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Item 8. Financial Statements and Supplementary Data

2025-03-10 compared with 2024-03-06 · 181 added, 168 removed, 794 unchanged (31% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 410 )

Consolidated Balance Sheets as of December 31, 2024 and 2023

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We have served as the Company’s auditor since 2020.

Fort Worth, Texas

Austin, Texas

March 10, 2025

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Derivative instruments

Accrued interest

Operating leases

Advances from joint interest owners

Accrued interest

Total current liabilities

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Asset retirement obligations

Operating leases

Derivative instruments

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Income from operations

Interest and other income

Interest income

Interest expense

Gain (loss) on derivative instruments, net

(Loss) gain on derivative instruments, net

Loss on extinguishment of debt

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Dividend equivalents declared on outstanding stock options ($ 0.10 per share)

Issuance of common stock

Stock issued for acquisitions

Stock issued in private placement

Stock issuance costs

Exercise of warrants

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Restricted shares issued to outside directors

Restricted shares issued to employee directors

Restricted shares issued to employees

Compensation costs included in net income

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Dividend equivalents declared on outstanding stock options ($ 0.10 per share)

Stock issued for acquisitions

Stock issued in private placement

Stock issued in public offering

Stock issuance costs

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Restricted shares issued to outside directors

Restricted shares issued to employees

Compensation costs included in net income

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Dividend equivalents declared on outstanding stock options ($ 0.16 per share)

Stock issued in public offering

Stock issuance costs

Exercise of warrants

Repurchased shares under buyback program

Stock-based compensation costs:

Shares issued upon options being exercised

Restricted shares issued to outside directors

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Loss on extinguishment of debt

(Gain) loss on derivative instruments, net

Loss gain on derivative instruments, net

Cash paid on settlement of derivative instruments

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CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments under Term Loan Credit Agreement

Repurchased shares under buyback program

Dividends paid

Dividend equivalents paid

Debt issuance costs

Proceeds from exercises of warrants

Borrowings under Term Loan Credit Agreement, net of discount

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Proceeds from issuance of common stock

Proceeds from exercises of warrants

Proceeds from subscription receivable from exercises of warrants

Proceeds from exercises of stock options

Debt issuance costs

Stock offering costs

Dividends paid

Dividend equivalents paid

Proceeds from exercises of stock options

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

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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, 2023, through the date of this Annual Report.

In the opinion of management, the consolidated financial statements include all adjustments and accruals, consisting only of normal, recurring adjustments and accruals necessary for a fair presentation of the consolidated financial statements in conformity with GAAP.

The Company evaluated subsequent events after the balance sheet date of December 31, 2024, through the date of this Annual Report.

Principles of consolidation.

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Accounts receivable.

As of December 31, 2023 and 2022, the Company’s accounts receivables primarily consist of amounts due from the sale of crude oil, NGL and natural gas of $ 82.5 million and $ 81.6 million, respectively, and are based on estimates of sales volumes and realized prices the Company anticipates it will receive, receivables related to settlements of derivative contracts of $ 4.5 million and $ 4.7 million, respectively, joint interest receivables of $ 4.4 million and $ 2.2 million, respectively, current U.S.

federal income tax receivables of $ 3.2 million and $ 3.2 million, respectively, and zero and $ 4.9 million, respectively, related to receivables from electric power infrastructure installed throughout Flat Top by the Company for which it was reimbursed.

As of December 31, 2024 and 2023, the Company’s accounts receivables primarily consist of amounts due from the sale of crude oil, NGL and natural gas of $ 76.0 million and $ 82.5 million, respectively, and are based on estimates of sales volumes and realized prices the Company anticipates it will receive, joint interest receivables of $ 4.7 million and $ 4.4 million, respectively, current U.S.

federal income tax receivables of $ 3.1 million and $ 3.2 million, respectively, and receivables related to settlements of derivative contracts of $ 1.4 million and $ 4.5 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 adopted ASU 2016-13 and the subsequent applicable modifications to the rule on January 1, 2023.

Accounts receivable are stated at amounts due from purchasers or joint interest owners, net of an allowance for expected losses as estimated by the Company when collection is doubtful.

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The Company writes off specific accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for expected losses.

As of December 31, 2023 and 2022, the Company had no allowance for credit losses related to accounts receivable and no allowance for doubtful accounts, respectively.

As of December 31, 2024 and 2023, the Company had no allowance for credit losses related to accounts receivable and no allowance for credit losses, respectively.

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, 2023, 2022 and 2021, sales to the Company’s largest purchaser accounted for approximately 82 %, 88 % and 94 %, respectively, of the Company’s total crude oil, NGL and natural gas sales revenues and for the year ended December 31, 2023, sales to the Company’s second largest purchaser accounted for approximately 14 % of the Company’s total crude oil, NGL and natural gas revenues.

For the years ended December 31, 2024, 2023 and 2022, sales to the Company’s largest purchaser accounted for approximately 76 %, 82 % and 88 %, respectively, of the Company’s total crude oil, NGL and natural gas sales revenues and for the years ended December 31, 2024 and 2023, sales to the Company’s second largest purchaser accounted for approximately 18 % and 14 %, respectively, of the Company’s total crude oil, NGL and natural gas revenues.

The Company generally does not require collateral and does not believe the loss of these particular purchasers 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.

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Prepaid expenses.

Prepaid expenses are comprised primarily of prepaid insurance costs that will be amortized over the life of the policies, 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 and prepaid agency fees and software maintenance fees that will be amortized over the life of the contracts.

Prepaid expenses are comprised primarily of fees related to strategic alternatives that will be deducted from eventual commissions on a future transaction, caliche that will be used on future locations and roads in our development areas and prepaid agency fees and software maintenance fees that will be amortized over the life of the contracts.

