As filed with the Securities and Exchange Commission on March 17, 2021

 

Registration No. 333-248898

 

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

POST-EFFECTIVE  AMENDMENT NO. 1

TO

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

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HighPeak Energy, Inc.

(Exact name of registrant as specified in its charter)

 

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Delaware	1381	84-3533602
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

 

421 W. 3rd Street, Suite 1000
Fort Worth, Texas 76102
(817) 850-9200

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

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Jack Hightower
Chief Executive Officer
421 W. 3rd Street, Suite 1000
Fort Worth, Texas 76102
(817) 850-9200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

With a copy to:

Sarah K. Morgan
Vinson & Elkins L.L.P.
1001 Fannin Street, Suite 2500
Houston, Texas 77002
(713) 758-2222

 

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Approximate date of commencement of proposed sale of the securities to the public: From time to time after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”) check the following box: ☒

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐

 

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐

 

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

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EXPLANATORY NOTE

 

This Post-Effective Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-248898) (the “Registration Statement”) of HighPeak Energy, Inc. (the “Company” or “HighPeak”), as originally declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on November 10, 2020, is being filed pursuant to the undertakings in Item 17 of the Registration Statement to (i) include the information contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, that was filed with the SEC on March 15, 2021 and (ii) update certain other information in the Registration Statement.

 

The information included in this filing amends this Registration Statement and the prospectus contained therein. No additional securities are being registered under this Post-Effective Amendment No. 1. All applicable registration fees were paid at the time of the original filing of the Registration Statement.

 

 

The information in this prospectus is not complete and may be changed. The selling securityholders may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell the securities and is not soliciting an offer to buy the securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION DATED MARCH 17 , 2021
PRELIMINARY PROSPECTUS

 

 

 

 

 

 

HighPeak Energy, Inc.

 

Up to 21,694,762 Shares of Common Stock Issuable Upon Settlement of the Contingent Value Rights

Up to 9,500,174 Shares of Common Stock Issuable Upon Exercise of the Warrants

 

 

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Up to 114,966,676 Shares of Common Stock by the Selling Securityholders

Up to 8,089,509 Warrants by the Selling Securityholders

Up to 8,341,875 Contingent Value Rights by the Selling Securityholders

 

 

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This prospectus relates to the issuance by HighPeak Energy, Inc. (“HighPeak Energy” or the “Company”) of up to (i) 21,694,762 shares of common stock, par value $0.0001 per share (“Common Stock”) that may be issuable upon settlement of the Contingent Value Rights (“CVRs”) of the Company, including 17,726,484 underlying 8,341,875 CVRs that have been sold by the selling securityholders pursuant to this prospectus and (ii) 9,500,174 shares of Common Stock that may be issuable upon the exercise of warrants to purchase Common Stock (“warrants”) of the Company, including 8,089,509 of which that have been sold by the selling securityholders pursuant to this prospectus.

 

 This prospectus also relates to the offer and sale by the selling securityholders identified in this prospectus of:

 

i.

an aggregate of 81,374,134 shares of Common Stock of the Company, including (a) 76,383,054 shares of Common Stock issued as merger consideration to HighPeak Energy, LP and HighPeak Energy II, LP, pursuant to the Business Combination Agreement (as defined below and further described in the accompanying prospectus) in connection with the closing of the business combination on August 21, 2020 (the “Closing”) between the Company and Pure Acquisition Corp. (“Pure”), (b) 4,856,000 shares of Common Stock of the Company issued as consideration for the exchange of shares of Class B common stock, par value $0.0001 per share, of Pure (the “Pure Class B Common Stock”) to HighPeak Pure Acquisition, LLC (“Sponsor”) at the Closing and (c) 135,080 shares of Common Stock of the Company issued as consideration for the exchange of shares of Pure Class B Common Stock to certain former directors of Pure and identified as selling securityholders in this prospectus (the “selling securityholders”) pursuant to the Business Combination Agreement (as defined below) at the Closing;

ii.

an aggregate of 33,592,542 shares of Common Stock of HighPeak Energy, including (a) 7,776,549 shares of Common Stock issued pursuant to the Forward Purchase Agreement Amendment (as defined below), (b) 8,089,509 shares of Common Stock issuable upon exercise of the Company’s warrants issued pursuant to the Forward Purchase Agreement Amendment and (c) 17,726,484 shares of Common Stock of the Company issuable upon settlement of the CVRs issued pursuant to the Forward Purchase Agreement Amendment and owned by the selling securityholders identified in this prospectus;

iii.

up to an aggregate of 8,089,509 warrants issued pursuant to the Forward Purchase Agreement Amendment; and

iv.

up to an aggregate of 8,341,875 CVRs issued pursuant to the Forward Purchase Agreement Amendment by the selling securityholders.

 

 

The Common Stock, warrants and CVRs offered for resale under this prospectus were issued to the selling securityholders (as applicable to each selling securityholder) in accordance with the terms of, and transactions contemplated by, the Business Combination Agreement, dated as of May 4, 2020 (the “Business Combination Agreement”), as amended from time to time, by and among Pure, the Company, Pure Acquisition Merger Sub, Inc., HighPeak Energy, LP (“HighPeak I”), HighPeak Energy II, LP (“HighPeak II”), HighPeak Energy III, LP (“HighPeak III” and, together with HighPeak I and HighPeak II, the “HighPeak Funds”), HPK Energy, LLC, and solely for the limited purposes specified therein, HighPeak Energy Management, LLC, and that certain Amended & Restated Forward Purchase Agreement, dated as of July 24, 2020 (the “Forward Purchase Agreement Amendment”), by and among the Company, each party designated as a purchaser therein (including purchasers that subsequently joined prior to the Closing of the business combination as parties thereto), HighPeak Energy Partners, LP, and, solely for the limited purposes specified therein, Pure. The transactions contemplated under the Business Combination Agreement and the Forward Purchase Agreement Amendment closed concurrently with the consummation of the business combination at the Closing. The Common Stock, warrants and CVRs registered hereunder represent the securities issued to the selling securityholders pursuant to the terms of the Business Combination Agreement and the Forward Purchase Agreement Amendment, as applicable to each selling securityholder, concurrently with the Closing.

 

Pursuant to this prospectus, the selling securityholders are permitted to offer the securities from time to time, if and to the extent as they may determine, through public or private transactions or through other means described in the section of this prospectus entitled “Plan of Distribution” at prevailing market prices, at prices different than prevailing market prices or at privately negotiated prices. The selling securityholders may sell shares through agents they select or through underwriters and dealers they select. The selling securityholders also may sell their securities directly to investors. If the selling securityholders use agents, underwriters or dealers to sell their shares, we will name such agents, underwriters or dealers and describe any applicable commissions or discounts in a supplement to this prospectus if required.

 

We are registering the offer and sale of 33,592,542 shares of Common Stock, 8,089,509 warrants and 8,341,875 CVRs pursuant to the registration rights afforded pursuant to the Forward Purchase Agreement Amendment. We are further registering the offer and sale of 81,374,134 shares of Common Stock pursuant to the registration rights afforded pursuant to that certain Registration Rights Agreement, dated as of August 21, 2020 (the “Registration Rights Agreement”) by and among the Company, Sponsor, HighPeak I, HighPeak II and certain other security holders named therein. We have agreed to bear all expenses incurred in connection with the registration of these securities. The selling securityholders will pay or assume underwriting fees, discounts and commissions or similar charges, if any, incurred in the sale of these securities.

 

The selling securityholders identified in this prospectus are offering all of the Common Stock, warrants and CVRs included under this prospectus (as applicable to each selling securityholder) in the section entitled “Selling Securityholders.” We will not receive any proceeds from the sale of these securities by the selling securityholders.

 

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required.

 

HighPeak Energy’s Common Stock and warrants are listed on the Nasdaq Global Market (the “Nasdaq”) under the ticker symbols “HPK” and “HPKEW,” respectively. Further, the Company has applied to list the CVRs on the Nasdaq, and they are currently quoted on the Over-The-Counter Market (“OTC”) under the symbol “HPKER.” There is no assurance, however, that the CVRs will be listed on the Nasdaq.

 

Our principal executive offices are located at 421 W. 3rd Street, Suite 1000, Fort Worth, Texas 76102, and our telephone number at that address is (817) 850-9200.

 

 

You should carefully read this prospectus and any prospectus supplement or amendment before you invest. See the section entitled “Risk Factors” in the accompanying prospectus beginning on page 14. You also should read the information included throughout this prospectus for information on our business and our financial statements, including information related to our predecessor.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

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The date of this prospectus is March 17, 2021. 

 

 

TABLE OF CONTENTS

 

CERTAIN DEFINED TERMS	ii
SUMMARY OF THE PROSPECTUS	1
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	11
RISK FACTORS	14
USE OF PROCEEDS	45
SECURITIES MARKET INFORMATION	46
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION	47
SELECTED HISTORICAL FINANCIAL DATA	55
BUSINESS	56
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	76
MANAGEMENT	91
EXECUTIVE COMPENSATION	98
DESCRIPTION OF SECURITIES	104
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	113
SELLING SECURITYHOLDERS	110
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	115
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS	119
PLAN OF DISTRIBUTION	127
LEGAL MATTERS	129
EXPERTS	130
WHERE YOU CAN FIND ADDITIONAL INFORMATION	130
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	F-1
ANNEX A: GLOSSARY OF OIL AND NATURAL GAS TERMS	A-1

 

 

CERTAIN DEFINED TERMS

 

Unless the context otherwise requires, references in this prospectus to:

 

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“A&R Charter” are to the amended and restated certificate of incorporation of HighPeak Energy;

 

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“Board” are to the board of directors of HighPeak Energy;

 

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“business combination” or “HighPeak business combination” are to the transactions contemplated by the Business Combination Agreement, which closed on August 21, 2020;

 

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“Business Combination Agreement” are to the Business Combination Agreement, dated May 4, 2020, as amended from time to time, by and among Pure, HighPeak Energy, MergerSub, HighPeak I, HighPeak II, HighPeak III, HPK Energy, LLC, and solely for the limited purposes specified therein, HighPeak Energy Management, LLC, pursuant to which, among other things and subject to the terms and conditions contained therein, (i) MergerSub merged with and into Pure, with Pure surviving as a wholly owned subsidiary of HighPeak Energy, (ii) each outstanding share of Pure’s Class A Common Stock and Class B Common Stock (other than certain shares of Pure Class B Common Stock that were surrendered for cancellation by Pure’s Sponsor) were converted into the right to receive (A) one share of HighPeak Energy common stock (and cash in lieu of fractional shares, if any), and (B) solely with respect to each outstanding share of Pure Class A Common Stock, (I) a cash amount, without interest, equal to $0.62, which represents the amount by which the per-share redemption value of Pure Class A Common Stock at the Closing exceeded $10.00 per share, without interest, in each case, totaling approximately $767,902, (II) one (1) CVR, for each one whole share of HighPeak Energy common stock (excluding fractional shares) issued to holders of Pure Class A Common Stock pursuant to clause (A), representing the right to receive additional shares of HighPeak Energy common stock (or such other specified consideration as is specified with respect to certain events) for Qualifying CVR Holders if necessary to satisfy a 10% preferred simple annual return, subject to a floor downside per-share price of $4.00, as measured at the applicable maturity, which will occur on a date to be specified and which may be any date occurring during the period beginning on (and including) August 21, 2022 and ending on (and including) February 21, 2023, or in certain circumstances after the occurrence of certain change of control events with respect to the Company’s business, including certain mergers, consolidations and asset sales (with an equivalent number of shares of HighPeak Energy common stock held by the HPK Contributors being collectively forfeited) and (III) one warrant to purchase HighPeak Energy common stock for each one whole share of HighPeak Energy common stock (excluding fractional shares) issued to holders of Pure Class A Common Stock pursuant to clause (A), (iii) the HPK Contributors contributed their limited partner interests in HPK LP to HighPeak Energy in exchange for HighPeak Energy common stock and the general partner interests in HPK LP to a wholly owned subsidiary of HighPeak Energy in exchange for no consideration, and (b) contributed the outstanding Sponsor Loans (as defined in the Business Combination Agreement) in exchange for HighPeak Energy common stock and such Sponsor Loans were cancelled in connection with the Closing, and (iv) following the consummation of the foregoing transactions, HighPeak Energy caused HPK LP to merge with and into HighPeak Energy Acquisition Corp., a Delaware corporation (as successor to Pure) and all interests in HPK LP were cancelled in exchange for no consideration;

 

 

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“Class A Common Stock” are to the Company’s Class A voting common stock, par value $0.0001 per share;

 

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“Class B Common Stock” are to the Company’s Class B voting common stock, par value $0.0001 per share;

 

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“Closing” are to the closing of the business combination on August 21, 2020;

 

●

“Combined Registration Statement” are to the combined registration statement on Form S-4 and Form S-1, as amended and declared effective by the SEC on August 7, 2020;

           

●

“common stock” or “HighPeak Energy common stock” are to HighPeak Energy’s voting common stock, par value $0.0001 per share;

 

●

“the Company,” “HighPeak Energy,” “we,” “our” or “us” are to HighPeak Energy Inc., a Delaware corporation, either individually or together with its consolidated subsidiaries, as the context requires;

 

●

“Continental” are to Continental Stock Transfer & Trust Company, a New York corporation;

 

●

“Contingent Value Rights” or “CVRs” are to contractual contingent value rights issued to holders of Class A Common Stock and Forward Purchase Investors, representing the right of Qualifying CVR Holders to receive, in certain circumstances, additional shares of HighPeak Energy common stock (or, in limited circumstances, such other form as is provided for in the Contingent Value Rights Agreement), if necessary, to satisfy a 10% preferred simple annual return, subject to a floor downside per-share price of $4.00, as measured at the CVR Maturity Date (with an equivalent number of shares of HighPeak Energy common stock held by HighPeak I, HighPeak II and Sponsor being collectively forfeited);

 

 

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“Contingent Value Rights Agreement” or “CVR Agreement” are to the agreement dated August 21, 2020, by and among HighPeak Energy, HighPeak I, HighPeak II, Sponsor and Continental, as Rights Agent, which governs the terms of the CVRs;

 

●

“CVR Holder” are to a person or entity in whose name a CVR is registered in the CVR register maintained by the Rights Agent at any date of determination;

 

●

“CVR Maturity Date” are to (i) the date to be specified by HighPeak I, HighPeak II and Sponsor, which may be any date occurring during the period beginning on (and including) August 21, 2022 and ending on (and including) February 21, 2023, or (ii) in certain circumstances, the occurrence of certain change of control events with respect to our business, including certain mergers, consolidations and asset sales;

 

●

“CVR Sponsors” are to HighPeak Energy, Sponsor, HighPeak I and HighPeak II;

 

●

“Escrowed Shares” are to 21,694,763 shares of HighPeak Energy common stock, which equals the maximum number of shares of HighPeak Energy common stock that could become issuable to CVR Holders pursuant to the terms of the Contingent Value Rights Agreement determined at the Closing;

 

●

“Forward Purchases” are to the issuance and purchase of an aggregate total of 8,976,875 shares of HighPeak Energy common stock, and a corresponding number of CVRs and warrants at the Closing;

 

