are renewed.

As of December 31, 2023, approximately 64% of HighPeak Energy’s acreage was held by production.

Generally, the leases for net acreage not held by production will expire at the end of their primary term unless production is established in paying quantities under the units containing these leases or the leases are extended or renewed.

From 2024 through 2026, approximately 21%, 14% and 1%, respectively, of the net acreage associated with the leases are set to expire.

If the leases expire and HighPeak Energy is unable to renew the leases, HighPeak Energy will lose its right to develop the related properties.

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Additionally, any payments related to such extensions or renewals may be more than anticipated.

Please see “Items 1 and 2:

Business and Properties—Reserve Data—Undeveloped Acreage Expirations”

for more information regarding acreage expirations and our plans for extending our acreage.

HighPeak Energy’s ability to drill and develop its acreage and establish production to maintain its leases depends on a number of uncertainties, including crude oil, NGL and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, drilling results, lease expirations, gathering system and pipeline transportation constraints, access to and availability of water sourcing, frac sand and distribution systems, regulatory approvals and other factors.

Please see “Items 1 and 2:

Business and Properties—Reserve Data—Undeveloped Acreage Expirations” for more information regarding acreage expirations and our plans for extending our acreage.

Accounting rules require that HighPeak Energy periodically review the carrying value of its properties for possible impairment.

Accounting rules require that HighPeak Energy periodically review the carrying value of its properties for possible impairment, whenever changes in events or circumstances indicate that the carrying value of its properties may not be recoverable.

If there is an indication the carrying value of the assets may not be recovered, an impairment loss is recognized if the sum of the expected future cash flows is less than the carrying amount of the assets.

Based on prevailing commodity prices and specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, HighPeak Energy may be required to write-down the carrying value of its properties.

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Sustained levels of depressed commodity prices, or further decreases, in the future could result in impairments of HighPeak Energy’s properties, which could have a material adverse effect on results of operations for the periods in which such charges are taken.

HighPeak Energy could experience material write-downs as a result of lower commodity prices or other factors, including low production results or high lease operating expenses, capital expenditures or transportation fees.

Part of HighPeak Energy ’

s business strategy  

involves  

using some of the latest available horizontal drilling and completion techniques, which involve risks and uncertainties in their application.

HighPeak Energy’s operations involve utilizing some of the latest drilling and completion techniques as developed by HighPeak Energy and its service providers.

Part of HighPeak Energy ’ s business strategy involves using some of the latest available horizontal drilling and completion techniques, which involve risks and uncertainties in their application.

HighPeak Energy’s operations involve utilizing some of the latest drilling and completion techniques as developed by HighPeak Energy and its service providers.

The difficulties HighPeak Energy may face drilling horizontal wells may include, among others:

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staying in the desired drilling zone while drilling horizontally through the formation;

running its casing the entire length of the wellbore;

Running and cementing casing throughout the wellbore;

being able to run tools and other equipment consistently through the horizontal wellbore.

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For example, potential complications associated with the new drilling and completion techniques that HighPeak Energy intends to utilize may cause HighPeak Energy to be unable to develop its assets in line with current expectations and projections.

Further, recent well results may not be indicative of HighPeak Energy’s future well results.

Drilling for and producing crude oil and natural gas are high risk activities with many uncertainties that could adversely affect HighPeak Energy ’

s business, financial condition or results of operations.

HighPeak Energy’s future financial condition and results of operations will depend on the success of its development, production and acquisition activities, which are subject to numerous risks beyond its control, including the risk that drilling will not result in commercially viable crude oil and natural gas production.

HighPeak Energy’s decisions to develop or purchase prospects or properties will depend, in part, on the evaluation of data obtained through geophysical and geological analyses, production data and engineering studies, which are often inconclusive or subject to varying interpretations.

For a discussion of the uncertainty involved in these processes, see “—Reserve estimates depend on many assumptions that may turn out to be inaccurate.

Any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and present value of reserves.”

In addition, the cost of drilling, completing and operating wells will often be uncertain.

Further, recent well results may not be indicative of HighPeak Energy’s future well results.

Drilling for and producing crude oil and natural gas are high risk activities with many uncertainties that could adversely affect HighPeak Energy ’ s business, financial condition or results of operations.

For a discussion of the uncertainty involved in these processes, see “—Reserve estimates depend on many assumptions that may turn out to be inaccurate.

Any material inaccuracies in reserve estimates or underlying assumptions will materially affect the quantities and present value of reserves.” In addition, the cost of drilling, completing and operating wells will often be uncertain.

Further, many factors may curtail, delay or cancel scheduled drilling operations, including:

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title issues;

other market limitations in HighPeak Energy’s industry.

We have entered into certain long-term contracts that require us to pay fees to our service providers based on minimum volumes regardless of actual volume throughput and that may limit our ability to use other service providers.

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Certain of these agreements require HighPeak Energy to meet minimum volume commitments, often regardless of actual throughput.

In May 2021, the Company entered into a crude oil marketing contract with 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 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.

In May 2021, the Company entered into a crude oil marketing contract with Delek as the purchaser and DKL Permian Gathering, LLC (“DKL”) as the gatherer and transporter.

However, the Company has the ability under the contract to cumulatively bank excess volumes delivered to offset future minimum volume commitments.

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The remaining monetary commitment as of December 31, 2023, if the Company never delivers any additional volumes under the agreement, is approximately $7.8 million.

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.

The Company is party to an amended agreement whereby it has agreed to purchase at least 1.6 million tons of frac sand over a two-year period beginning July 1, 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.

If HighPeak Energy has insufficient production to meet the minimum volume commitments under any of these agreements or if HighPeak Energy fails to take delivery of supplies which it committed to, HighPeak Energy’s cash flow from operations will be reduced, which may require HighPeak Energy to reduce or delay its planned investments and capital expenditures, or seek alternative means of financing, all of which may have a material adverse effect on HighPeak Energy’s results of operation.

Restrictions in the Credit Agreement , the indentures governing the 10.000% Senior Notes and the 10.625% Senior Notes and any future debt agreements could limit HighPeak Energy ’

s growth and ability to engage in certain activities.

The terms and conditions governing the Credit Agreement , the 10.000% Senior Notes and the 10.625% Senior Notes currently, and any future additional indebtedness are expected to:

increase vulnerability to economic downturns and adverse developments in HighPeak Energy’s business;

limit management’s discretion in operating HighPeak Energy’s business.

Our debt instruments also contain provisions that could have the effect of making it more difficult for a third party to acquire control of us.

The Credit Agreement and the indentures governing the 10.000% Senior Notes and the 10.625% Senior Notes provide that a change of control constitutes an event of default and would permit the lenders to declare the indebtedness thereunder to be immediately due and payable.