Prepaid expenses as of December 31, 2024 and 2023 are $ 4.6 million and $ 1.0 million, respectively.

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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.

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.

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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.

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 changes in events or circumstances indicate that the carrying value of those assets may not be recoverable.

The Company performs assessments of its long-lived assets to be held and used, including proved crude oil and natural gas properties accounted for under the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable.

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.

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Other property and equipment is recorded at cost.

The carrying values of other property and equipment, net of accumulated depreciation of $ 904,000 and $ 696,000 as of December 31, 2023 and 2022, respectively, are as follows (in thousands):

The carrying values of other property and equipment, net of accumulated depreciation of $ 1.1 million and $ 904,000 as of December 31, 2024 and 2023, respectively, are as follows (in thousands):

Transportation equipment

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As of December 31, 2024 and 2023, the Company had aid-in-construction assets totaling $ 18.0 million and $ 5.2 million, respectively, included in other noncurrent assets.

The Company funded aid-in-construction projects during the years ended December 31, 2024, 2023 and 2022 of $ 17.5 million, $ 1.0 million and $ 2.6 million, respectively, under the contract.

The Company has received and will continue to receive payments based on gross system throughput, including any third-party natural gas that is potentially tied into the Flat Top gathering system in the future.

The contract calls for future aid-in-construction funding if expansions of the system are necessary as determined in the sole discretion of the Company.

Payments received during the years ended December 31, 2024, 2023 and 2022 were approximately $ 2.0 million, $ 924,000 and $ 471,000 , respectively.

The contract calls for future additional aid-in-construction fundings if expansions of the system are necessary as determined in the sole discretion of the Company.

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.

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Debt issuance costs and original issue discount.

The Company has paid a total of $ 48.1 million in debt issuance costs, $ 28.4 million of which was incurred during the year ended December 31, 2023 primarily related to the completion of the Term Loan Credit Agreement and Senior Credit Facility Agreement and amendments to the Prior Credit Agreement.

Amortization based on the straight-line method over the terms of the Term Loan Credit Agreement, Senior Credit Facility Agreement, Prior Credit Agreement, 10.000 % Senior Notes and 10.625 % Senior Notes which approximates the effective interest method was $ 11.4 million, $ 5.6 million and $ 498,000 during the years ended December 31, 2023, 2022 and 2021, respectively.

In addition, the Company realized a total of $ 64.8 million in original issue discounts on the issuance of its Term Loan Credit Agreement, 10.000 % Senior Notes and 10.625 % Senior Notes that is being amortized over the life of the agreements which approximates the effective interest method and was $ 15.1 million, $ 7.7 million and zero during the years ended December 31, 2023, 2022 and 2021, respectively.

The Company has paid a total of $ 25.1 million in debt issuance costs, $ 58,000 and $ 25.0 million of which was incurred during the years ended December 31, 2024 and 2023, respectively, primarily related to the completion of the Term Loan Credit Agreement and Senior Credit Facility Agreement.

In addition, the Company incurred $ 3.3 million during the year ended December 31, 2023 primarily related to amendments to the Prior Credit Agreement.

Amortization based on the straight-line method over the terms of the Term Loan Credit Agreement, Senior Credit Facility Agreement, Prior Credit Agreement, 10.000 % Senior Notes and 10.625 % Senior Notes which approximates the effective interest method was $ 8.3 million, $ 11.4 million and $ 5.6 million during the years ended December 31, 2024, 2023 and 2022, respectively.

In addition, the Company realized a total of $ 64.8 million in original issue discounts on the issuance of its Term Loan Credit Agreement, 10.000 % Senior Notes and 10.625 % Senior Notes that is being amortized over the life of the agreements which approximates the effective interest method and was $ 9.9 million, $ 15.1 million and $ 7.7 million during the years ended December 31, 2024, 2023 and 2022, respectively.

All unamortized debt issuance costs and discounts as of the termination of the Prior Credit Agreement and redemption of the 10.000% Senior Notes and 10.625% Senior Notes during September 2023 were charged to expense and included in loss on extinguishment of debt in the accompanying consolidated statements of operations.

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The Company has not established a valuation allowance as of December 31, 2024 and 2023.

Tax benefits from an uncertain tax positions are recognized 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.

Tax benefits from uncertain tax positions are recognized 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.

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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 the periods presented.

The Company realized current Texas margin tax for the year ended December 31, 2024 in the accompanying consolidated financial statements.

However, during prior years, the Company realized no current Texas margin tax as we did not owe any Texas margin tax.

Stock-based compensation.

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(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 restricted stock awarded to outside directors, 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.

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.

Stock-based compensation for restricted stock awarded to outside directors, employee members of the Board and certain other employees is measured at the grant or modification 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.

Reportable Segments.

The Company is an independent energy company engaged in the exploration, development and production of crude oil and natural gas.

The Company’s crude oil and natural gas exploration and production activities are solely focused in the U.S., specifically the Midland Basin portion of the Permian Basin in West Texas.

For financial reporting purposes, the Company aggregates its operations into one reporting segment due to the similar geographic location and nature of the operations.

The Company’s Chief Executive Officer is the chief operating decision maker (“CODM”).

To assess the performance of our assets, the CODM uses net income.

We believe net income provides information useful in assessing our operating and financial performance across periods.

The following table reflects the Company’s net income, assets and capital expenditures for the Company’s one reporting segment for the time periods presented:

For the Year Ended December 31,

Total operating revenues

Lease operating expenses

Production and ad valorem taxes

Expensed workover costs

Total significant expenses

Depletion, depreciation and amortization

General and administrative expenses, including stock-based comp

Interest expense, net

Provision for income taxes

Other segment items (1)

Total expenses

Capital costs incurred, including acquisitions

Other segment items included in segment net income are exploration and abandonment expense, accretion of discount, other expense and gains and losses on derivative instruments.