●

“Forward Purchase Agreement” are to, with respect to time periods prior to the execution of the Forward Purchase Agreement Amendment, that certain Forward Purchase Agreement, dated April 12, 2018, by and between Pure and HPEP I, pursuant to which, among other things, HPEP I is subscribed for an aggregate number of up to 15,000,000 units of Pure, consisting of one share of Pure Class A Common Stock and one-half of one whole warrant to purchase one share of Pure Class A Common Stock for $10.00 per unit, or an aggregate maximum amount of up to $150,000,000 at the Closing;

 

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“Forward Purchase Agreement Amendment” are to the Amended & Restated Forward Purchase Agreement, dated as of July 24, 2020, by and among HighPeak Energy, each party designated as a purchaser therein (which includes purchasers that subsequently joined as parties thereto prior to the Closing), HPEP I and, solely for the limited purposes specified therein, Pure, pursuant to which, among other things, (i) the Forward Purchase Agreement entered into by and between HPEP I and Pure has been amended and restated in its entirety as described further in this prospectus and (ii) the purchasers thereunder collectively purchased 8,976,875 forward purchase units, in connection with the Closing, with each forward purchase unit consisting of one share of HighPeak Energy common stock, one CVR and one warrant (which one whole warrant is exercisable for HighPeak Energy common stock), for $10.00 per forward purchase unit, or an aggregate maximum amount of $89,768,750. The aggregate 8,976,875 shares (and a corresponding number of warrants and CVRs) includes (i) 5,000,000 shares (and corresponding number of warrants and CVRs) which were purchased under the Forward Purchase Agreement Amendment signed July 24, 2020 (with such securities having been registered pursuant to the Company’s Combined Registration Statement on Form S-4 and Form S-1, declared effective on August 7, 2020) and (ii) 3,976,875 shares (and a corresponding number of warrants and CVRs) (811,000 shares (and a corresponding number of warrants and CVRs) of which have been previously registered pursuant to the Company’s Combined Registration Statement on Form S-4 and Form S-1, declared effective on August 7, 2020) were purchased by additional private purchasers under the Forward Purchase Agreement Amendment pursuant to Assignment and Joinder agreements entered into between such private purchasers and HPEP I subsequent to July 24, 2020;

 

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“Forward Purchase Investors” are to the qualified institutional buyers and accredited investors that purchased forward purchase units pursuant to the Forward Purchase Agreement Amendment;

 

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“forward purchase unit” are to each of the up to 15,000,000 units issuable under the Forward Purchase Agreement Amendment (of which, 8,976,875 forward purchase units were issued at the Closing), each consisting of one share of HighPeak Energy common stock, one CVR and one warrant, which each whole warrant is exercisable for HighPeak Energy common stock at an exercise price of $11.50 per share;

 

 

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“HighPeak Assets I” are to HighPeak Energy Assets, LLC, a Delaware limited liability company;

 

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“HighPeak Assets II” are to HighPeak Energy Assets II, LLC, a Delaware limited liability company;

 

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“HighPeak Funds” are to HighPeak I, HighPeak II and HighPeak III, collectively;

 

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“HighPeak Group” are to Sponsor, the HPK Contributors and Jack Hightower and each of their respective affiliates and certain permitted transferees, collectively;

 

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“HighPeak I” are to HighPeak Energy, LP, a Delaware limited partnership;

 

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“HighPeak II” are to HighPeak Energy II, LP, a Delaware limited partnership;

 

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“HighPeak III” are to HighPeak Energy III, LP, a Delaware limited partnership;

 

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“HP GP I” are to HighPeak GP, LLC, a Delaware limited liability company;

 

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“HP GP II” are to HighPeak GP II, LLC, a Delaware limited liability company;

 

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“HPEP I” are to HighPeak Energy Partners, LP, a Delaware limited partnership;

 

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“HPEP II” are to HighPeak Energy Partners II, LP, a Delaware limited partnership;

  

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“HPK LP” are to HPK Energy, LP, a Delaware limited partnership;

 

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“HPK Contributors” are to the HighPeak Funds and HPK Energy, LLC;

 

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“LTIP” are to the HighPeak Energy, Inc. Amended & Restated Long Term Incentive Plan;

 

 

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“MergerSub” are to Pure Acquisition Merger Sub, Inc., a Delaware corporation formed as a wholly owned subsidiary of HighPeak Energy for the purpose of effecting HighPeak the business combination;

 

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“Nasdaq” are to the Nasdaq Global Market;

 

●

“original warrant agreement” are to the warrant agreement, dated as of April 12, 2018, by and between Pure and Continental as warrant agent, which was subsequently assigned and amended by the Warrant Agreement Amendment in connection with the Closing;

 

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“Principal Stockholder Group” are to Sponsor, the HighPeak Funds and Jack Hightower;

 

●

“Predecessors” are, for the period from October 1, 2019 through Closing, to HPK LP, and for the years ended December 31, 2019, 2018 and 2017 to HighPeak I;

 

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“Pure” are to Pure Acquisition Corp., a Delaware corporation;

 

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“Qualifying CVR Holders” are to CVR Holders as of the CVR Maturity Date and that provide certain information required under the Contingent Value Rights Agreement;

 

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“Revolving Credit Facility” refers to the Company’s senior secured reserve-based lending facility which matures June 17, 2024.

 

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“Rights Agent” are to Continental Stock Transfer & Trust Company;

 

 

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“SEC” are to the U.S. Securities and Exchange Commission;

 

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“Sponsor” are to HighPeak Pure Acquisition, LLC, a Delaware limited liability company, and subsidiary of HPEP I;

 

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“Transfer Agent” are to Continental Stock Transfer & Trust Company;

 

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“voting common stock” are to HighPeak Energy common stock;

 

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“Warrant Agent” are to Continental Stock Transfer & Trust Company;

 

●

“Warrant Agreement Amendment” are to the Amendment and Assignment to Warrant Agreement, dated as of August 21, 2020, by and among Pure, HighPeak Energy and Continental as warrant agent, which governs the terms of the warrants of HighPeak Energy; and

 

●

“warrants” are to the warrants to purchase one share of HighPeak Energy common stock at a price of $11.50 per share.

 

 

RISK FACTORS

 

The risk factors discussed herein are not exhaustive and investors are encouraged to perform their own investigation with respect to the business, financial condition and prospects of HighPeak Energy. You should carefully consider the following risk factors in addition to the other information included in this prospectus, including matters addressed in the section entitled “Cautionary Note Regarding Forward-Looking Statements.” HighPeak Energy may face additional risks and uncertainties that are not presently known, or that HighPeak Energy currently deems immaterial, which may also impair its business or financial condition. The following discussion should be read in conjunction with the financial statements and the notes to Consolidated and Combined Financial Statements included elsewhere in this prospectus.

 

Risks Related to Our Business

 

Oil, natural gas and NGL prices are volatile. Sustained periods of low, or further declines in, oil, natural gas and NGL 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 oil, natural gas and NGL production heavily influences its revenue, profitability, access to capital, future rate of growth and the carrying value of its properties. The markets for oil and natural gas have been volatile historically and are likely to remain volatile in the future. For example, during the period from January 1, 2018 through December 31, 2020, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $70.76, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $4.72. For the month of April 2020, the calendar month average NYMEX WTI crude oil price was $16.70 per Bbl and the last trading day NYMEX natural gas price was $1.63 per MMBtu. The fall in prices was a result of Organization of Petroleum Exporting Countries and other oil producing nations (“OPEC+”) being unable to reach an agreement on production levels for crude oil, which resulted in Saudi Arabia and Russia initiating efforts to increase production. The convergence of these events, along with the significantly reduced demand because of the COVID-19 pandemic, created an unprecedented global oil and natural gas supply and demand imbalance, reduced global oil and natural gas storage capacity, caused oil and natural gas prices to decline significantly and resulted in continued volatility in oil, natural gas and NGL prices into the second quarter of 2020. In April 2020, extreme shortages of transportation and storage capacity caused the NYMEX WTI front month oil price for May 2020 delivery to drop to -$37.63 per barrel on the second to last day of the trading period for the contract. This single day of negative pricing resulted from the holders of expiring May 2020 oil purchase contracts being unable or unwilling to take physical delivery of crude oil and accordingly forced to make payments to purchasers of such contracts in order to transfer the corresponding purchase obligations. Prices have partially recovered, with the calendar month average NYMEX WTI crude oil price of $42.34 per Bbl and the last trading day NYMEX natural gas price of $2.90 per MMBtu for the month of December 2020. However, there can be no certainty that commodity prices will sustain at these levels or continue to increase.

 

Likewise, NGLs, 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:

 

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worldwide and regional economic conditions impacting the global supply and demand for oil, natural gas and NGL;

 

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

 

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domestic and global political and economic conditions, 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;

 

 

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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;

 

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actions of the Organization of the Petroleum Exporting Countries (“OPEC”), its members and other state-controlled oil companies relating to oil price and production controls;

 

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the level of global exploration, development and production;

 

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the level of global inventories;

 

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prevailing prices on local price indexes in the areas in which HighPeak Energy operates;

 

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the proximity, capacity, cost and availability of gathering and transportation facilities;

 

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localized and global supply and demand fundamentals and transportation availability;

 

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the cost of exploring for, developing, producing and transporting reserves;

 

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weather conditions and natural disasters;

 

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technological advances affecting energy consumption;

 

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the price and availability of alternative fuels;

 

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expectations about future commodity prices; and

 

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U.S. federal, state and local and non-U.S. governmental regulation and taxes.

 

Lower commodity prices may reduce HighPeak Energy’s cash flow and borrowing ability. If HighPeak Energy is unable to obtain needed capital or financing on satisfactory terms, its ability to develop future reserves could be adversely affected. Also, using lower prices in estimating proved reserves may result in a reduction in proved reserve volumes due to economic limits. In addition, sustained periods with lower 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.

 

The recent and ongoing outbreak of COVID-19 and other pandemic outbreaks could negatively impact HighPeak Energy’s business and results of operations.

 

HighPeak Energy may face additional risks related to the recent and ongoing outbreak of COVID-19. International, federal, state and local public health and governmental authorities took extraordinary and wide-ranging actions to contain and combat the outbreak and spread of COVID-19 in regions across the United States and the world, including mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. While some of these restrictions have been lifted in many countries, including the United States, to the extent the COVID-19 outbreak worsens, governments may reimpose similar restrictions. The full impact of the COVID-19 outbreak is unknown and continues to evolve. The outbreak and any preventative or protective actions that HighPeak Energy or its customers may take in respect to this virus may result in a period of disruption, including HighPeak Energy’s financial reporting capabilities, its operations generally, and could potentially impact HighPeak Energy’s customers, distribution partners and third-parties. Any resulting impact cannot be reasonably estimated at this time but may materially affect the business and HighPeak Energy’s financial condition and results of operations. The extent to which the COVID-19 outbreak impacts HighPeak Energy’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

 

 

For example, prices decreased to a level in April 2020 that caused HighPeak Energy to halt its drilling program and to curtail a substantial portion of their existing production, as well. However, prices have since increased and HighPeak Energy management began returning wells to production in mid-July. At August 21, 2020, HighPeak Energy had twelve (12) drilled uncompleted wells that we began completing in September 2020. Nine (9) of these wells were on production as of December 31, 2020 with the other three (3) wells on production by the end of January 2021. We will continue to monitor the extent by which prices continue to increase and/or stabilize as we execute our capital expenditure program. In addition, HighPeak Energy may be unable to fund its capital expenditure program. HighPeak Energy has evaluated multiple development scenarios under multiple potential commodity price assumptions. Under a one (1) rig development scenario, HighPeak Energy would expect to make approximately $115 to $125 million of capital expenditures for drilling, completion, facilities and equipping costs plus an additional $20 to $25 million for land and infrastructure during 2021. The ability to make these capital expenditures will be highly dependent on the price of oil and available funding. Commodity prices have already partially recovered from their April lows, with the calendar month average NYMEX WTI price of $52.10 per Bbl and last trading day NYMEX natural gas price of $2.67 per MMBtu for the month of January 2021.  However, HighPeak Energy recognizes that commodity prices remain highly volatile and that its liquidity may be limited, and as a result, there is no certainty that HighPeak Energy will operate up to a one-rig drilling program in the future.

 

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, HighPeak Energy’s operations could be interrupted, and its revenues reduced.

 

The marketability of HighPeak Energy’s oil and natural gas production depends in part upon the availability, proximity and capacity of transportation and storage facilities owned by third-parties. Natural gas production from HighPeak Energy’s assets is generally transported by third-party gathering lines. HighPeak Energy does not currently have long-term contracts for the gathering and transportation of production from its assets, and currently transports the majority of its oil production via truck on a short-term contract basis. HighPeak Energy does not control the trucks and transportation and storage facilities used to transport or store production from its assets, and access to them may be limited or denied. As a result of reduced demand in the spring and summer of 2020 primarily as a result of the COVID-19 outbreak, there was insufficient storage capacity for the production of oil. As a result, HighPeak Energy had to curtail substantially all its production for a short time. 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 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 oil and natural gas produced from HighPeak Energy’s fields, would materially and adversely affect its financial condition and results of operations.

 

HighPeak Energy may incur additional costs to bring the associated production back online and is unable to predict the production levels of such wells once brought back online.

 

The reduction in global demand caused by COVID-19, coupled with the recent actions of foreign oil producers such as Saudi Arabia and Russia, have materially decreased global crude oil prices and generated a surplus of oil. This significant surplus has created a saturation of storage and caused imminent crude storage constraints, which has led to, and in the future may further lead to the shut-in of production of our wells due to lack of sufficient markets or lack of availability and capacity of processing, gathering, storing and transportation systems. Additionally, several state oil and gas authorities, including the Texas Railroad Commission, have implemented or are considering implementing oil and gas production limits in an effort to stabilize declining commodity prices. To the extent adopted, such production limits could not only reduce our revenue, but also, if wells have 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 the associated 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 and may incur additional costs to bring the associated production back online. However, prices have since increased, and HighPeak Energy management began returning its wells to production in mid-July. At August 21, 2020, HighPeak Energy had twelve (12) drilled uncompleted wells that we began completing in September 2020. Nine (9) of these wells were on production as of December 31, 2020 with the other three (3) wells on production by the end of January 2021. We will continue to monitor the extent by which prices continue to increase and/or stabilize as we execute our capital expenditure program. As HighPeak Energy recently brought its wells back online, there is no assurance that such wells will be as productive following recommencement as they were prior to being shut in. Any shut in or curtailment of the oil, natural gas and NGL produced from HighPeak Energy’s fields could adversely affect its financial condition and results of operations.

 

 

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

 

Accounting rules require that HighPeak Energy periodically review the carrying value of its properties for possible impairment. 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. A write-down constitutes a non-cash impairment charge to earnings. Historically, oil, natural gas and NGL prices have been volatile. For example, during the period from January 1, 2018 through December 31, 2020, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $70.76, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $4.72.

 

Likewise, NGLs, 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.

 

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.

 

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, which could reduce its ability to access or grow production and reserves.