Recently adopted accounting pronouncements.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” This ASU updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses and information used to assess segment performance.

The amendments in this ASU are effective for public entities for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company adopted this update effective December 31, 2024.

The adoption of this update had no impact on the Company’s financial position, results of operations or liquidity.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses.” This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income.

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The Company is currently evaluating the impact of the adoption of this guidance.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280):

The Company is still evaluating the effect of the adoption of this guidance.

The Company considers the applicability and the impact of all ASUs.

ASUs 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.

Acquisitions and Divestitures

Hannathon Acquisition .

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Other Acquisitions .

During the years ended December 31, 2023 and 2022, the Company also incurred an additional $ 15.1 million and $ 23.0 million, respectively, in acquisition costs primarily to acquire various undeveloped crude oil and natural gas properties largely contiguous to its Signal Peak and Flat Top operating areas primarily in Howard, Borden, Mitchell and Scurry 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.

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.

During the years ended December 31, 2024, 2023 and 2022, the Company also incurred an additional $ 14.8 million, $ 15.1 million and $ 23.0 million, respectively, in acquisition costs primarily to acquire various undeveloped crude oil and natural gas properties largely contiguous to its Flat Top and Signal Peak operating areas primarily in Howard, Borden, Mitchell and Scurry counties.

Fair Value Measurements

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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.

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.

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Commodity price derivatives – current

Commodity price derivatives – noncurrent

Commodity price derivatives – current

Commodity price derivatives – noncurrent

Total liabilities

Total recurring fair value measurements

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Commodity price derivatives – current

Commodity price derivatives – noncurrent

Commodity price derivatives – current

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Commodity price derivatives.

The Company’s commodity price derivatives are currently made up of crude oil swap contracts, enhanced collars and deferred premium put options.

The Company’s commodity price derivatives are currently made up of crude oil swap contracts, enhanced collars, costless collars and deferred premium put options.

The Company measures derivatives using an industry-standard pricing model that is provided by the counterparties.

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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, (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, and (iii) asset retirement obligations are measured at estimated fair value on the date the liabilities are incurred using Level 3 inputs based on expected future costs to retire the assets, market conditions and estimated lives of the assets.

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.

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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, 2023

As of December 31, 2022

Long-term debt:

10.625% Senior Notes (a)

10.000% Senior Notes (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 Term Loan Credit Agreement, Senior Credit Facility Agreement and the Prior Credit Agreement), and other current assets and liabilities that approximate fair value due to the nature of the instrument and their relatively short maturities.

As of December 31, 2024 and 2023, the Company has financial instruments consisting primarily of cash and cash equivalents, accounts receivable, accounts payable, long-term debt (specifically the Term Loan Credit Agreement and Senior Credit Facility Agreement), and other current assets and liabilities that approximate fair value due to the nature of the instrument and their relatively short maturities.

Derivative Financial Instruments

The Company primarily utilizes commodity swap contracts, deferred premium put options and enhanced collars to (i) reduce the effect of price volatility on the commodities the Company produces and sells, (ii) support the Company’s capital budgeting and expenditure plans, (iii) protect the Company’s commitments under the Term Loan Credit Agreement and Senior Credit Facility Agreement and (iv) support the payment of contractual obligations.

The Company primarily utilizes commodity swap contracts, deferred premium put options, collars and enhanced collars to (i) reduce the effect of price volatility on the commodities the Company produces and sells, (ii) support the Company’s capital budgeting and expenditure plans, (iii) protect the Company’s commitments under the Term Loan Credit Agreement and Senior Credit Facility Agreement and (iv) support the payment of contractual obligations.

The following table summarizes the effect of derivative instruments on the Company’s consolidated statements of operations (in thousands):

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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 instruments as of December 31, 2023 and the weighted average crude oil prices and premiums payable per barrel for those contracts are as follows:

Enhanced Collars

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 Cushing and Argus WTI Midland crude oil prices.

As such, the Company primarily uses NYMEX WTI Cushing derivative contracts as well as Argus WTI Midland basis swaps from time to time to manage future crude oil price volatility.

The Argus WTI Midland basis differential represents the amount of premium to NYMEX WTI Cushing.

The Company’s outstanding NYMEX WTI Cushing and Argus WTI Midland crude oil derivative instruments as of December 31, 2024 and the weighted average crude oil prices and premiums payable per barrel for those contracts are as follows:

Collars, Enhanced Collars

The Company uses credit and other financial criteria to evaluate the credit standings of, and to select, counterparties to its derivative financial instruments.

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Mercuria Energy Trading SA

Wells Fargo Bank, National Association

Fifth Third Bank, National Association

Wells Fargo Bank, National Association

Macquarie Bank Limited

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Senior Credit Facility Agreement due 2026

Prior Credit Agreement

10.625% Senior Notes

10.000% Senior Notes

Discounts, net (a)

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Additionally, the Term Loan Credit Agreement contains additional restrictive covenants that limit the ability of the Company and its restricted subsidiaries to, among other things, incur additional indebtedness (with such exceptions including, among other things, a super priority revolving credit facility limited to $ 100 million), incur additional liens, make investments and loans, enter into mergers and acquisitions, materially increase dividends and other payments, enter into certain hedging transactions, sell assets, engage in transactions with affiliates and make certain capital expenditures based on the Company’s total net leverage ratio.

The Term Loan Credit Agreement contains customary mandatory prepayments, including quarterly installments of $ 30.0 million in aggregate principal amount beginning March 31, 2024, the prepayment of gross proceeds from an incurred indebtedness other than Permitted Indebtedness (as defined in the Term Loan Credit Agreement), the prepayment of net cash proceeds for asset sales and hedge terminations in excess of $ 20.0 million within one calendar year, and prepayments of Excess Cash Flow (as defined in the Term Loan Credit Agreement) beginning with the fiscal quarter ending March 31, 2024.

The Term Loan Credit Agreement contains customary mandatory prepayments, including quarterly installments of $ 30.0 million in aggregate principal amount which began March 31, 2024 ($ 120.0 million paid to date through December 31, 2024), the prepayment of gross proceeds from an incurred indebtedness other than Permitted Indebtedness (as defined in the Term Loan Credit Agreement), the prepayment of net cash proceeds for asset sales and hedge terminations in excess of $ 20.0 million within one calendar year, and prepayments of Excess Cash Flow (as defined in the Term Loan Credit Agreement) which began with the fiscal quarter ending March 31, 2024 (none paid to date through December 31, 2024).

In addition, the Term Loan Credit Agreement is subject to customary events of default, including a change in control.

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On November 1, 2023, the Company entered into a credit agreement with Fifth Third Bank, National Association (“Fifth Third”) as the administrative agent and as the collateral agent and a number of banks included in the syndicate to establish a senior revolving credit facility (“Senior Credit Facility Agreement”) that matures on September 30, 2026.

The Senior Credit Facility Agreement has aggregate maximum commitments of $ 100.0 million with current commitments of $ 75.0 million.

The Senior Credit Facility Agreement has aggregate maximum commitments of $ 100.0 million and effective March 29, 2024 pursuant to the First Facility Amendment, current commitments of $ 100.0 million and customary debt issuance costs which totaled approximately $ 1.1 million.

Loans under the Senior Credit Facility Agreement bear interest at either the Adjusted Term SOFR (as defined in the Senior Credit Facility Agreement) or the Base Rate (as defined in the Senior Credit Facility Agreement) at the Company’s option, plus an applicable margin ranging (i) for Adjusted Term SOFR loans, from 4.00 % to 5.00 %, and (ii) for Base Rate loans, from 3.00 % to 4.00 %, in each case calculated based on the ratio at such time of the outstanding principal loan amounts to the aggregate amount of lenders’ commitments.

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The Senior Credit Facility Agreement is guaranteed by the Company and certain of its subsidiaries and is secured by a first lien security interest in substantially all assets of the Company and certain of its subsidiaries.

The Term Loan Credit Agreement and the Senior Credit Facility Agreement have hedging requirements to which the Company adheres.

Prior Credit Agreement .

In December 2020, the Company entered into a credit agreement with Fifth Third as the administrative agent and sole lender to establish a revolving credit facility (the “Prior Credit Agreement”) that was set to mature on June 17, 2024.

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 Prior 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 Prior 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 Prior 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 Prior 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.

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In July 2023, the Company entered into the Ninth Amendment to, among other things, provide for (i) a waiver of the minimum current ratio covenant for the fiscal quarter ended June 30, 2023 under the Prior Credit Agreement, (ii) a waiver of the failure to subject one or more certain accounts to an Account Control Agreement within the period provided in the Prior Credit Agreement, (iii) a postponement of the April 2023 borrowing base redetermination until September 2023, (iv) a postponement of the date on which the Company was previously obligated thereunder to either extend the maturity of the 10.000% Senior Notes due February 2024, redeem or refinance the 10.000% Senior Notes or allocate a portion of the Company’s cash flow satisfactory to the Administrative Agent and the Majority Lenders that will retire the 10.000% Senior Notes on or before November 30, 2023 to September 1, 2023 or such later date as agreed to in writing by the Majority Lenders in their reasonable discretion, (v) certain pricing increases and additional minimum hedging requirements, (vi) an additional requirement to deliver a 13-week cash flow forecast on a weekly basis through completion of the September 2023 borrowing base redetermination and (vii) a temporary restriction on borrowing further amounts under the Prior Credit Agreement until the Company has received at least $ 95 million of net proceeds from the sales of the Company’s equity securities, which has been subsequently satisfied and the restriction no longer applies.

In connection with the entry into the aforementioned Term Loan Credit Agreement, the Prior Credit Agreement was terminated, all outstanding obligations for principal, interest and fees were paid off in full, and all liens securing such obligations and guarantees of such obligations and securing any letter of credit or hedging obligations (other than those novated pursuant to the terms of the Term Loan Credit Agreement) permitted by the Prior Credit Agreement to be secured by such liens were released.

In addition, unamortized debt issuance costs as of the termination date of $ 2.7 million were charged to expense and included in the accompanying consolidated statements of operations in loss on extinguishment of debt.

In connection with the entry into the aforementioned Term Loan Credit Agreement, the Prior Credit Agreement was terminated, all outstanding obligations for principal, interest and fees were paid in full, and all liens securing such obligations and guarantees of such obligations and securing any letter of credit or hedging obligations (other than those novated pursuant to the terms of the Term Loan Credit Agreement) permitted by the Prior Credit Agreement to be secured by such liens were released.

In addition, unamortized debt issuance costs as of the termination date of $ 2.7 million were charged to expense and included in loss on extinguishment of debt during the year ended December 31, 2023.

10.000% Senior Notes.

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In connection with the aforementioned Term Loan Credit Agreement, the 10.000% Senior Notes were redeemed at a redemption price of 100% of the principal amount thereof plus accrued and unpaid interest and fees.

In addition, unamortized discounts and debt issuance costs as of the redemption date of $ 3.2 million and $ 1.5 million, respectively, were charged to expense and included in the accompanying consolidated statements of operations in loss on extinguishment of debt.