 

The oil and natural gas industry is capital-intensive. HighPeak Energy has evaluated multiple development scenarios under multiple potential commodity price assumptions. Under its one (1) rig development scenario, HighPeak Energy would expect to make approximately $115 to $125 million of capital expenditures in drilling, completion, facilities and equipping costs and $20 to $25 million for land and infrastructure costs during 2021. The ability to make these capital expenditures will be highly dependent on the price of oil and available funding of HighPeak Energy. Commodity prices have already partially recovered from their April lows, with the calendar month average NYMEX WTI price of $52.10 per Bbl and last trading day NYMEX natural gas price of $2.67 per MMBtu for the month of January 2021.  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 one-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 and through borrowings under its Revolving Credit Facility. For terms of the Revolving Credit Agreement, see the section entitled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Liquidity and Capital Resources—Revolving Credit Agreement” elsewhere in this prospectus.

 

Further, given market uncertainty primarily as a result of the COVID-19 outbreak, it is uncertain whether HighPeak Energy will be able to access the capital markets in the immediate future. Cash flows from operations are also subject to significant uncertainty. As a result, the amount of liquidity that HighPeak Energy will have in the future is uncertain.

 

 

As a result, 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 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. The issuance of additional equity securities would be dilutive to existing stockholders. The actual amount and timing of future capital expenditures may differ materially from estimates as a result of, among other things: commodity prices; actual drilling results; the availability of drilling rigs and other services and equipment; 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 grow production.

 

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

 

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

 

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proved reserves;

 

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

 

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

 

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the amount of HighPeak Energy’s operating expenses;

 

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cash settlements from HighPeak Energy’s derivative activities;

 

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HighPeak Energy’s ability to obtain debt financing, including the Debt Facility;

 

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

 

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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;

 

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

 

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

 

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

 

Should HighPeak Energy’s revenues or the borrowing base under the Revolving Credit Facility decrease as a result of lower oil, natural gas and NGL 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. If cash flow generated by HighPeak Energy’s operations or available debt financing, including borrowings under the Revolving Credit Facility, 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.

 

 

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 involves 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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landing its wellbore in the desired drilling zone;

 

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

 

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running its casing the entire length of the wellbore; and

 

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

 

Difficulties that HighPeak Energy may face while completing its wells include the following, among others:

 

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the ability to fracture stimulate the planned number of stages;

 

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the ability to run tools the entire length of the wellbore during completion operations; and

 

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the ability to successfully clean out the wellbore after completion of the final fracture stimulation stage.

 

Use of new technologies may not prove successful and could result in significant cost overruns or delays or reductions in production, and, in extreme cases, the abandonment of a well. In addition, certain of the new techniques HighPeak Energy adopts may cause irregularities or interruptions in production due to offset wells being shut in and the time required to drill and complete multiple wells before any such wells begin producing. Furthermore, the results of drilling in new or emerging formations are more uncertain initially than drilling results in areas that are more developed and have a longer history of established production. Newer and emerging formations and areas have limited or no production history and, consequently, HighPeak Energy may be more limited in assessing future drilling results in these areas. If its drilling results are less than anticipated, the return on investment for a particular project may not be as attractive as anticipated, and HighPeak Energy could incur material write downs of unevaluated properties and the value of undeveloped acreage could decline in the future.

 

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

 

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delays imposed by, or resulting from, compliance with regulatory requirements, including limitations on wastewater disposal, emission of greenhouse gases (“GHGs”) and hydraulic fracturing;

 

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pressure or irregularities in geological formations;

 

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shortages of or delays in obtaining equipment and qualified personnel or in obtaining water for hydraulic fracturing activities;

 

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equipment failures, accidents or other unexpected operational events;

 

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lack of available gathering facilities or delays in construction of gathering facilities;

 

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lack of available capacity on interconnecting transmission pipelines;

 

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lack of availability of water and electricity;

 

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adverse weather conditions;

 

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issues related to compliance with environmental regulations;

 

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environmental hazards, such as oil and natural gas leaks, oil spills, pipeline and tank ruptures and unauthorized discharges of brine, well stimulation and completion fluids, toxic gases or other pollutants into the surface and subsurface environment;

 

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declines in oil and natural gas prices;

 

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limited availability of financing on acceptable terms;

 

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title issues; and

 

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other market limitations in HighPeak Energy’s industry.

 

If HighPeak Energy borrows funds in the future, HighPeak Energy may not be able to generate sufficient cash to service all its indebtedness and may be forced to take other actions to satisfy its debt obligations that may not be successful.

 

HighPeak Energy entered into a Revolving Credit Facility and may seek other debt financing sources. HighPeak Energy’s ability to make scheduled payments on or to refinance its indebtedness obligations under the Revolving Credit Facility, or other debt financing sources HighPeak Energy decides to utilize, will depend on HighPeak Energy’s financial condition and operating performance, which are subject to prevailing economic and competitive conditions, industry cycles and certain financial, business and other factors affecting HighPeak Energy’s operations, many of which are beyond HighPeak Energy’s control. HighPeak Energy may not be able to maintain a level of cash flow from operating activities sufficient to permit HighPeak Energy to pay the principal, premium, if any, and interest on its indebtedness.

 

 

If HighPeak Energy’s cash flow and capital resources are insufficient to fund debt service obligations, HighPeak Energy may be forced to reduce or delay investments and capital expenditures, sell assets, seek additional capital or restructure or refinance existing indebtedness. HighPeak Energy’s ability to restructure or refinance indebtedness will depend on the condition of the capital markets and its financial condition at such time. Any refinancing of indebtedness may be at higher interest rates and may require HighPeak Energy to comply with more onerous covenants, which could further restrict business operations. The terms of the Revolving Credit Facility and HighPeak Energy’s future debt instruments may restrict it from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on outstanding indebtedness on a timely basis would likely result in a reduction of HighPeak Energy’s credit rating, which could harm its ability to incur additional indebtedness. In the absence of sufficient cash flows and capital resources, HighPeak Energy could face substantial liquidity problems and might be required to dispose of material assets or operations to meet debt service and other obligations. The Revolving Credit Facility limits, and any other debt financing HighPeak Energy enters into, may limit HighPeak Energy’s ability to dispose of assets and use the proceeds from such dispositions. HighPeak Energy may not be able to consummate those dispositions, and the proceeds of any such disposition may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit HighPeak Energy to meet scheduled debt service obligations.

 

Restrictions in HighPeak Energy’s Revolving Credit Facility and any future debt agreements could limit HighPeak Energy’s growth and ability to engage in certain activities.

 

The terms and conditions governing HighPeak Energy’s Revolving Credit Facility and any future additional indebtedness are expected to:

 

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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;

 

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

 

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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, business or operations and engage in business combinations or other fundamental changes;

 

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

 

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

 

HighPeak Energy’s ability to meet its expenses and 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 allow 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 will result in a default under HighPeak Energy’s financing arrangements, which if not cured or waived, would 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 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.

 

 

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

 

The Revolving Credit Facility limit the amounts HighPeak Energy can borrow up to a borrowing base amount, which the lenders will in good faith periodically redetermine, in accordance with their respective usual and customary oil and gas lending criteria, based upon the loan value of the proved oil and gas reserves located within the geographic boundaries of the United States included in the most recent reserve report provided to the lenders.

 

The Revolving Credit Facility requires scheduled semi-annual borrowing base redeterminations based on updated reserve reports. Additionally, the borrowing base is subject to unscheduled reductions due to certain issuances of new junior lien indebtedness, unsecured indebtedness or subordinated indebtedness, certain sales or acquisitions of borrowing base properties or early monetizations or terminations of certain hedge or swap positions. A reduced borrowing base could render HighPeak Energy unable to access adequate funding under the Revolving Credit Facility. Additionally, if the aggregate amount outstanding under the Revolving Credit Facility exceeds the borrowing base at any time, HighPeak Energy would be required to repay any indebtedness in excess of the borrowing base or to provide mortgages on additional borrowing base properties to eliminate such excess. As a result of a mandatory prepayment and/or reduced access to funds under the Revolving Credit Facility, HighPeak Energy may be unable to implement its drilling and development plan, make acquisitions or otherwise carry out business plans, which would have a material adverse effect on its financial condition and results of operations.

 

Our hedging transactions expose us to counterparty credit risk and may become more costly or unavailable to us.

 

We may enter into certain derivative instruments in the ordinary course operations of our business. Our hedging transactions expose us to risk of financial loss if a counterparty fails to perform under a derivative contract. Disruptions in the financial markets could lead to sudden decreases in a counterparty’s liquidity, which could make them unable to perform under the terms of the derivative contract and we may not be able to realize the benefit of the derivative contract. Derivative instruments also expose us to the risk of financial loss in some circumstances, including when there is an increase in the differential between the underlying price in the derivative instrument and actual prices received or there are issues with regard to legal enforceability of such instruments.

 

The use of derivatives may, in some cases, require the posting of cash collateral with counterparties. If we enter into derivative instruments that require cash collateral and commodity prices or interest rates change in a manner adverse to us, our cash otherwise available for use in our operations would be reduced which could limit our ability to make future capital expenditures and make payments on our indebtedness, and which could also limit the size of our borrowing base. Future collateral requirements will depend on arrangements with our counterparties, highly volatile oil, NGL and natural gas prices, and interest rates.

 

In addition, derivative arrangements could limit the benefit we would receive from increases in the prices for natural gas, NGLs, and oil, which could also have an adverse effect on our financial condition. If natural gas, NGLs, or oil prices upon settlement of our derivative contracts exceed the price at which we have hedged our commodities, we will be obligated to make cash payments to our hedge counterparties, which could, in certain circumstances, be significant.

 

In addition, U.S. regulators adopted a final rule in November 2019 implementing a new approach for calculating the exposure amount of derivative contracts under the applicable agencies’ regulatory capital rules, referred to as the standardized approach for counterparty credit risk (“SA-CCR”). As adopted, certain financial institutions are required to comply with the new SA-CCR rules beginning on January 1, 2022. The new rules could significantly increase the capital requirements for certain participants in the over-the-counter derivatives market in which we participate. These increased capital requirements could result in significant additional costs being passed through to end-users like us or reduce the number of participants or products available to us in the over-the-counter derivatives market. The effects of these regulations could reduce our hedging opportunities, or substantially increase the cost of hedging, which could adversely affect our business, financial condition and results of operations.

 

 

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.

 

The process of estimating oil and natural gas reserves is complex. It requires interpretations of available technical data and many assumptions, including assumptions relating to current and future economic conditions and commodity prices. For example, December 31, 2020 reserves were based on commodity prices that may prove to be higher than the prices received for HighPeak Energy’s future production. Any significant inaccuracies in these interpretations or assumptions could materially affect the estimated quantities and present value of reserves. To prepare the reserve estimates included in this prospectus, HighPeak Energy projected the production rates and timing of its development expenditures. The Company also analyzed available geological, geophysical, production and engineering data. The extent, quality and reliability of this data can vary. The process also requires economic assumptions about matters such as oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds.

 

Actual future production, oil, natural gas and NGL prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves may vary from the estimates included in this prospectus. For instance, initial production rates reported by HighPeak Energy or other operators may not be indicative of future or long-term production rates, and recovery efficiencies may be worse than expected and production declines may be greater than estimated and may be more rapid and irregular compared with initial production rates. In addition, estimates of proved reserves may be adjusted to reflect additional production history, results of development activities, current commodity prices and other existing factors. Any significant variance could materially affect the estimated quantities and present value of reserves. Moreover, there can be no assurance that reserves will ultimately be produced or that proved undeveloped reserves will be developed within the periods anticipated.

 

You should not assume that the present value of future net revenues from the reserves presented in this prospectus is the current market value of the estimated reserves of our assets. Actual future prices and costs may differ materially from those used in the present value estimate. If spot prices are below such calculated amounts, using more recent prices in estimating proved reserves may result in a reduction in proved reserve volumes due to economic limits.

 

The standardized measure of estimated reserves may not be an accurate estimate of the current fair value of estimated oil and natural gas reserves.

 

Standardized measure is a reporting convention that provides a common basis for comparing oil and natural gas companies subject to the rules and regulations of the SEC. Standardized measure requires historical twelve-month pricing as required by the SEC as well as operating and development costs prevailing as of the date of computation. Consequently, it may not reflect the prices ordinarily received or that will be received for oil and natural gas production because of varying market conditions, nor may it reflect the actual costs that will be required to produce or develop the oil and natural gas properties. For example, historical twelve-month prices may prove to be higher than prices received for HighPeak Energy’s future production. As a result, estimates included in this prospectus of future net cash flow may be materially different from the future net cash flows that are ultimately received. Therefore, the standardized measure of estimated reserves included in this prospectus should not be construed as accurate estimates of the current fair value of such proved reserves.

 

Properties 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.

 

Acquiring oil and natural gas properties requires HighPeak Energy to assess reservoir and infrastructure characteristics, including recoverable reserves, future oil and gas prices and their applicable differentials, development and operating costs, and potential liabilities, including environmental liabilities. In connection with these assessments, HighPeak Energy performs a review of the subject properties that it believes to be generally consistent with industry practices. Such assessments are inexact and inherently uncertain. For these reasons, the properties HighPeak Energy acquired at the Closing, or may acquire in the future, may not produce as expected. In connection with the assessments, HighPeak Energy performs a review of the subject properties, but such a review may not reveal all existing or potential problems. In the course of due diligence, HighPeak Energy may not review every well, pipeline or associated facility. HighPeak Energy cannot necessarily observe structural and environmental problems, such as groundwater contamination, when a review is performed. HighPeak Energy may be unable to obtain contractual indemnities from the seller for liabilities created prior to HighPeak Energy’s purchase of the property. HighPeak Energy may be required to assume the risk of the physical condition of the properties in addition to the risk that the properties may not perform in accordance with its expectations. Additionally, the success of future acquisitions will depend on HighPeak Energy’s ability to integrate effectively the then-acquired business into its then-existing operations. The process of integrating acquired assets may involve unforeseen difficulties and may require a disproportionate amount of managerial and financial resources. HighPeak Energy’s failure to achieve consolidation savings, to incorporate the additionally acquired assets into its then-existing operations successfully, or to minimize any unforeseen operational difficulties, or the failure to acquire future assets at all, could have a material adverse effect on its financial condition and results of operations.

 

 

HighPeak Energy is not the operator on all of its acreage or drilling locations, and, therefore, HighPeak Energy is not able to control the timing of exploration or development efforts, associated costs or the rate of production of any non-operated assets, and could be liable for certain financial obligations of the operators or any of its contractors, to the extent such operator or contractor is unable to satisfy such obligations.

 

HighPeak Energy is not the operator on all of its acreage or drilling locations, and there is no assurance that it will operate all of HighPeak Energy’s other future drilling locations. As a result, HighPeak Energy will have limited ability to exercise influence over the operations of the drilling locations operated by its partners, and there is the risk that HighPeak Energy’s partners may at any time have economic, business or legal interests or goals that are inconsistent with ours. Furthermore, the success and timing of development activities operated by its partners will depend on a number of factors that will be largely outside of HighPeak Energy’s control, including:

 

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the timing and amount of capital expenditures;

 

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the operator’s expertise and financial resources;

 

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the approval of other participants in drilling wells;

 

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the selection of technology; and

 

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the rate of production of reserves, if any.