In addition, unamortized discounts and debt issuance costs as of the redemption date of $ 3.2 million and $ 1.5 million, respectively, were charged to expense and included in loss on extinguishment of debt during the year ended December 31, 2023.

10.625% Senior Notes.

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In connection with the aforementioned Term Loan Credit Agreement, the 10.625% Senior Notes were redeemed at a redemption price of 100% of the principal amount thereof plus accrued and unpaid interest and fees, plus the applicable premium calculated as $ 4.5 million, which was the present value at September 14, 2023 of all required interest payments due on the 10.625% Senior Notes through November 15, 2023.

In addition, unamortized discounts and debt issuance costs as of the redemption date of $ 11.7 million and $ 3.7 million, respectively, were charged to expense and included in the accompanying consolidated statements of operations in loss on extinguishment of debt.

The Term Loan Credit Agreement and the Senior Credit Facility Agreement have hedging requirements to which the Company adheres.

In addition, unamortized discounts and debt issuance costs as of the redemption date of $ 11.7 million and $ 3.7 million, respectively, were charged to expense and included in loss on extinguishment of debt during the year ended December 31, 2023.

Asset Retirement Obligations

The Company’s asset retirement obligations primarily relate to the future plugging and abandonment of wells and related facilities.

The Company’s asset retirement obligations primarily relate to the future plugging and abandonment of wells and remediation of 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.

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Stock option awards were granted to employees on August 24, 2020, November 4, 2021, May 4, 2022, August 15, 2022 and July 21, 2023.

Stock-based compensation expense related to the Company’s stock option awards for the years ended December 31, 2023 and 2022 was $ 11.0 million and $ 18.1 million, respectively, and as of December 31, 2023 and 2022 there was $ 145,000 and $ 1.1 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 one year.

Stock-based compensation expense related to the Company’s stock option awards for the years ended December 31, 2024, 2023 and 2022 was $ 86,000 , $ 11.0 million and $ 18.1 million, respectively, and as of December 31, 2024 there was no unrecognized stock-based compensation expense related to unvested stock option awards.

The 1,949,000 stock options granted in July 2023 were 100% vested upon grant on July 21, 2023.

However, to encourage long-term alignment with the Company stockholders, the stock options are not exercisable until the earlier of (i) August 31, 2026, (ii) upon a change in control or (iii) upon the death or disability of the grantee.

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 Company estimates the fair value 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.

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Outstanding at December 31, 2023

Outstanding at December 31, 2024

Vested at December 31, 2023

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Restricted stock issued to employee members of the Board and certain employees.

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, $ 7.2 million and $ 1.2 million was recognized during the years ended December 31, 2023, 2022 and 2021, respectively, and the remaining $ 6.0 million as of December 31, 2023 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 $ 7.0 million, $ 7.3 million and $ 488,000 was recognized during the years ended December 31, 2023, 2022 and 2021, respectively, and the remaining $ 5.9 million as of December 31, 2023 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.

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 were scheduled to 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 $ 6.0 million, $ 7.2 million and $ 7.2 million was recognized during the years ended December 31, 2024, 2023 and 2022, respectively, 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 were scheduled to 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 $ 5.9 million, $ 7.0 million and $ 7.3 million was recognized during the years ended December 31, 2024, 2023 and 2022, respectively, which was based upon the closing price of the stock on the date of the restricted stock issuance.

On October 31, 2024, the vesting date for the aforementioned 2,100,500 shares of restricted stock was extended from November 4, 2024 to December 31, 2025 to ensure said restricted stock would continue to provide retention value to the Company.

There is no excess stock-based compensation expense as the closing price on the modification date was lower than the original grant dates.

Stock issued to outside directors.

A total of 53,879 shares of restricted stock was approved by the Board to be granted to the outside directors of the Company on June 4, 2024, which will vest at the next annual meeting, assuming the Board members maintain their positions on the Board.

Therefore, stock-based compensation expense of $ 442,000 was recognized during the year ended December 31, 2023 and the remaining $ 316,000 will be recognized between January and May 2024, which was based upon the closing price of the stock on the date of the restricted stock issuance.

Therefore, stock-based compensation expense of $ 442,000 was recognized during the year ended December 31, 2024 and the remaining $ 316,000 will be recognized during the first half of 2025, which was based upon the closing price of the stock on the date of the restricted stock issuance.

Also, a total of 58,767 shares of restricted stock was approved by the Board to be granted to the outside directors of the Company on June 1, 2023, which vested in June 2024.

Therefore, stock-based compensation expense of $ 316,000 and $ 442,000 was recognized during the years ended December 31, 2024 and 2023, respectively, which was based upon the closing price of the stock on the date of the restricted stock issuance.

In addition, 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 vested during the second quarter of 2022.

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Finally, 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, stock-based compensation expense of $ 284,000 and $ 398,000 was recognized during the years ended December 31, 2022 and 2021, respectively, which was based upon the closing price of the stock on the date of the restricted stock issuance.

Therefore, 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.

Commitments and Contingencies

The Company follows ASC Topic 842, “Leases” to account for its operating and finance leases.

Therefore, as of December 31, 2023, the Company had right-of-use assets totaling $ 510,000 included in other noncurrent assets and operating lease liabilities totaling $ 528,000 , all of which are included in current liabilities, and 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 on the accompanying consolidated balance sheets.

Therefore, as of December 31, 2024, the Company had right-of-use assets totaling $ 1.4 million included in other noncurrent assets and operating lease liabilities totaling $ 1.4 million, $ 719,000 of which are included in current liabilities and $ 670,000 of which are included in noncurrent liabilities, and as of December 31, 2023 the Company had right-of-use assets totaling $ 510,000 included in other noncurrent assets and operating lease liabilities totaling $ 528,000 , all of which are included in other current liabilities on the accompanying consolidated balance sheets.

The Company does not currently have any finance right-of-use leases.

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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, 2023, the Company has delivered approximately 29,600 Bopd under the contract which is approximately 72 percent of the contracted volume for the life of the contract.

The monetary commitment for the remaining 9.5 MMBbl as of December 31, 2023, if the Company never delivers any additional volumes under the agreement, is approximately $ 7.8 million.

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 required 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 provides 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.

In September 2024, the Company entered into an amended and restated 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 and Signal Peak 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 May 2024 that totals $ 138.7 million based on the gross piped barrels delivered of 23,500 Bopd for the first ten years of the contract at a certain amount per barrel escalating throughout the term of the contract.

However, the Company generally has the ability under the contract to cumulatively bank dollars based on excess volumes delivered to offset the minimum volume commitment.

For the period from May 1, 2024 to December 31, 2024, the Company has delivered approximately 31,196 Bopd under the contract.

The remaining monetary commitment as of December 31, 2024, if the Company never delivers any additional volumes under the agreement, is approximately $ 130.3 million.

Natural Gas Gathering and Treating Agreement.

In June 2024, the Company entered into a natural gas gathering and treating agreement to gather certain natural gas.

Pursuant to said agreement, the Company has agreed to fund certain aid-in-construction costs totaling $ 5.4 million which was paid during the year ended December 31, 2024 and an additional $ 27.2 million to be funded throughout 2025 as certain milestones are attained.

The agreement does not contain any minimum volume commitments.

Natural Gas Gathering and Treating Agreement.

In June 2024, the Company entered into a natural gas gathering and treating agreement to gather certain natural gas in its Signal Peak area.

The agreement does not contain any minimum volume commitments.

Power contracts.

In June 2022, the Company entered into a contract with TXU Energy Retail Company LLC (“TXU”) to provide a block of electric power 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 currently has a $ 3.9 million letter of credit issued in lieu of a deposit to TXU that is cancellable at the end of the contract term.

In June 2022, the Company entered into a contract to provide a block of electric power at an attractive variable rate, which fluctuates based on the usage by the Company through May 31, 2032.

In March 2024, the Company entered into a contract to provide an additional block of electric power under similar terms.

In conjunction with these contracts, the Company has a $ 4.6 million letter of credit in place in lieu of a deposit that is cancellable at the end of the contract term.

Sand commitments.

The Company is party to an amended agreement whereby it has agreed to purchase at least 1.6 million tons of sand over a two-year period beginning July 1, 2022.

The Company is party to an amended agreement whereby it has agreed to purchase at least 750,000 tons of sand over a fifteen-month period beginning April 1, 2024.

The Company has taken deliveries of approximately 547,000 tons of sand through December 31, 2024, leaving a commitment of approximately 203,000 tons remaining.

There are stipulations in the agreement that reduce this commitment should there be a downturn in crude oil prices.

As of December 31, 2023, the Company has purchased approximately 1.2 million 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, 2023 is approximately $ 9.5 million.

Generally, if the Company never takes delivery of any additional sand under the agreement, the monetary commitment that remains as of December 31, 2024 is approximately $ 5.2 million.

Related Party Transactions

Underwritten Equity Offering.

In connection with the Company’s underwritten equity offering in July 2023, certain of the Company’s existing stockholders, John Paul DeJoria Family Trust and Jack Hightower, the Company’s Chairman and Chief Executive Officer, and entities and individuals associated with them, purchased an aggregate of approximately 10 million shares of common stock in the offering at the public offering price per share.

In connection with the Company’s underwritten equity offering in July 2023, certain of the Company’s stockholders, John Paul DeJoria Family Trust and Jack Hightower, the Company’s Chairman and Chief Executive Officer, and entities and individuals associated with them, purchased an aggregate of approximately 10 million shares of common stock in the offering at the public offering price per share.

In connection therewith, the Underwriter received a reduced underwriting discount on such shares purchased by these persons or entities compared with other shares sold to the public in the offering.

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During the one-year term of the agreement, beginning on October 1, 2022, the Company 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 years ended December 31, 2023 and 2022, the Company paid $ 1.5 million and $ 1.6 million, respectively, to Pilot for such services.

During the years ended December 31, 2024, 2023 and 2022, the Company paid zero , $ 1.5 million and $ 1.6 million, respectively, to Pilot for such services.

In April 2023, the Company terminated the contract with Pilot in exchange for $ 6.5 million that was charged to other expense in the accompanying consolidated statements of operations during the year ended December 31, 2023.

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Delek accounted for approximately 76 %, 82 % and 88 % of the Company’s revenues during the years ended December 31, 2024, 2023 and 2022, respectively.

In addition, Energy Transfer Crude Marketing, LLC (“ETC”) accounted for approximately 14 % of the Company’s revenues during the year ended December 31, 2023.

In addition, Energy Transfer Crude Marketing, LLC (“ETC”) accounted for approximately 18 % and 14 % of the Company’s revenues during the years ended December 31, 2024 and 2023, respectively.

Based on the current demand for crude oil and natural gas and the availability of other purchasers, management believes the loss of these major purchasers 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.

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.

The Company’s income tax expense attributable to income from operations consisted of the following (in thousands):

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 amounts used for income tax purposes.

The Company is subject to corporate income taxes and Texas margin tax.

The Company and its subsidiaries file a U.S.

federal corporate income tax return on a consolidated basis.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA 2022”), which among other tax provisions, created a 15 percent corporate alternative minimum tax (“CAMT”) on the “adjusted financial statement income” of certain large corporations (generally, corporations reporting at least $1 billion of average adjusted pre-tax net income on their consolidated financial statements) as well as an excise tax of 1% on the fair market value of certain public company stock repurchases for tax years beginning after December 31, 2022.