 

This limited ability to exercise control over the operations and associated costs of some of HighPeak Energy’s drilling locations could prevent the realization of targeted returns on capital in drilling or acquisition activities. Further, HighPeak Energy may be liable for certain financial obligations of the operator of a well in which it owns a working interest to the extent such operator becomes insolvent and cannot satisfy such obligations. Similarly, HighPeak Energy may be liable for certain obligations of contractors to the extent such contractor becomes insolvent and cannot satisfy their obligations. The satisfaction of such obligations could have a material adverse effect on HighPeak Energy’s financial condition. For more information about certain of the Company’s assets, see the sections entitled “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

 

Certain of the undeveloped leasehold acreage of the Company’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, 2020, approximately 24% 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 renewed. From 2021 through 2024, approximately 79%, 6%, 0% and 14%, respectively, of the 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. Although HighPeak Energy intends to hold substantially all these leases through its development drilling program or extend substantially all the net acreage associated with identified drilling locations through a combination of exploratory and development drilling, a portion of such leases may be extended or renewed. Additionally, any payments related to such extensions or renewals may be more than anticipated. Please see “Business—Development of Proved Undeveloped Reserves—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 oil, natural gas and NGL 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 and distribution systems, regulatory approvals and other factors.

 

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

 

Adverse weather conditions may cause, among other things, increases in the costs of, and delays in, drilling or completing new wells, power failures, temporary shut-in of production and difficulties in the transportation of oil, natural gas and NGL. Any decreases in production due to poor weather conditions will have an adverse effect on revenues, which will in turn negatively affect cash flow from operations.

 

HighPeak Energy’s operations will be substantially dependent on the availability of water. Restrictions on its ability to obtain water may have an adverse effect on its financial condition, results of operations and cash flows.

 

Water is an essential component of oil and natural gas production during both the drilling and hydraulic fracturing processes. Drought conditions have persisted in the areas where the Company’s assets are located in past years. Such drought conditions can lead governmental authorities to restrict the use of water, subject to their jurisdiction, for hydraulic fracturing to protect local water supplies. Although HighPeak Energy may enter into a long-term contract for the supply of water, it currently procures local water for drilling on a well-to-well basis. If HighPeak Energy is unable to obtain water to use in operations, it may need to be obtained from non-local sources and transported to drilling sites, resulting in increased costs, or HighPeak Energy may be unable to economically produce oil and natural gas, which could have a material and adverse effect on its financial condition, results of operations and cash flows.

 

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

 

All of HighPeak Energy’s producing properties are geographically concentrated in the north eastern Midland Basin. As a result, HighPeak Energy may be disproportionately exposed to various factors, including, among others: (i) the impact of regional supply and demand factors, (ii) delays or interruptions of production from wells in such areas caused by governmental regulation, (iii) processing or transportation capacity constraints, (iv) market limitations, (v) availability of equipment and personnel, (vi) water shortages or other drought related conditions or (vii) interruption of the processing or transportation of oil, natural gas or NGL. The concentration of the Company’s assets in a limited geographic area also increases its exposure to changes in local laws and regulations, certain lease stipulations designed to protect wildlife and unexpected events that may occur in the regions such as natural disasters, seismic events, industrial accidents or labor difficulties. Any one of these factors has the potential to cause producing wells to be shut-in, delay operations, decrease cash flows, increase operating and capital costs and prevent development of lease inventory before expirations. Any of the risks described above could have a material adverse effect on HighPeak Energy’s business, financial condition, results of operations and cash flow.

 

 

HighPeak Energy may incur losses as a result of title defects in the properties in which it invests.

 

The existence of a material title deficiency can render a lease worthless and adversely affect HighPeak Energy’s results of operations and financial condition. While HighPeak Energy typically obtains title opinions prior to commencing drilling operations on a lease or in a unit, the failure of title may not be discovered until after a well is drilled, in which case HighPeak Energy may lose the lease and the right to produce all or a portion of the minerals under the property. Additionally, if an examination of the title history of a property reveals that an oil or natural gas lease or other developed right has been purchased in error from a person who is not the owner of the mineral interest desired, HighPeak Energy’s interest would substantially decline in value. In such cases, the amount paid for such oil or natural gas lease or leases would be lost.

 

The development of estimated PUDs may take longer and may require higher levels of capital expenditures than anticipated. Therefore, estimated PUDs may not be ultimately developed or produced.

 

As of December 31, 2020, the Company’s assets contained 12,233 MBoe of proved undeveloped reserves, or PUDs, consisting of 10,302 MBbls of oil, 4,367 MMcf of natural gas and 1,203 MBbls of NGL. Development of these proved undeveloped reserves may take longer and require higher levels of capital expenditures than anticipated. Estimated future development costs relating to the development of such PUDs at December 31, 2020 are approximately $112.6 million over the next three (3) years. HighPeak Energy’s ability to fund these expenditures is subject to a number of risks. See “—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, which could reduce its ability to access or grow production and reserves.” Delays in the development of reserves, increases in costs to drill and develop such reserves or decreases in commodity prices will reduce the value of the estimated PUDs and future net revenues estimated for such reserves and may result in some projects becoming uneconomic. In addition, delays in the development of reserves could cause HighPeak Energy to have to reclassify PUDs as unproved reserves. Furthermore, there is no certainty that HighPeak Energy will be able to convert PUDs to developed reserves or that undeveloped reserves will be economically viable or technically feasible to produce.

 

Further, SEC rules require that, subject to limited exceptions, PUDs may only be booked if they relate to wells scheduled to be drilled within five (5) years after the date of booking. This requirement may limit HighPeak Energy’s ability to book additional PUDs as it pursues its future drilling programs. As a result, HighPeak Energy may be required to write down its PUDs if it does not drill those wells within the required timeframe. If actual reserves prove to be less than current reserve estimates, or if HighPeak Energy is required to write down some of its PUDs, such reductions could have a material adverse effect on HighPeak Energy’s financial condition, results of operations and future cash flows.

 

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.

 

Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Unless HighPeak Energy conducts successful ongoing exploration and development activities or continually acquires properties containing proved reserves, proved reserves will decline as those reserves are produced. HighPeak Energy’s future reserves and production, and therefore future cash flows and results of operations, are highly dependent on HighPeak Energy’s success in efficiently developing current reserves and economically finding or acquiring additional recoverable reserves. HighPeak Energy may not be able to develop, find or acquire sufficient additional reserves to replace future production. If HighPeak Energy is unable to replace such production, the value of its reserves will decrease, and its business, financial condition and results of operations would be materially and adversely affected.

 

 

Conservation measures and technological advances could reduce or slow the demand for oil and natural gas.

 

Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil, natural gas and NGL, technological advances improving fuel economy and developments in energy generation and storage devices could reduce or slow the demand for oil, natural gas and NGL. The impact of the changing demand for oil, natural gas and NGL may have a material adverse effect on its business, financial condition, results of operations and cash flows.

 

HighPeak Energy depends upon a small number of significant purchasers for the sale of most of its oil, natural gas and NGL production. The loss of one or more of such purchasers could, among other factors, limit HighPeak Energy’s access to suitable markets for the oil, natural gas and NGL it produces.

 

HighPeak Energy expects to sell its production to a relatively small number of customers, as is customary in the oil and natural gas business. For the years ended December 31, 2020 and 2019, there were two (2) purchasers who accounted for approximately 97% and 88%, respectively, of the total revenue attributable to the Company’s assets. No other purchaser accounted for 10% or more of such revenues during such period. The loss of any such greater than 10% purchaser could adversely affect HighPeak Energy’s revenues in the short term. See the section entitled “Business—Operations—Marketing and Customers” for additional information. HighPeak Energy expects to depend upon these or other significant purchasers for the sale of most of its oil and natural gas production. HighPeak Energy cannot ensure that it will continue to have ready access to suitable markets for its future oil and natural gas production.

 

HighPeak Energy’s operations may be exposed to significant delays, costs and liabilities as a result of environmental and occupational health and safety requirements applicable to its business activities.

 

HighPeak Energy’s operations will be subject to stringent and complex federal, state and local laws and regulations governing the discharge of materials into the environment, the occupational health and safety aspects of its operations or otherwise relating to the protection of the environment and natural resources. These laws and regulations may impose numerous obligations applicable to HighPeak Energy’s operations, including the acquisition of a permit or other approval before conducting regulated activities; the restriction of types, quantities and concentration of materials that can be released into the environment; the limitation or prohibition of drilling activities on certain lands lying within wilderness, wetlands, seismically active areas and other protected areas; the application of specific health and safety criteria addressing worker protection; and the imposition of substantial liabilities for pollution resulting from HighPeak Energy’s operations. Numerous governmental authorities, such as the U.S. Environmental Protection Agency (“EPA”) and analogous state agencies, have the power to enforce compliance with these laws and regulations and the permits issued under them. Such enforcement actions often involve difficult and costly compliance measures or corrective actions. Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil or criminal penalties, natural resource damages, the imposition of investigatory or remedial obligations, and the issuance of orders limiting or prohibiting some or all of HighPeak Energy’s operations. In addition, HighPeak Energy may experience delays in obtaining, or be unable to obtain, required permits, which may delay or interrupt its operations and limit growth and revenue.

 

Certain environmental laws impose strict liability (i.e., no showing of “fault” is required) as well as joint and several liability for costs required to remediate and restore sites where hazardous substances, hydrocarbons or solid wastes have been stored or released. HighPeak Energy may be required to remediate contaminated properties owned or operated by it or facilities of third-parties that received waste generated by operations regardless of whether such contamination resulted from the conduct of others or from consequences of its own actions that were in compliance with all applicable laws at the time those actions were taken. In connection with certain acquisitions, HighPeak Energy could acquire, or be required to provide indemnification against, environmental liabilities that could expose HighPeak Energy to material losses. In certain instances, citizen groups also have the ability to bring legal proceedings against HighPeak Energy if it is not in compliance with environmental laws, or to challenge its ability to receive environmental permits needed to operate. In addition, claims for damages to persons or property, including natural resources, may result from the environmental, health and safety impacts of its operations. HighPeak Energy’s insurance may not cover all environmental risks and costs or may not provide sufficient coverage if an environmental claim is made against us. Moreover, public interest in the protection of the environment has increased dramatically in recent years. The trend of more expansive and stringent environmental legislation and regulations applied to the crude oil and natural gas industry could continue, resulting in increased costs of doing business and consequently affecting profitability.

 

 

For example, HighPeak Energy may incur significant costs and liabilities as a result of environmental requirements applicable to the operation of its wells, gathering systems and other facilities. These costs and liabilities could arise under a wide range of federal, state and local environmental laws and regulations, including the following federal laws and their state counterparts, as amended from time to time, among others:

 

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the Clean Air Act (“CAA”), which restricts the emission of air pollutants from many sources, imposes various pre-construction, monitoring and reporting requirements and is relied upon by the EPA as authority for adopting climate change regulatory initiatives relating to GHG emissions;

 

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the Water Pollution Control Act, also known as the Clean Water Act (“CWA”), which regulates discharges of pollutants from facilities and sources to federal waters and establishes the extent to which waterways are subject to federal jurisdiction and rulemaking as protected waters of the United States;

 

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the Oil Pollution Act (“OPA”), which imposes liabilities for removal costs and damages arising from an oil spill into waters of the United States;

 

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the Safe Drinking Water Act (“SDWA”), which ensures the quality of the nations’ public drinking water through adoption of drinking water standards and control over the subsurface injection of fluids into belowground formations;

 

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the Resource Conservation and Recovery Act (“RCRA”), which imposes requirements for the generation, treatment, storage, transport, disposal and cleanup of non-hazardous, hazardous and solid wastes;

 

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the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), which imposes liability on generators, transporters and those who arrange for transportation or disposal of hazardous substances at sites where hazardous substance releases have occurred or are threatening to occur, as well as imposes liability on present and certain past owners and operations of sites where hazardous substance releases have occurred or are threatening to occur;

 

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the Endangered Species Act (“ESA”), which restricts activities that may affect federally identified endangered and threatened species or their habitats through the implementation of operating limitations or restrictions or a temporary, seasonal or permanent ban on operations in affected areas; and

 

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The Occupational Safety and Health Act (“OSHA”), under which federal Occupational Safety and Health Administration and similar state agencies have promulgated regulations limiting exposures to hazardous substances in the workplace and imposing various worker safety requirements.

 

Failure to comply with these laws and regulations may result in the assessment of sanctions, including administrative, civil and criminal penalties, the imposition of investigatory, remedial and corrective actions, the incurrence of capital expenditures, the occurrence of delays in the permitting, development or expansion of projects and the issuance of orders enjoining some or all of HighPeak Energy’s future operations in a particular area. It is not uncommon for neighboring landowners, employees and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances, wastes or other materials into the environment. The trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment and more stringent laws and regulations may be adopted in the future.

 

To the extent HighPeak Energy’s operations are affected by national, regional, local and other laws, and to the extent such laws are enacted or other governmental action is taken that restricts drilling or imposes more stringent and costly operating, waste handling, disposal and cleanup requirements, HighPeak Energy’s business, prospects, financial condition or results of operations could be materially adversely affected.

 

 

HighPeak Energy may incur substantial losses and be subject to substantial liability claims as a result of operations. Additionally, HighPeak Energy may not be insured for, or insurance may be inadequate to protect HighPeak Energy against, these risks.

 

HighPeak Energy will not be insured against all risks. Losses and liabilities arising from uninsured and underinsured events could materially and adversely affect its business, financial condition or results of operations.

 

HighPeak Energy’s development activities will be subject to all of the operating risks associated with drilling for and producing oil and natural gas, including the possibility of:

 

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environmental hazards, such as uncontrollable releases of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater, air and shoreline contamination, damage to natural resources or wildlife, or the presence of endangered or threatened species;

 

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abnormally pressured formations;

 

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mechanical difficulties, such as stuck oilfield drilling and service tools and casing collapse;

 

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fires, explosions and ruptures of pipelines;

 

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personal injuries and death;

 

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natural disasters; and

 

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terrorist attacks targeting oil and natural gas related facilities and infrastructure.

 

Any of these events could adversely affect HighPeak Energy’s ability to conduct operations or result in substantial loss as a result of claims for:

 

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injury or loss of life;

 

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damage to and destruction of property, natural resources and equipment;

 

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pollution and other environmental or natural resource damage;

 

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regulatory investigations and penalties; and

 

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repair and remediation costs.

 

HighPeak Energy may elect not to obtain insurance for any or all of these risks if it believes that the cost of available insurance is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event that is not fully covered by insurance could have a material adverse effect on business, financial condition and results of operations.

 

 

Properties that HighPeak Energy decides to drill may not yield oil or natural gas in commercially viable quantities.

 

Properties that HighPeak Energy decides to drill that do not yield oil or natural gas in commercially viable quantities will adversely affect its results of operations and financial condition. There is no way to predict in advance of drilling and testing whether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically viable. The use of micro-seismic data and other technologies and the study of producing fields in the same area will not enable HighPeak Energy to know conclusively prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in commercial quantities. HighPeak Energy cannot assure you that the analogies drawn from available data from other wells, more fully explored prospects or producing fields will be applicable to its drilling prospects. Further, HighPeak Energy’s drilling operations may be curtailed, delayed or cancelled as a result of numerous factors, including:

 

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unexpected drilling conditions;

 

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title issues;

 

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pressure or lost circulation in formations;

 

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equipment failures or accidents;

 

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adverse weather conditions;

 

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compliance with environmental and other governmental or contractual requirements; and

 

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increases in the cost of, and shortages or delays in the availability of, electricity, supplies, materials, drilling or workover rigs, equipment and services.

 

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.