Based on application of currently available guidance, the Company’s income tax expense for the years ended December 31, 2024 and 2023 was not impacted by the CAMT.

The Company’s excise tax imposed on its certain stock repurchases during the year ended December 31, 2024 was immaterial and was recognized as part of the cost basis of the stock repurchased.

The Company’s provision for income taxes attributable to income before income taxes consisted of the following (in thousands):

Year Ended December 31,

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Total income tax expense

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):

The reconciliation between the provision for income taxes computed by multiplying pre-tax income by the U.S.

federal statutory rate and the reported amounts of provision for income taxes is as follows (in thousands, except rate):

Year Ended December 31,

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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 expense realized during the year ended December 31, 2022.

This resulted in a $ 3.0 million and $ 3.4 million reduction in the deferred tax asset and increased the amount of income tax expense realized during the years ended December 31, 2024 and 2022, respectively.

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 2023, 2022 or 2021.

However, the Company has recognized a net deferred Texas Margin Tax liability of $ 7.1 million and $ 4.1 million as of December 31, 2023 and 2022, respectively, in the accompanying consolidated financial statements.

The Company realized $ 469,000 in current Texas margin tax in the accompanying consolidated financial statements for the year ended December 31, 2024 and zero for the years ended December 31, 2023 and 2022 as the Company did not owe any Texas margin tax for 2023 or 2022.

The Company has recognized a net deferred Texas margin tax liability of $ 8.6 million and $ 7.1 million as of December 31, 2024 and 2023, respectively, in the accompanying consolidated financial statements.

Earnings Per Share

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Stockholders ’ Equity

Stock Repurchase Program.

In February 2024, the Company’s board of directors approved a common stock repurchase program to acquire up to $ 75.0 million of the Company’s outstanding common stock, excluding excise taxes and other expenses, which was subject to being suspended from time to time, modified, extended or discontinued by the board of directors at any time.

The common stock repurchase program expired on December 31, 2024 (the “2024 Repurchase Program”).

On March 6, 2025, the Company’s board of directors extended the program from its original expiration on December 31, 2024 and extended the program through December 31, 2025 (the “Repurchase Extension”).

The Repurchase Extension did not alter any of the original terms of the 2024 Repurchase Program nor did it change the total amount provided for under the original 2024 Repurchase Program.

Purchases under the 2024 Repurchase Program were made from time to time in open market transactions, and were subject to market conditions, applicable legal requirements, contractual obligations and other factors.

During the year ended December 31, 2024, the Company repurchased 2,407,421 shares of common stock that were cancelled and terminated for approximately $ 35.1 million, excluding excise taxes and other expenses under this repurchase program.

Up to approximately $ 39.9 million remains available for use to repurchase shares under the Company’s common stock repurchase program, excluding excise taxes and other expenses, now that the program has been extended.

Issuance of Common Stock.

During the year ended December 31, 2024, the Company issued 55 shares of HighPeak Energy common stock as a result of warrants being exercised.

In July 2023, the Company issued 14,835,000 shares of its common stock in a public offering discussed below.

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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 Offerings of Common Stock.

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The net proceeds to the Company from the offering, after deducting the underwriting discounts and commissions and other offering expenses, were approximately $ 150.4 million.

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 November 2024, the Board declared a quarterly dividend of $ 0.04 per share of common stock outstanding which resulted in a total of $ 5.0 million in dividends being paid on December 23, 2024.

In addition, under the terms of the LTIP, the Company paid a dividend equivalent per share to all vested stock option holders of $ 531,000 in December 2024.

In addition, the Company accrued an additional combined $ 86,000 in dividends on the restricted stock issued to directors, management directors and certain employees that will be payable upon vesting.

In August 2024, the Board declared a quarterly dividend of $ 0.04 per share of common stock outstanding which resulted in a total of $ 5.0 million in dividends being paid on September 25, 2024.

In addition, under the terms of the LTIP, the Company paid a dividend equivalent per share to all vested stock option holders of $ 534,000 in September 2024.

In May 2024, the Board declared a quarterly dividend of $ 0.04 per share of common stock outstanding which resulted in a total of $ 5.0 million in dividends being paid on June 25, 2024.

In addition, under the terms of the LTIP, the Company paid a dividend equivalent per share to all vested stock option holders of $ 538,000 in June 2024 and accrued a dividend equivalent per share to all unvested stock option holders which was payable upon vesting, assuming no forfeitures.

In addition, the Company accrued an additional combined $ 84,000 in dividends on the restricted stock issued to directors, management directors and certain employees that will be payable upon vesting.

In February 2024, the Board declared a quarterly dividend of $ 0.04 per share of common stock outstanding which resulted in a total of $ 5.1 million in dividends being paid on March 25, 2024.

In addition, under the terms of the LTIP, the Company paid a dividend equivalent per share to all vested stock option holders of $ 530,000 in March 2024 and accrued a dividend equivalent per share to all unvested stock option holders which was payable upon vesting, assuming no forfeitures.

In October 2023, the Board declared a quarterly dividend of $ 0.025 per share of common stock outstanding which resulted in a total of $ 3.2 million in dividends being paid on November 22, 2023.

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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.

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 of $ 207,000 and accrued a dividend equivalent per share to all unvested stock option holders which was payable upon vesting, assuming no forfeitures.

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 of $ 830,000 and accrued a dividend equivalent per share to all unvested stock option holders which was payable upon vesting, assuming no forfeitures.

Outstanding Securities.

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Subsequent Events

Derivative Financial Instruments.

In January 2024, the Company entered into fixed price basis swaps for the spread between the Cushing crude oil price and the Midland WTI crude oil price.