 

There is no guarantee HighPeak Energy will be able to identify attractive acquisition opportunities that complement the Company’s assets or expand its business. In the event it identifies attractive acquisition opportunities, HighPeak Energy may not be able to complete the acquisition or do so on commercially acceptable terms. Competition for acquisitions may also increase the cost of, or cause HighPeak Energy to refrain from, completing acquisitions.

 

The success of completed acquisitions will depend on HighPeak Energy’s ability to integrate effectively the acquired business into its then-existing operations. The process of integrating acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of its managerial and financial resources. In addition, possible future acquisitions may be larger and for purchase prices significantly higher than those paid for earlier acquisitions. No assurance can be given that it will be able to identify additional suitable acquisition opportunities, negotiate acceptable terms, obtain financing for acquisitions on acceptable terms or successfully acquire identified targets. HighPeak Energy’s failure to achieve consolidation savings, to integrate the acquired businesses and assets into its then-existing operations successfully or to minimize any unforeseen operational difficulties could have a material adverse effect on its financial condition and results of operations.

 

In addition, the agreements that will govern HighPeak Energy’s indebtedness will impose certain limitations on its ability to enter into mergers or combination transactions and to incur certain indebtedness, which could indirectly limit its ability to acquire assets and businesses.

 

Certain of HighPeak Energy’s properties are subject to land use restrictions, which could limit the manner in which HighPeak Energy conducts business.

 

Certain of HighPeak Energy’s properties are subject to land use restrictions, which could limit the manner in which HighPeak Energy conducts business. Such restrictions could affect, among other things, access to and the permissible uses of facilities as well as the manner in which HighPeak Energy produces oil and natural gas and may restrict or prohibit drilling in general. The costs incurred to comply with such restrictions may be significant, and HighPeak Energy may experience delays or curtailment in the pursuit of development activities and perhaps even be precluded from the drilling of wells.

 

 

The unavailability or high cost of drilling rigs, equipment, supplies, personnel, frac crews and oilfield services could adversely affect HighPeak Energy’s ability to execute its development plans within its budget and on a timely basis.

 

The demand for drilling rigs, pipe and other equipment and supplies, as well as for qualified and experienced field personnel to drill wells and conduct field operations, geologists, geophysicists, engineers and other professionals in the oil and natural gas industry, can fluctuate significantly, often in correlation with oil, natural gas and NGL prices, causing periodic shortages of equipment, supplies and needed personnel. HighPeak Energy’s operations will be concentrated in areas in which oilfield activity levels have previously increased rapidly. If that were to happen again in the future, demand for drilling rigs, equipment, supplies and personnel may increase the costs for these services. Access to transportation, processing and refining facilities in these areas may become constrained resulting in higher costs and reduced access for those items. Historically, oil, natural gas and NGL prices have been volatile. For example, during the period from January 1, 2018 through December 31, 2020, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $70.76, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $4.72. For the month of April 2020, the calendar month average NYMEX WTI crude oil price was $16.70 and last trading day NYMEX natural gas price was $1.63 per MMBtu. However, prices have since increased. To the extent commodity prices improve in the future, the demand for and prices of these goods and services are likely to increase and HighPeak Energy could encounter delays in or an inability to secure the personnel, equipment, power, services, resources and facilities access necessary for it to resume or increase HighPeak Energy’s development activities, which could result in production volumes being below its forecasted volumes. In addition, any such negative effect on production volumes, or significant increases in costs, could have a material adverse effect on cash flow and profitability. Furthermore, if it is unable to secure a sufficient number of drilling rigs at reasonable costs, HighPeak Energy may not be able to drill all of its acreage before its leases expire.

 

HighPeak Energy could experience periods of higher costs if commodity prices rise. These increases could reduce profitability, cash flow and ability to complete development activities as planned.

 

Historically, capital and operating costs have risen during periods of increasing oil, natural gas and NGL prices. These cost increases have resulted from a variety of factors that HighPeak Energy will be unable to control, such as increases in the cost of electricity, steel and other raw materials; increased demand for labor, services and materials as drilling activity increases; and increased taxes. Decreased levels of drilling activity in the oil and natural gas industry in recent periods have led to declining costs of some drilling equipment, materials and supplies. However, 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. 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.

 

HighPeak Energy may be involved in legal proceedings that could result in substantial liabilities.

 

Like many oil and gas companies, HighPeak Energy expects to be involved from time to time in various legal and other proceedings, such as title, royalty or contractual disputes, regulatory compliance matters and personal injury or property damage matters, in the ordinary course of its business. Such proceedings are inherently uncertain, and their results cannot be predicted. Regardless of the outcome, such proceedings could have an adverse impact on HighPeak Energy because of legal costs, diversion of management and other personnel and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in liability, penalties or sanctions, as well as judgments, consent decrees or orders requiring a change in its business practices, which could materially and adversely affect its business, operating results and financial condition. Accruals for such liability, penalties or sanctions may be insufficient, and judgments and estimates to determine accruals or range of losses related to legal and other proceedings could change from one period to the next, and such changes could be material.

 

Should our operators fail to comply with all applicable regulatory agency administered statutes, rules, regulations and orders, our operators could be subject to substantial penalties and fines.

 

Under the Energy Policy Act of 2005, the Federal Energy Regulatory Commission (the “FERC”) has civil penalty authority under the Natural Gas Act of 1938 to impose penalties for current violations of up to $1,269,500 per day for each violation (annually adjusted for inflation) and disgorgement of profits associated with any violation. While our operators’ operations have not been regulated by the FERC as a natural gas company under this law, the FERC has adopted regulations that may subject certain of our operators’ otherwise non-FERC jurisdictional facilities to the FERC annual reporting requirements. Our operators also must comply with the anti-market manipulation rules enforced by the FERC. Additional rules and legislation pertaining to those and other matters may be considered or adopted by FERC from time to time. Additionally, the FTC has regulations intended to prohibit market manipulation in the petroleum industry with authority to fine violators of the regulations civil penalties of up to $1,210,340 per day (annually adjusted for inflation) and the Commodity Futures Trading Commission (the “CFTC”) prohibits market manipulation in the markets regulated by the CFTC, including similar anti-manipulation authority with respect to crude oil swaps and futures contracts as that granted to the CFTC with respect to crude oil purchases and sales. The CFTC rules subject violators to a civil penalty of up to the greater of $1,191,842 per day (annually adjusted for inflation) or triple the monetary gain to the person for each violation. Failure to comply with those regulations in the future could subject our operators to civil penalty liability, as described in “Business—Regulation of the Oil and Natural Gas Industry.”

 

 

The operations of HighPeak Energy are subject to a series of risks arising out of the threat of climate change that could result in increased operating costs, limit the areas in which HighPeak Energy may conduct oil and natural gas exploration and production activities and reduce demand for the oil and natural gas HighPeak Energy produces.

 

The threat of climate change continues to attract considerable attention in the United States and in foreign countries. Numerous proposals have been made and could continue to be made at the international, national, regional and state levels of government to monitor and limit existing emissions of GHGs as well as to restrict or eliminate such future emissions. As a result, oil and natural gas exploration and production operations are subject to a series of regulatory, political, litigation and financial risks associated with the production and processing of fossil fuels and emission of GHGs.

 

In the United States, no comprehensive climate change legislation has been implemented at the federal level. However, with the U.S. Supreme Court finding that GHG emissions constitute a pollutant under the CAA, the EPA has adopted rules that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources in the United States, and together with the Department of Transportation (“DOT”), implement GHG emissions limits on vehicles manufactured for operation in the United States. The regulation of methane from oil and gas facilities has been subject to uncertainty in recent years. In September 2020, the Trump Administration revised prior regulated regulations to rescind certain methane standards and remove the transmission and storage segments from the source category for certain regulations. However, on January 20, 2021, President Biden signed an executive order calling for the suspension, revision or rescission of the September 2020 rule and the reinstatement or issuance of methane emissions standards for new, modified and existing oil and gas facilities. Additionally, various states and groups of states have adopted or are considering adopting legislation, regulations or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs, and restriction of emissions. At the international level, the United Nations-sponsored “Paris Agreement” requires member states to submit non-binding, individually-determined reduction goals every five years after 2020. Although the United States had withdrawn from such agreement, President Biden has signed executive orders recommitting the United States to the Paris Agreement and directing the federal government to begin formulating the United States’ nationally determined emissions reduction goal under the agreement. The impacts of this order, and any legislation or regulation promulgated to fulfill the United States’ commitments under the Paris Agreement, cannot be predicted at this time.

 

Governmental, scientific, and public concern over the threat of climate change arising from GHG emissions has resulted in increasing political risks in the United States, including climate change related pledges made by certain candidates in public office. On January 27, 2021, President Biden signed an executive order calling for substantial action on climate change, including, among other things, the increased use of zero-emissions vehicles by the federal government, the elimination of subsidies provided to the fossil fuel industry, and increased emphasis on climate-related risks across agencies and economic sectors. Additional actions that could be pursued by the Biden Administration may include more restrictive requirements for the establishment of pipeline infrastructure or the permitting of LNG export facilities. Litigation risks are also increasing, as a number of cities and other local governments have sought to bring suit against the largest oil and natural gas companies in state or federal court, alleging, among other things, that such companies created public nuisances by producing fuels that contributed to climate change or that such companies have been aware of the adverse effects of climate change for some time but defrauded their investors or customers by failing to adequately disclose those impacts.

 

There are also increasing financial risks for fossil fuel producers as shareholders currently invested in fossil-fuel energy companies concerned about the potential effects of climate change may elect in the future to shift some or all of their investments into non-energy related sectors. Institutional lenders who provide financing to fossil-fuel energy companies also have become more attentive to sustainable lending practices and some of them may elect not to provide funding for fossil fuel energy companies. In addition, in response to concerns related to climate change, there have been efforts in recent years to influence the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds, promoting divestment of fossil fuel equities and pressuring leaders to limit funding to companies engaged in the extraction of fossil fuels. For example, officials in New York state and New York City have announced their intent to divest the state and city pension funds’ holding in fossil fuel companies, and the World Bank has announced that it will no longer finance upstream oil and gas after 2019, except in “exceptional circumstances.” There is also a risk that financial institutions will be required to adopt policies that have the effect of reducing the funding provided to the fossil fuel sector. Recently, the Federal Reserve announced it has joined the Network for Greening the Financial System, a consortium of financial regulators focused on addressing climate-related risks in the financial sector. Limitation of investments in and financing for fossil fuel energy companies could result in the restriction, delay or cancellation of drilling programs or development or production activities.

 

 

The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions from oil and natural gas producers such as HighPeak Energy or otherwise restrict the areas in which we may produce oil and natural gas or generate GHG emissions could result in increased costs of compliance or costs of consuming, and thereby reduce demand for or erode value for, the oil and natural gas that HighPeak Energy produces. Additionally, political, litigation and financial risks may result in HighPeak Energy’s restricting or cancelling oil and natural gas production activities, incurring liability for infrastructure damages as a result of climatic changes, or having an impaired ability to continue to operate in an economic manner. One or more of these developments could have a material adverse effect on HighPeak Energy’s business, financial condition and results of operation.

 

Finally, many scientists have concluded that increasing concentrations of GHG in the atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climate events that could have an adverse effect on HighPeak Energy’s operations.

 

The results of the 2020 U.S. presidential and congressional elections may create regulatory uncertainty for the oil and natural gas industry. Changes in environmental laws could increase our operating costs and adversely impact our business, financial condition and cash flows.

 

The results of the 2020 U.S. presidential election, as well as a closely divided Congress, may create regulatory uncertainty in the oil and natural gas industry. During his first weeks in office, President Biden has issued several executive orders promoting various programs and initiatives designed to, among other things, curtail climate change, control the release of methane from new and existing oil and natural gas operations, and pause new oil and natural gas leasing on public lands. It remains unclear what additional actions President Biden will take and what support he will have for any potential legislative changes from Congress. Further, it is uncertain to what extent any new environmental laws or regulations, or any repeal of existing environmental laws or regulations, may affect our business or operations. However, such actions could significantly increase our operating costs or impair our ability to explore and develop other projects, which could adversely impact our business, financial condition and cash flows.

 

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

 

Hydraulic fracturing is an important and common practice that is used to stimulate production of oil and natural gas from dense subsurface rock formations. The hydraulic fracturing process involves the injection of water, proppants and chemicals under pressure into targeted subsurface formations to fracture the surrounding rock and stimulate production. HighPeak Energy expects to regularly use hydraulic fracturing as part of HighPeak Energy’s operations. Hydraulic fracturing is typically regulated by state oil and natural gas commissions, but certain federal agencies have asserted regulatory authority over certain aspects of the process. For example, the EPA has asserted federal regulatory authority pursuant to the SDWA over certain hydraulic fracturing activities involving the use of diesel fuels and published permitting guidance in February 2014 addressing the performance of such activities using diesel fuels. The EPA has also issued final regulations under the CAA establishing performance standards, including standards for the capture of air emissions released during hydraulic fracturing, and also finalized rules in June 2016 that prohibit the discharge of wastewater from hydraulic fracturing operations to publicly owned wastewater treatment plants. Congress has, from time to time, considered legislation to provide for federal regulation of hydraulic fracturing under the SDWA and to require disclosure of the chemicals used in the hydraulic fracturing process. It is unclear how any additional federal regulation of hydraulic fracturing activities may affect HighPeak Energy’s operations, but such additional federal regulation could have an adverse effect on its business, financial condition and results of operations.

 

In December 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources. The EPA report concluded that “water cycle” activities associated with hydraulic fracturing may impact drinking water under certain circumstances.

 

At the state level, several states have adopted or are considering legal requirements that could impose more stringent permitting, disclosure and well construction requirements on hydraulic fracturing activities. For example, the Texas Railroad Commission has issued testing, reporting and technical requirements for well integrity.

 

Local governments also may seek to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular. If new or more stringent federal, state or local legal restrictions relating to the hydraulic fracturing process are adopted in areas where HighPeak Energy will operate, it could incur potentially significant added costs to comply with such requirements, experience delays or curtailment in the pursuit of development activities, and perhaps even be precluded from drilling wells.

 

 

Legislation or regulatory initiatives intended to address seismic activity could restrict HighPeak Energy’s drilling and production activities, as well as HighPeak Energy’s ability to dispose of produced water gathered from such activities, which could have a material adverse effect on its future business.

 

State and federal regulatory agencies have at times focused on a possible connection between the hydraulic fracturing related activities, particularly the underground injection of wastewater into disposal wells, and the increased occurrence of seismic activity, and regulatory agencies at all levels are continuing to study the possible linkage between oil and gas activity and induced seismicity. For example, in 2015, the United States Geological Study identified eight states, including Texas, with areas of increased rates of induced seismicity that could be attributed to fluid injection or oil and gas extraction.

 

In addition, a number of lawsuits have been filed in other states, most recently in Oklahoma, alleging that disposal well operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal. In response to these concerns, regulators in some states are seeking to impose additional requirements, including requirements in the permitting of produced water disposal wells or otherwise to assess the relationship between seismicity and the use of such wells. For example, Texas has imposed certain limits on the permitting or operations of disposal wells in areas with increased instances of inducted seismic events.

 

HighPeak Energy will likely dispose of large volumes of produced water gathered from its drilling and production operations by injecting it into wells pursuant to permits issued by governmental authorities overseeing such disposal activities. While these permits will be issued pursuant to existing laws and regulations, these legal requirements are subject to change, which could result in the imposition of more stringent operating constraints or new monitoring and reporting requirements, owing to, among other things, concerns of the public or governmental authorities regarding such gathering or disposal activities. The adoption and implementation of any new laws or regulations that restrict HighPeak Energy’s ability to use hydraulic fracturing or dispose of produced water gathered from its drilling and production activities by limiting volumes, disposal rates, disposal well locations or otherwise, or requiring HighPeak Energy to shut down disposal wells, could have a material adverse effect on its business, financial condition and results of operations.

 

Competition in the oil and natural gas industry is intense, which will make it more difficult for HighPeak Energy to acquire properties, market oil or natural gas and secure trained personnel.

 

HighPeak Energy’s ability to acquire additional prospects and to find and develop reserves in the future will depend on its ability to evaluate and select suitable properties for acquisitions and to consummate transactions in a highly competitive environment for acquiring properties, marketing oil and natural gas and securing trained personnel. Also, there is substantial competition for capital available for investment in the oil and natural gas industry. Many other oil and natural gas companies possess and employ greater financial, technical and personnel resources than HighPeak Energy. Those companies may be able to pay more for productive properties and exploratory prospects and to evaluate, bid for and purchase a greater number of properties and prospects than HighPeak Energy’s financial or personnel resources permit. In addition, other companies may be able to offer better compensation packages to attract and retain qualified personnel than HighPeak Energy will be able to offer. The cost to attract and retain qualified personnel has historically continually increased due to competition and may increase substantially in the future. HighPeak Energy may not be able to compete successfully in the future in acquiring prospective reserves, developing reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital, which could have a material adverse effect on its business.

 

 

The loss of senior management or technical personnel could adversely affect operations.

 

HighPeak Energy will depend on the services of its senior management and technical personnel. HighPeak Energy does not plan to obtain any insurance against the loss of any of these individuals. The loss of the services of its senior management could have a material adverse effect on its business, financial condition and results of operations.

 

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

 

HighPeak Energy will require continued access to capital and its business and operating results could be harmed by factors such as the availability, terms of and cost of capital, increases in interest rates or a reduction in credit rating. HighPeak Energy expects to use debt financing, which may include borrowings under the Revolving Credit Facility, to finance a portion of its future growth, and these changes could cause its cost of doing business to increase, limit its ability to pursue acquisition opportunities, reduce cash flow used for drilling and place HighPeak Energy at a competitive disadvantage. Recent and continuing disruptions and volatility in the global financial markets may lead to a contraction in credit availability impacting its ability to finance its operations. A significant reduction in cash flows from operations or the availability of credit could materially and adversely affect its ability to achieve its planned growth and operating results.

 

HighPeak Energy’s use of seismic data is subject to interpretation and may not accurately identify the presence of oil and natural gas, which could adversely affect the results of its drilling operations.

 

Even when properly used and interpreted, seismic data and visualization techniques are only tools used to assist geoscientists in identifying subsurface structures and hydrocarbon indicators and do not enable the interpreter to know whether hydrocarbons are, in fact, present in those structures. As a result, HighPeak Energy’s drilling activities may not be successful or economical. In addition, the use of advanced technologies, such as 3-D seismic data, requires greater pre-drilling expenditures than traditional drilling strategies, and it could incur losses as a result of such expenditures.

 

Restrictions on drilling activities intended to protect certain species of wildlife may adversely affect HighPeak Energy’s ability to conduct drilling activities in areas where it operates.

 

Oil and natural gas operations in HighPeak Energy’s operating areas may be adversely affected by seasonal or permanent restrictions on drilling activities designed to protect various wildlife. Such restrictions may limit HighPeak Energy’s ability to operate in protected areas and can intensify competition for drilling rigs, oilfield equipment, services, supplies and qualified personnel, which may lead to periodic shortages when drilling is allowed. These constraints and the resulting shortages or high costs could delay HighPeak Energy’s operations or materially increase its operating and capital costs. Permanent restrictions imposed to protect threatened or endangered species, or their habitat could prohibit drilling in certain areas or require the implementation of expensive mitigation measures. The designation of previously unprotected species in areas where HighPeak Energy operates as threatened or endangered could cause it to incur increased costs arising from species protection measures or could result in limitations on its activities that could have a material and adverse impact on its ability to develop and produce reserves. For example, recently, there have been renewed calls to review protections currently in place for the Dunes Sagebrush Lizard, whose habitat includes portions of the Permian Basin, and to reconsider listing the species under the ESA. If this species or others are listed, the U.S. Fish and Wildlife Service (“FWS”) and similar state agencies may designate critical or suitable habitat areas that they believe are necessary for the survival of threatened or endangered species. Such a designation could materially restrict use of or access to federal, state and private lands. To the extent species are listed under the ESA or similar state laws, or previously unprotected species are designated as threatened or endangered in areas where our properties are located, operations on those properties could incur increased costs arising from species protection measures and face delays or limitations with respect to production activities thereon.

 

HighPeak Energy may not be able to keep pace with technological developments in its industry.

 

The oil and natural gas industry is characterized by rapid and significant technological advancement and the introduction of new products and services using new technologies. As others use or develop new technologies, HighPeak Energy may be placed at a competitive disadvantage or may be forced by competitive pressures to implement those new technologies at substantial costs. In addition, other oil and natural gas companies may have greater financial, technical and personnel resources that allow them to enjoy technological advantages and that may in the future allow them to implement new technologies before HighPeak Energy can. HighPeak Energy may not be able to respond to these competitive pressures or implement new technologies on a timely basis or at an acceptable cost. If one or more of the technologies it expects to use were to become obsolete, HighPeak Energy’s business, financial condition or results of operations could be materially and adversely affected.

 

 

There are inherent limitations in all control systems, and misstatements due to error or fraud that could seriously harm HighPeak Energy’s business may occur and not be detected.

 

HighPeak Energy’s management does not expect that HighPeak Energy’s internal and disclosure controls will prevent all possible error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, an evaluation of controls can only provide reasonable assurance that all material control issues and instances of fraud, if any, in HighPeak Energy have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Further, controls can be circumvented by the individual acts of some persons or by collusion of two or more persons. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Our operations depend heavily on electrical power, internet and telecommunication infrastructure and information and computer systems. If any of these systems are compromised or unavailable, our business could be adversely affected.

 

We are heavily dependent on electrical power, internet and telecommunications infrastructure and our information systems and computer-based programs, including our well operations information, seismic data, electronic data processing and accounting data. If any of such infrastructure, systems or programs were to fail or become unavailable or compromised, or create erroneous information in our hardware or software network infrastructure, our ability to safely and effectively operate our business will be limited and any such consequence could have a material adverse effect on our business.

 

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

 

HighPeak Energy relies heavily on its information systems, and the availability and integrity of these systems is essential to conducting HighPeak Energy’s business and operations. As a producer of natural gas and oil, HighPeak Energy faces various security threats, including cyber-security threats, to gain unauthorized access to its sensitive information or to render its information or systems unusable, and threats to the security of its facilities and infrastructure or third-party facilities and infrastructure, such as gathering and processing and other facilities, refineries and pipelines. This risk may be heightened as a result of the remote working environment created by the COVID-19 outbreak. The potential for such security threats subjects its operations to increased risks that could have a material adverse effect on its business, financial condition, results of operations and cash flows.

 

HighPeak Energy’s implementation of various procedures and controls to monitor and mitigate such security threats and to increase security for its information, systems, facilities and infrastructure may result in increased costs. Moreover, there can be no assurance that such procedures and controls will be sufficient to prevent security breaches from occurring. If any of these security breaches were to occur, they could lead to losses of, or damage to, sensitive information or facilities, infrastructure and systems essential to its business and operations, as well as data corruption, communication interruptions or other disruptions to its operations, which, in turn, could have a material adverse effect on its business, financial position, results of operations and cash flows.

 

Risks Related to Ownership of our Securities

 

The HighPeak Group, including the Principal Stockholder Group, has significant influence over HighPeak Energy.

 

Prior to taking into account any adjustment relating to any shares that may be issued (or forfeited) pursuant to the Contingent Value Rights (and the surrender for cancellation by the Sponsor of an equivalent number of shares), the HighPeak Group owns approximately 88% of HighPeak Energy’s common stock. The Principal Stockholder Group have agreed not to sell such shares before the six (6) month anniversary of the Closing under the Stockholders’ Agreement and HighPeak I, HighPeak II and Sponsor have placed into escrow at Closing 21,694,763 shares of HighPeak Energy common stock in connection the issuance of the Contingent Value Rights. As long as the Principal Stockholder Group owns or controls a significant percentage of HighPeak Energy’s outstanding voting power, subject to the terms of the Stockholders’ Agreement, they will have the ability to influence certain corporate actions requiring stockholder approval. Under the Stockholders’ Agreement, the Principal Stockholder Group will be entitled to nominate a specified number of directors for appointment to the Board so long as the Principal Stockholder Group meets certain ownership criteria outlined in the Stockholders’ Agreement. For more information about the Stockholders’ Agreement, see the section entitled “Certain Relationships and Related Party Transactions—Stockholders’ Agreement.” The full text of the Stockholders’ Agreement is filed as an exhibit to the registration statement of which this prospectus forms a part.

 

 

HighPeak Energy’s only significant asset is its ownership of 100% of the operating companies acquired in the business combination and cash on hand after the Closing of the HighPeak business combination, and such ownership may not be sufficient to pay dividends on its common stock or satisfy its other financial obligations.

 

HighPeak Energy has no direct operations and no significant assets other than the direct or indirect ownership of 100% of the Company’s assets it acquired in the HighPeak business combination and cash. The earnings from the Company’s assets may not be sufficient to pay dividends on HighPeak Energy’s common stock, pay taxes or satisfy other financial obligations.

 

If HighPeak Energy’s operational and financial performance does not meet the expectations of investors, stockholders or financial analysts, the market price of our securities may decline.

 

If HighPeak Energy’s operational and financial performance does not meet the expectations of investors or securities analysts, the market price of our securities may decline. The market values of our securities may vary significantly from time to time.

 

In addition, fluctuations in the price of our securities could contribute to the loss of all or part of your investment. The trading price of our securities could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our securities and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.

 

Factors affecting the trading price of our securities may include:

 

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actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

 

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the market volatility resulting from sustained uncertainty surrounding the COVID-19 outbreak;

 

 

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changes in the market’s expectations about our operating results;

 

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success of our competitors;

 

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our operating results failing to meet the expectation of securities analysts or investors in a particular period;

 

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changes in financial estimates and recommendations by securities analysts concerning us or the market in general;

 

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operating and stock price performance of other companies that investors deem comparable to us;

 

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changes in laws and regulations affecting our business;

 

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commencement of, or involvement in, litigation involving us;

 

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changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

 

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the volume of shares of HighPeak Energy common stock available for public sale;

 

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any major change in our Board or management;

 

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sales of substantial amounts of HighPeak Energy common stock by the HighPeak Group, our directors, executive officers or significant stockholders, or the perception that such sales could occur; and

 

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general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations, OPEC+’s ability to continue to agree to limit production among its members and acts of war or terrorism.

 

Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general and the Nasdaq have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for energy stocks or the stocks of other companies which investors perceive to be similar to us could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.

 

Because HighPeak Energy has a limited operating history, it may be difficult to evaluate its ability to successfully implement its business strategy.

 

Because of HighPeak Energy’s limited operating history, the operating performance of its future assets and business strategy are not yet proven. As a result, it may be difficult to evaluate HighPeak Energy’s business and results of operations to date and to assess its future prospects.

 

In addition, HighPeak Energy may encounter risks and difficulties experienced by companies whose performance is dependent upon newly acquired assets, such as failing to operate the Company’s assets as expected, higher than expected operating costs, equipment breakdown or failures and operational errors. As a result of the foregoing, HighPeak Energy may be less successful in achieving a consistent operating level capable of generating cash flows from operations as compared to a company that has had a longer operating history. In addition, HighPeak Energy may be less equipped to identify and address operating risks and hazards in the conduct of its business than those companies that have had longer operating histories.

 

 

The unaudited pro forma condensed combined consolidated financial information included in this prospectus may not be indicative of what our actual financial position or results of operations would have been.

 

The unaudited pro forma condensed combined consolidated financial information included in this prospectus is presented for illustrative purposes only and is not necessarily indicative of what our actual financial position or results of operations would have been had the business combination been completed on the date or dates indicated. See “Unaudited Pro Forma Condensed Combined Consolidated Financial Information.”

 

HighPeak Energy is a “controlled company” within the meaning of Nasdaq Rules and, as a result, 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 subject to such requirements.

 

The HighPeak Group collectively own a majority of HighPeak Energy’s outstanding voting stock. Therefore, HighPeak Energy is a controlled company within the meaning of Nasdaq corporate governance standards. Under Nasdaq rules, a company of which more than 50% of the voting power is held by an individual, company or group of persons acting together is a controlled company and may elect not to comply with certain Nasdaq corporate governance requirements, including the requirements that:

 

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a majority of the board of directors consist of independent directors under Nasdaq rules;

 

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the nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

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the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

 

These requirements will not apply to HighPeak Energy as long as it remains a controlled company.

 

HighPeak Energy may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on HighPeak Energy’s financial condition, results of operations and stock price, which could cause you to lose some or all of your investment.

 

Although HighPeak Energy conducted due diligence on the Company’s assets in connection with the HighPeak  business combination, HighPeak Energy cannot assure you that this diligence revealed all material issues that may be present in the businesses of the Company’s assets, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of HighPeak Energy’s control will not later arise. As a result, HighPeak Energy may be forced to later write-down or write-off assets, restructure HighPeak Energy’s operations, or incur impairment or other charges that could result in losses. Even if HighPeak Energy’s due diligence successfully identifies certain risks, unexpected risks may arise, and previously known risks may materialize in a manner not consistent with HighPeak Energy’s preliminary risk analysis. Even though these charges may be non-cash items and may not have an immediate impact on HighPeak Energy’s liquidity, the fact that HighPeak Energy reports charges of this nature could contribute to negative market perceptions about HighPeak Energy’s securities. In addition, charges of this nature may cause HighPeak Energy to be unable to obtain future financing on favorable terms or at all.

 

There is no guarantee that our warrants will be in the money at the time you choose to exercise them and the CVRs will be in the money at the time they become exercisable, and they may expire worthless.

 

The exercise price for our warrants is $11.50 per share of HighPeak Energy common stock, subject to certain adjustments. There is no guarantee that our warrants will be in the money at the time you choose to exercise them and the CVRs will be in the money following the time they become exercisable and prior to their expiration, and as such, our warrants and CVRs may expire worthless.

 

The terms of our warrants may be amended in a manner that may be adverse to holders of our warrants with the approval by the holders of at least 50% of our then-outstanding warrants.

 

Our warrants were issued in registered form under the Warrant Agreement Amendment. The Warrant Agreement Amendment provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct or supplement any defective provision, but requires the approval by the holders of at least 50% of the then-outstanding warrants to make any other change or modification, including any amendment that adversely affects the interests of the registered holders of our warrants. Accordingly, HighPeak Energy, may amend the terms of its warrants in a manner adverse to a holder if holders of at least 50% of the then-outstanding warrants approve of such amendment. Although HighPeak Energy’s ability to amend the terms of its warrants with the consent of at least 50% of the then-outstanding warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number of shares of HighPeak Energy common stock purchasable upon exercise of a warrant.