The weighted average differential represents the amount of premium to the Cushing, Oklahoma crude oil price for the notional volumes covered by the basis swap contracts as shown below.

Settlement Year

Weighted Average

Differential per

Argus WTI Midland

Share Repurchase Program.

In February 2024, the Board approved a repurchase program of up to $ 75 million of the Company’s common stock.

The approval grants HighPeak’s management the authority to repurchase shares opportunistically in the open market from time to time, through block trades, in privately negotiated transactions or by such other means which comply with applicable state and federal laws.

This is the Company’s first authorization for a stock repurchase program since its founding.

The 2024 Repurchase Program expired on December 31, 2024.

On March 6, 2025, the Company’s board of directors extended the program from its original expiration on December 31, 2024 and extended the program through December 31, 2025.

The Repurchase Extension did not alter any of the original terms of the 2024 Repurchase Agreement nor did it change the total amount provided for under the original 2024 Repurchase Program.

The 2024 Repurchase Program was entered into in 2024 to grant HighPeak’s management the authority to repurchase shares opportunistically in the open market from time to time, through block trades, in privately negotiated transactions or by such other means which comply with applicable state and federal laws.

This is the Company’s second authorization for a stock repurchase program since its founding.

The Company intends to fund the repurchases from available working capital, cash provided from operations and borrowings under its Senior Credit Facility Agreement.

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Dividends and dividend equivalents.

In February 2024, the Board approved a quarterly dividend of $ 0.04 per share of common stock outstanding which resulted in a total of $ 5.1 million in dividends being paid on March 25, 2024.

In addition, under the terms of the LTIP, the Company paid a dividend equivalent per share to all vested stock option holders of $ 536,000 in March 2024 and will accrue a dividend equivalent per share to all unvested stock option holders which is payable upon vesting, assuming no forfeitures.

In February 2025, the Board approved a quarterly dividend of $ 0.04 per share of common stock outstanding which will result in a total of approximately $ 5.0 million in dividends being paid on March 25, 2025.

In addition, under the terms of the LTIP, the Company will pay a dividend equivalent per share to all vested stock option holders of approximately $ 538,000 in March 2025.

In addition, the Company will accrue an additional combined $ 86,000 in dividends on the restricted stock issued to directors, management directors and certain employees that will be payable upon vesting.

Natural gas derivative instruments.

In February 2025, the Company entered into the following natural gas derivative instruments, specifically HH fixed price swaps at $ 4.43 per MMBtu for 30,000 MMBtu per day for March 2025 through February 2026.

Settlement Month

NOTE 17 – Supplemental Crude Oil and Natural Gas Disclosures (Unaudited)

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Purchase of reserves-in-place

Sales of minerals-in-place

Revisions of previous estimates

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Purchase of reserves-in-place

Sales of reserves-in-place

Revisions of previous estimates

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Extensions and discoveries

Purchase of reserves-in-place

Sales of reserves-in-place

Revisions of previous estimates

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(i) drilling 18 gross ( 14.6 net) exploratory/extension wells that were on production as of December 31, 2024, (ii) 5 gross ( 5.0 net) exploratory/extension wells that were in the final stages of completion as of December 31, 2024, and (iii) the addition of 79 gross ( 68.9 net) PUDs.

The Company also acquired 171 MBoe of reserves as part of its acquisition activities and divested of 1,387 MBoe of reserves in a farm out to another operator in return for a carried interest during the year ended December 31, 2023.

Downward revisions of previous estimates of 16,093 MBoe for the year ended December 31, 2023 were the result of negative revisions of approximately 13,729 MBoe primarily due to technical revisions attributable to decreased well performance and adjustments to our estimates, approximately 1,775 MBoe primarily related to decreases in crude oil, NGL and natural gas realized prices and approximately 589 MBoe primarily due to increased forecasted operating expenses.

Upward revisions of previous estimates of 18,017 MBoe for the year ended December 31, 2024 were the result of positive revisions of approximately 19,406 MBoe primarily due to technical revisions attributable to increased well performance and adjustments to our estimates, partially offset by approximately 804 MBoe primarily due to increased forecasted operating expenses and approximately 585 MBoe primarily related to decreases in crude oil, NGL and natural gas realized prices.

The aforementioned net increase in proved reserves was partially offset by 18,285 MBoe in production during the year ended December 31, 2024.

3 unchanged sentences

(i) drilling 63 gross ( 56.4 net) exploratory/extension wells that were on production as of December 31, 2023, (ii) 7 gross ( 6.6 net) exploratory/extension wells that were in the final stages of completion as of December 31, 2023, and (iii) the addition of 117 gross ( 102.4 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 9,21 1 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 16,635 MBoe in production during the year ended December 31, 2023.

2 unchanged sentences

For the year ended December 31, 2022, extensions and discoveries increased proved reserves by 57,987 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.

(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 decreased 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.

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Natural gas (MMcf)

As of December 31, 2023, 2022 and 2021 and 2020, proved developed reserves includes proved developed non-producing reserves of 4,598 , 7,417 , 6,884 and 4,517 MBbl of crude oil, 534 , 927 , 793 and 517 MBbl of NGL and 1,889 , 3,641 , 3,222 and 1,912 MMcf of natural gas, respectively.

As of December 31, 2024, 2023 and 2022, proved developed reserves includes proved developed non-producing reserves of 6,239 , 4,598 and 7,417 MBbl of crude oil, 1,044 , 534 and 927 MBbl of NGL and 5,668 , 1,889 and 3,641 MMcf of natural gas, respectively.

On December 31, 2024, the Company’s estimated PUD reserves were approximately 90,879 MBoe, a 16,310 MBoe increase over the reserve estimate at December 31, 2023 of 74,569 MBoe.

31 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data