 

 

Warrants are exercisable for HighPeak Energy common stock and HighPeak Energy’s LTIP provides for a significant number of stock options, each of which could increase the number of shares eligible for future resale in the public market and result in dilution to stockholders.

 

The potential for the issuance of a substantial number of additional shares of HighPeak Energy common stock upon exercise of its warrants would increase the number of issued and outstanding shares of HighPeak Energy common stock, and reduce the value of the shares issued and outstanding as of the date hereof. Additionally, the sale, or even the possibility of sale, of the shares underlying the warrants could have an adverse effect on the market price for HighPeak Energy’s securities or on its ability to obtain future financing. If and to the extent these warrants are exercised, you may experience dilution to your holdings.

 

In addition, to attract and retain key management personnel and non-employee directors, HighPeak Energy has implemented the LTIP, pursuant to which the Share Pool (as defined in the LTIP) is reserved and available for delivery with respect to Stock Awards (as defined in the LTIP and which may only be granted to non-employee directors) and stock options. In addition, pursuant to the terms of the LTIP, at the beginning of each year, the Share Pool will automatically be increased by (i) the number of shares of common stock issued pursuant to the LTIP during the immediately preceding calendar year and (ii) 13% of the number of shares of common stock that are newly issued by HighPeak Energy (other than those issued pursuant to the LTIP) during the immediately preceding calendar year, including any shares issued upon the exercise of the warrants. As a result, HighPeak Energy could issue significant number of stock options under the LTIP, including additional shares added to the LTIP upon the exercise of the warrants, which could further dilute your holdings.

 

A significant portion of HighPeak Energy’s total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of HighPeak Energy common stock to drop significantly, even if HighPeak Energy’s business is doing well.

 

Sales of a substantial number of shares of common stock in the public market could occur at any time following the date of the registration statement which this prospectus forms a part. Further, in connection with the Forward Purchase Agreement Amendment, HighPeak Energy issued 8,976,875 forward purchase units (which includes 8,976,875 shares of HighPeak Energy common stock), to the Forward Purchase Investors, 5,811,000 shares of which were previously registered for resale on the Combined Registration Statement on Form S-4 and Form S-1, filed with the SEC on August 5, 2020, and 3,165,875 shares are being registered pursuant to this registration statement which this prospectus forms a part. As of the date hereof, prior to taking into account any adjustment relating to any shares that may be issued (or forfeited) pursuant to the CVRs (and the surrender for cancellation by Sponsor of a corresponding number of shares) and the exercise of warrants pursuant to the Warrant Agreement Amendment, the HighPeak Group owns approximately 90% of HighPeak Energy common stock, although pursuant to the Stockholders’ Agreement the Principal Stockholder Group has agreed not to sell such shares before the six (6) month anniversary of the Closing. In either case, sales after such restricted period, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of HighPeak Energy common stock.

 

In connection with the Closing of the HighPeak business combination, HighPeak Energy entered into the Registration Rights Agreement with the Holders, which includes, Sponsor, HighPeak I, HighPeak II, HighPeak III, Jack Hightower and each of their respective affiliates and any transferees thereof that execute joinders to the Registration Rights Agreement, certain Forward Purchase Investors and Pure’s three former independent directors, Sylvia K. Barnes, M. Gregory Colvin and Jared S. Sturdivant. For more information about the Registration Rights Agreement, see the section entitled “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

 

If securities or industry analysts do not publish or cease publishing research or reports about HighPeak Energy, HighPeak Energy’s business, or HighPeak Energy’s market, or if they change their recommendations regarding HighPeak Energy common stock adversely, the price and trading volume of HighPeak Energy common stock could decline.

 

The trading market for HighPeak Energy common stock will be influenced by the research and reports that industry or securities analysts may publish about HighPeak Energy, HighPeak Energy’s business, HighPeak Energy’s market, or HighPeak Energy’s competitors. If any of the analysts who may cover HighPeak Energy change their recommendation regarding HighPeak Energy common stock adversely, or provide more favorable relative recommendations about its competitors, the price of HighPeak Energy common stock would likely decline. If any analyst who may cover HighPeak Energy were to cease their coverage or fail to regularly publish reports on HighPeak Energy, HighPeak Energy could lose visibility in the financial markets, which could cause HighPeak Energy’s stock price or trading volume to decline.

 

 

The A&R Charter designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

 

The A&R Charter provides that, unless HighPeak Energy consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (“Court of Chancery”) will, to the fullest extent permitted by applicable law and subject applicable jurisdictional requirements, be the sole and exclusive forum for (i) any derivative action or proceeding as to which the Delaware General Corporation Law (“DGCL”) confers jurisdiction upon the Court of Chancery, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of HighPeak Energy to HighPeak Energy or its stockholders, (iii) any action asserting a claim against HighPeak Energy, its directors, officers or employees arising pursuant to any provision of the DGCL, the A&R Charter or HighPeak Energy’s bylaws or (iv) any action asserting a claim against HighPeak Energy, its directors, officers or employees that is governed by the internal affairs doctrine, in each case except for such claims as to which (a) the Court of Chancery determines that it does not have personal jurisdiction over an indispensable party, (b) exclusive jurisdiction is vested in a court or forum other than the Court of Chancery or (c) the Court of Chancery does not have subject matter jurisdiction. The forum selection provision is not intended to apply to claims arising under the Securities Act or the Exchange Act. To the extent the provision could be construed to apply to such claims, there is uncertainty as to whether a court would enforce such provision in connection with such claims. Stockholders will not be deemed, by operation of Article 8 of the A&R Charter alone, to have waived claims arising under the federal securities laws and the rules and regulations promulgated thereunder.

 

If any action the subject matter of which is within the scope of the forum selection provision described in the preceding paragraph is filed in a court other than the Court of Chancery (or, if the Court of Chancery does not have jurisdiction, another state court or a federal court located within the State of Delaware) (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (i) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce the forum selection provision (an “Foreign Enforcement Action”) and (ii) having service of process made upon such stockholder in any such Foreign Enforcement Action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.

 

Any person or entity purchasing or otherwise acquiring any interest in shares of HighPeak Energy’s capital stock will be deemed to have notice of, and consented to, the provisions of our A&R Charter described in the preceding paragraph. This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with HighPeak Energy or its directors, officers or other employees, which may discourage such lawsuits against HighPeak Energy and such persons. The enforceability of similar exclusive forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with one or more actions or proceedings described above, a court could rule that this provision in the A&R Charter is inapplicable or unenforceable. If a court were to find these provisions of the A&R Charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, HighPeak Energy may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect its business, financial condition or results of operations.

 

 

Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect HighPeak Energy’s business, investments and results of operations.

 

HighPeak Energy is subject to laws, regulations and rules enacted by national, regional and local governments and the Nasdaq. In particular, HighPeak Energy is required to comply with certain SEC, Nasdaq and other legal or regulatory requirements. Compliance with, and monitoring of, applicable laws, regulations and rules may be difficult, time consuming and costly. Those laws, regulations and rules and their interpretation and application may also change from time to time and those changes could have a material adverse effect on HighPeak Energy’s business, investments and results of operations. In addition, a failure to comply with applicable laws, regulations and rules, as interpreted and applied, could have a material adverse effect on HighPeak Energy’s business and results of operations.

 

There can be no assurance that HighPeak Energy common stock issued, including issuable upon exercise of our warrants or upon satisfaction of conditions under the CVR Agreement with respect to the CVRs, will remain listed on the Nasdaq, or that HighPeak Energy will be able to comply with the continued listing standards of the Nasdaq.

 

HighPeak Energy’s common stock and warrants are currently listed on the Nasdaq, which such listing includes its common stock, shares of its common stock issuable upon exercise of its warrants or upon satisfaction of conditions under the CVR Agreement with respect to the CVRs. If the Nasdaq delists HighPeak Energy’s common stock from trading on its exchange for failure to meet the listing standards, HighPeak Energy and its security holders could face significant material adverse consequences:

 

●

a limited availability of market quotations for HighPeak Energy’s securities;

 

●

reduced liquidity for HighPeak Energy’s securities;

 

●

a determination that HighPeak Energy common stock is a “penny stock,” which will require brokers trading in HighPeak Energy common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for HighPeak Energy’s securities;

 

●

a limited amount of news and analyst coverage; and

 

●

a decreased ability to issue additional securities or obtain additional financing in the future.

 

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because HighPeak Energy’s common stock are listed on the Nasdaq, they are covered securities. Although the states are preempted from regulating the sale of HighPeak Energy’s securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if HighPeak Energy were no longer listed on the Nasdaq, its securities would not be covered securities and HighPeak Energy would be subject to regulation in each state in which HighPeak Energy offers its securities.

 

 

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 and results of operations.

 

HighPeak Energy is subject to tax by U.S. federal, state, and local tax authorities. HighPeak Energy’s future effective tax rates could be subject to volatility or adversely affected by a number of factors, including:

 

●

changes in the valuation of HighPeak Energy’s deferred tax assets and liabilities;

 

●

expected timing and amount of the release of any tax valuation allowances;

 

●

tax effects of stock-based compensation;

 

●

costs related to intercompany restructurings; or

 

●

changes in tax laws, regulations or interpretations thereof.

 

For example, in previous years, legislation has been proposed to eliminate or defer certain key U.S. federal income tax deductions historically available to oil and gas exploration and production companies. Such proposed changes have included: (i) a repeal of the percentage depletion allowance for crude oil and natural gas properties; (ii) the elimination of deductions for intangible drilling and exploration and development costs; (iii) the elimination of the deduction for certain production activities; and (iv) an extension of the amortization period for certain geological and geophysical expenditures. With President Biden taking office and the shift in the control of Congress, there is an increased risk of the enactment of legislation that alters, eliminates, or defers these or other tax deductions utilized within the industry, which could adversely affect HighPeak Energy’s business, financial condition, results of operations and cash flows.

 

In addition, HighPeak Energy may be subject to audits of its income, sales and other transaction taxes by U.S. federal, state, and local taxing authorities. Outcomes from these audits could have an adverse effect on HighPeak Energy’s financial condition and results of operations.

 

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, this could make HighPeak Energy’s securities less attractive to investors and may make it more difficult to compare its performance with other public companies.

 

HighPeak Energy is an “emerging growth company” within the meaning of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and HighPeak Energy may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in HighPeak Energy’s periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, HighPeak Energy’s stockholders may not have access to certain information they may deem important. HighPeak Energy could be an emerging growth company for up to five (5) years, although circumstances could cause HighPeak Energy to lose that status earlier, including if the market value of HighPeak Energy’s equity held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case HighPeak Energy would no longer be an emerging growth company as of the following December 31. HighPeak Energy cannot predict whether investors will find its securities less attractive because HighPeak Energy will rely on these exemptions. If some investors find HighPeak Energy’s securities less attractive as a result of HighPeak Energy’s reliance on these exemptions, the trading prices of HighPeak Energy’s securities may be lower than they otherwise would be, there may be a less active trading market for HighPeak Energy’s securities and the trading prices of HighPeak Energy’s securities may be more volatile.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. HighPeak Energy has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of HighPeak Energy’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.

 

 

Non-U.S. Holders may be subject to U.S. income tax and withholding tax with respect to gain on disposition of their HighPeak Energy common stock, CVRs and warrants.

 

HighPeak Energy believes it is a U.S. real property holding corporation. As a result, Non-U.S. Holders (defined below in the section entitled “Material U.S. Federal Income Tax Considerations”) that own (or are treated as owning under constructive ownership rules) more than a specified amount of HighPeak Energy common stock, CVRs or warrants during a specified time period may be subject to U.S. federal income tax and withholding on a sale, exchange, or other disposition of such HighPeak Energy common stock, CVRs or warrants, and may be required to file a U.S. federal income tax return. For more information, see the section entitled “Material U.S. Federal Income Tax Considerations” of this prospectus.

  

Under certain circumstances, the CVRs will have no value and will be automatically terminated without any further consideration.

 

The terms of the Contingent Value Rights are governed by the Contingent Value Rights Agreement by and among HighPeak Energy, HighPeak I, HighPeak II, Sponsor and the Rights Agent.

 

The CVR Holders are provided with a significant valuation protection through the opportunity to obtain additional contingent consideration in the form of additional shares of HighPeak Energy common stock if the trading price of HighPeak Energy’s common stock is below the price that would provide a CVR Holder with a 10% preferred simple annual return (based on a $10.00 per share price at Closing), subject to a floor downside per-share price of $4.00, at the CVR Maturity Date. However, this contingent consideration, if applicable, will only be issued to Qualifying CVR Holders. To be a Qualifying CVR Holder, a CVR Holder must provide certain information required under the Contingent Value Rights Agreement. If the stock price has generated a 10% preferred simple annual return with respect to the shares of HighPeak Energy common stock as of the CVR Maturity Date, then no additional shares will be issued pursuant to the CVRs, the CVRs will have no value and the CVRs will be automatically terminated without any further consideration.

 

Consideration owed to the holders of the CVRs, if any, will not be delivered prior to the CVR Maturity Date, except in certain limited circumstances.

 

The Contingent Value Rights will mature on the earlier of (i) the date to be specified by HighPeak I, HighPeak II and Sponsor, which may be any date occurring during the period beginning on (and including) August 21, 2022 and ending on (and including) February 21, 2023, or (ii) in certain circumstances, the occurrence of certain change of control events with respect to our business, including certain mergers, consolidations and asset sales. The calculation and satisfaction of any Preferred Returns will occur, if applicable, following the CVR Maturity Date in accordance with the terms of the Contingent Value Rights Agreement. Because no interest will accrue on the Contingent Value Rights, you will not receive any compensation for holding any Contingent Value Rights between the Closing and either the termination of such Contingent Value Rights or HighPeak Energy’s issuance of additional shares of HighPeak Energy common stock needed to satisfy any Preferred Return, if any.

 

A market for the CVRs may not develop and, even if a market for the CVRs does develop, there can be no assurance the extent to which trading of the CVRs will lead to an illiquid trading market with respect to such CVRs, which would adversely affect the liquidity and price of the CVRs.

 

HighPeak Energy cannot predict the extent to which trading of the CVRs will lead to an illiquid trading market with respect to such CVRs or whether the market price of the CVRs will be volatile. The CVRs may fluctuate significantly due to general market and economic conditions. An active trading market for the CVRs may never develop or, if it does develop, it may not be sustained. In addition, the price of the CVRs can vary due to general economic conditions and forecasts, HighPeak Energy’s general business condition and the release of HighPeak Energy’s financial reports. Additionally, if the CVRs are never listed on a national securities exchange for any reason, and may only be quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of the CVRs may be more limited than if they were quoted or listed on a national securities exchange. You may be unable to sell your CVRs unless a market can be established or sustained.

 

CVRs may entitle CVR Holders to shares of HighPeak Energy common stock at the CVR Maturity Date or otherwise will result in shares of HighPeak Energy common stock released to HighPeak I, HighPeak II and Sponsor, which, in either case, would increase the number of shares eligible for future resale in the public market.

 

The CVR Holders are being provided with a significant valuation protection through the opportunity to obtain additional contingent consideration in the form of additional shares of HighPeak Energy common stock if the trading price of HighPeak Energy’s common stock is below the price that would provide the CVR Holders with a 10% preferred simple annual return (based on a $10.00 per share price at Closing), subject to a floor downside per-share price of $4.00. The Preferred Returns could entitle a Qualifying CVR Holder to receive up to 2.125 shares of HighPeak Energy common stock per CVR.

 

At the Closing, HighPeak I, HighPeak II and Sponsor collectively placed a number of shares of HighPeak Energy common stock in escrow equal to the maximum number of additional shares of HighPeak Energy common stock issuable pursuant to the Contingent Value Rights Agreement, which Escrowed Shares will be released either to HighPeak Energy for cancellation in connection with the satisfaction of any Preferred Returns or back to HighPeak I, HighPeak II and Sponsor, collectively, as applicable, following the CVR Maturity Date. Until such shares are released back to HighPeak I, HighPeak II and Sponsor, they may not be traded.

 

To the extent the Preferred Return is not met, additional shares of HighPeak Energy will be issued (and a corresponding number of shares of HighPeak Energy common stock will be released to HighPeak Energy from the escrow for cancellation), which will increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of HighPeak Energy’s common stock. There would also be an increase in the number of shares of HighPeak Energy common stock eligible for resale in the public market if the Preferred Returns are met, pursuant to the Escrowed Shares being released to HighPeak I, HighPeak II and Sponsor, as discussed above.

 

 

USE OF PROCEEDS

 

We will not receive any proceeds from the sale of common stock, warrants or CVRs to be offered by the selling securityholders pursuant to this prospectus. We will also not receive any proceeds from the issuance of common stock upon settlement of the CVRs. With respect to the issuance of shares of common stock underlying the warrants, we will not receive any proceeds from the sale of such shares except with respect to the amounts received by us due to the exercise of the warrants to the extent they are exercised for cash. We will receive up to an aggregate of approximately $121,189,104 from the exercise of warrants, assuming the exercise in full of all warrants for cash. Unless we inform you otherwise in a prospectus or free writing prospectus, we intend to use the net proceeds from any such exercise of the existing warrants for general corporate purposes.

 

 

SECURITIES MARKET INFORMATION

 

Market Information

 

HighPeak Energy’s common stock and warrants were listed for trading on the Nasdaq under the symbols “HPK” and “HPKEW,” respectively. Each whole warrant of HighPeak Energy entitles the holder to purchase one share of common stock at an exercise price of $11.50 per share. Further, the Company intends to list the CVRs on the Nasdaq, and they are currently quoted on the OTC under the symbol “HPKER.” There is no assurance, however, that the CVRs will be listed on the Nasdaq. Through August 21, 2020, Pure Class A Common Stock and warrants were listed under the symbols “PACQ” and “PACQW,” respectively. On August 21, 2020, Pure delisted the units offered in its initial public offering, each consisting of one share of Pure Class A Common Stock and one-half of one warrant, which were listed under the symbol “PACQU,” and the units ceased to trade.

 

Further, the Company has applied to list the CVRs on the Nasdaq and to have the CVRs quoted on the OTC under the symbol “HPKER”. There is no assurance, however, that the CVRs will be listed on the Nasdaq or quoted on the OTC.

 

Holders

 

As of March 15, 2021, there were 43 holders of record of HighPeak Energy common stock, 40 holders of record of HighPeak Energy’s warrants and 42 holders of record of HighPeak Energy’s CVRs.

 

Dividends

 

HighPeak Energy has not declared any cash dividends to holders of the Company’s common stock. The Company’s future dividend policy is within the discretion of the Board and will depend upon then-existing conditions, including our results of operations, financial condition, capital requirements, investment opportunities, statutory restrictions on our ability to pay dividends and other factors the Board may deem relevant. In addition, the Revolving Credit Facility places certain restrictions on the Company’s ability to pay cash dividends.

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION OF HIGHPEAK ENERGY, INC

  

The unaudited pro forma condensed combined consolidated statement of operations data of the Company for the year ended December 31, 2020 combines the historical statement of operations of the Company for the period from August 22, 2020 through December 31, 2020 and of Pure and HPK LP for the period from January 1, 2020 through August 21, 2020, giving effect to the transactions listed below (collectively, the “Transactions”) as if they had been consummated on January 1, 2020. The unaudited pro forma condensed combined consolidated statement of operations data of the Company for the year ended December 31, 2019 combines the historical statement of operations of Pure for the year ended December 31, 2019, of HPK LP for the period from August 28, 2019 (Inception) to December 31, 2019, and for each of HighPeak I and HighPeak II for the year ended December 31, 2019, giving effect to the Transactions as if they had been consummated on January 1, 2019. HPK LP was treated as the accounting acquirer for the Transactions that completed the business combination based on the following rationales:

 

HPK LP was formed on August 28, 2019 to issue equity interests to achieve a business combination between HighPeak I and HighPeak II. Effective October 1, 2019, HighPeak I and HighPeak II contributed their subsidiaries to HPK LP. The contribution of the HighPeak I and HighPeak II subsidiaries to HPK LP was accounted for as a business combination within the meaning of ASC Topic 805 with HighPeak I identified as the accounting acquirer. When a new entity is formed to issue equity interests to effect a business combination, ASC 805-10-55-15 requires that one of the entities that existed before the business combination be identified as the acquirer by applying ASC 805-10-55-10 through 14. This guidance indicates that HighPeak I is the acquirer due to its size in the form of production, development activity and acreage position relative to HighPeak II. Additionally, HighPeak I initiated the business combination transactions through its sponsorship of Pure. 

 

The business combination between Pure and HPK LP was accounted for as a reverse merger in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) within the meaning of ASC Topic 805. Under this method of accounting, Pure was treated as the “acquired” company for financial reporting purposes and HPK LP was the accounting acquirer as HPK LP had a controlling financial interest in Pure through its majority ownership of HighPeak Energy common stock. 

 

The Company retained the officers and other employees of the HighPeak Funds following the business combination. The unaudited pro forma condensed combined consolidated statement of operations data of the Company for the year ended December 31, 2020 combines the historical statement of operations of the Company for the period from August 22, 2020 through December 31, 2020 and of Pure and HPK LP for the period from January 1, 2020 through August 21, 2020, giving effect to the Transactions as if they had been consummated on January 1, 2020. The unaudited pro forma condensed combined consolidated statement of operations data of HighPeak Energy for the year ended December 31, 2019 combines the historical statement of operations of Pure for the year ended December 31, 2019, of HPK LP for the period from August 28, 2019 (Inception) to December 31, 2019, and for each of HighPeak I and HighPeak II for the year ended December 31, 2019, giving effect to the Transactions as if they had been consummated on January 1, 2019, including by giving pro forma effect to the contribution by HighPeak I and HighPeak II of substantially all of their assets to HPK LP effective October 1, 2019. As discussed further in the notes to these unaudited pro forma condensed combined consolidated financial statements, the “Transactions” for purposes hereof include the following: 

 

	a.	the formation of HighPeak Energy and HPK LP;
	b.	the contribution by HighPeak I and HighPeak II of substantially all their oil and gas assets to HPK LP effective October 1, 2019;
	c.	the merger of MergerSub with and into Pure, with Pure surviving as a wholly owned subsidiary of HighPeak Energy;
	d.	the exchange, on a one-for-one basis, of all outstanding shares of Pure Class A Common Stock and Pure Class B Common Stock for newly issued shares of HighPeak Energy common stock and assumption of the original warrant agreement by HighPeak Energy (other than the 5,350,000 shares of Pure Class B Common Stock held by Sponsor, which were surrendered and forfeited pursuant to the Sponsor Support Agreement, dated as of May 4, 2020, by and among Pure’s Sponsor, HPEP II and the Company (the “Sponsor Support Agreement”) and the private placement warrants and public warrants of Pure held by Sponsor and HPEP II, respectively, which were surrendered and forfeited pursuant to the Sponsor Support Agreement) and the additional merger consideration paid with respect to the shares of Pure Class A Common Stock that were converted into HighPeak Energy common stock in the form of the cash consideration and the CVRs; and
	e.	the acquisition of the Company’s assets pursuant to the Business Combination Agreement and the payment of the consideration therefor, including certain stock consideration issued to the HPK Contributors pursuant to the Business Combination Agreement.

 

 

Specifically, Pure’s historical financial statements have been adjusted in these unaudited pro forma condensed combined consolidated financial statements to give pro forma effect to events that are: (i) directly attributable to the Transactions; (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined consolidated statement of operations, expected to have a continuing impact on HighPeak Energy’s results following the completion of the Transactions.

 

The unaudited pro forma condensed combined consolidated financial statements have been developed from and should be read in conjunction with:

 

	a.	the accompanying notes to the unaudited pro forma condensed combined consolidated financial statements;
	b.	the Annual Report on Form 10-K for HighPeak Energy as of December 31, 2020;
	c.	other information relating to HighPeak Energy, Pure, the HighPeak Funds, the Company’s assets and the Transactions included in this prospectus.

 

Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma condensed combined consolidated financial statements are described in the accompanying notes. The unaudited pro forma condensed combined consolidated financial statements have been presented for illustrative purposes only and are not necessarily indicative of the operating results and financial position that would have been achieved had the Transactions occurred on the dates indicated. Further, the unaudited pro forma condensed combined consolidated financial statements do not purport to project the future operating results or financial position of the Company following the completion of the Transactions.

 

 

HighPeak Energy, Inc.
Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations
Year Ended December 31, 2020
(in thousands, except per share information)

 

 

		(a)				(b)				(c)
		Pure January 1, 2020 through August 21, 2020				Predecessor January 1, 2020 through August 21, 2020				Successor August 22, 2020 through December 31, 2020				Pro Forma Adjustments				Pro Forma Combined
Operating Revenues:
Crude oil sales		$	-			$	8,069			$	15,988							$	24,057
Natural gas and NGL sales			-				154				412								566
Total operating revenues			-				8,223				16,400				-				24,623
Operating Costs and Expenses:
Oil and natural gas production			-				4,870				2,653								7,523
Production and ad valorem taxes			-				566				886								1,452
Depletion, depreciation and amortization			-				6,385				9,877								16,262
Accretion of discount on asset retirement obligations			-				89				51								140
General and administrative			77				4,840				2,775				(77	)	(d)		7,615
Exploration and abandonments			-				4				5,032								5,036
Stock-based compensation			-				-				15,776								15,776
General expenses and franchise taxes			2,543				-				-				(2,382	)	(d)		161
Total operating costs and expenses			2,620				16,754				37,050				(2,459	)			53,965
Income (loss) from operations			(2,620	)			(8,531	)			(20,650	)			2,459				(29,342	)
Investment income on Trust Account and other interest income			1,279				-				6				(1,279	)	(e)		6
Interest and other (expense)			-				(76,503	)			(8	)			76,500		(f)		(11	)
Income (loss) before income taxes			(1,341	)			(85,034	)			(20,652	)			77,680				(29,347	)
Income tax benefit (expense)			(263	)			-				4,223				2,077		(g)		6,037
Net income (loss)			(1,604	)			(85,034	)			(16,429	)			79,757				(23,310	)
Less: Net income (loss) attributable to noncontrolling interest owners			-				-				-								-
Net income (loss) attributable to common stockholders		$	(1,604	)		$	(85,034	)		$	(16,429	)		$	79,757			$	(23,310	)
Weighted average common shares outstanding:
Common stock											91,629				30				91,659
Income (loss) per common share:
Basic and diluted income (loss) per common share										$	(0.18	)						$	(0.25	)

 

 

HighPeak Energy, Inc.
Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations
Year Ended December 31, 2019
(in thousands, except per share information)

 

		(a)				(b)				(c)				Pro Forma				Pro Forma
		Pure				Predecessors				HighPeak II				Adjustments				Combined
Operating Revenues:
Crude oil sales		$	-			$	7,849			$	719							$	8,568
Natural gas and NGL sales			-				266				223								489
Total operating revenues			-				8,115				942				-				9,057
Operating Costs and Expenses:
Oil and natural gas production			-				3,372				1,190								4,562
Production and ad valorem taxes			-				449				59								508
Depletion, depreciation and amortization			-				4,269				650				(906	)	(d)		4,013
Accretion of discount on asset retirement obligations			-				72				86								158
General and administrative			120				8,682				2,891				(4,389	)	(e)		7,304
Exploration and abandonments			-				2,850				756								3,606
Abandoned project			-				-				1,122				(1,122	)	(f)		-
General expenses and franchise taxes			3,104				-				-				(2,904	)	(e)		200
Total operating costs			3,224				19,694				6,754				(9,321	)			20,351
Income (loss) from operations			(3,224	)			(11,579	)			(5,812	)			9,321				(11,294	)
Investment income on Trust Account and other interest income			8,739				-				107				(8,739	)	(g)		107
Gain on contribution to affiliate			-				-				86,301				(86,301	)	(h)		-
Equity in loss of affiliates			-				-				(2,571	)			2,571		(i)		-
Income (loss) before income taxes			5,515				(11,579	)			78,025				(83,148	)			(11,187	)
Income tax benefit (expense)			(1,730	)			-				-				4,079		(j)		2,349
Net income (loss)			3,785				(11,579	)			78,025				(79,069	)			(8,838	)
Less: Net income (loss) attributable to noncontrolling interests			-				-				-								-
Net income (loss) attributable to common stockholders		$	3,785			$	(11,579	)		$	78,025			$	(79,069	)		$	(8,838	)
Weighted average common shares outstanding:
Common stock																			91,655
Income (loss) per common share:																		(k)
Basic and diluted income (loss) per common share																		$	(0.10	)

 

 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

 

 

1.     Basis of Pro Forma Presentation

 

Overview

 

The unaudited pro forma condensed combined consolidated financial statements have been prepared with the business combination being accounted for using the acquisition method of accounting with HPK LP as the acquiring entity. 

 

The unaudited pro forma condensed combined consolidated financial statements should be read in conjunction with HighPeak Energy’s Annual Report on Form 10-K as of December 31, 2020, included elsewhere in this prospectus.

 

The pro forma adjustments represent management’s estimates based on information available as of the date of condensed combined consolidated financial statements do not reflect possible adjustments related to restructuring or integration activities that have yet to be determined or transaction or other costs following the Transactions that are not expected to have a continuing impact. Further, one-time transaction-related expenses incurred prior to, or concurrently with the consummation of the Transactions are not included in the unaudited pro forma condensed combined consolidated statement of operations. However, the impact of such transaction expenses is reflected in the unaudited pro forma condensed combined consolidated balance sheet as a decrease to retained earnings and a decrease to cash.

 

 

2.     Pro Forma Adjustments and Assumptions

 

Pro Forma Adjustments to the Statement of Operations for the year ended December 31, 2020: 

 

	a.	Represents Pure’s historical consolidated statement of operations for the period from January 1, 2020 through August 21, 2020.
	b.	Represents HPK LP’s historical consolidated statement of operations for the period from January 1, 2020 through August 21, 2020.
	c.	Represents HighPeak Energy’s historical consolidated statement of operations for the period from August 22, 2020 through December 31, 2020.
	d.	Represents the reduction to general and administrative expense related to the elimination of $2.5 million in business combination costs that were incurred by Pure during the period from January 1, 2020 through August 21, 2020 that would not have been incurred had the transactions closed as of January 1, 2020.
	e.	Represents the adjustment to eliminate the historical investment income of Pure associated with the investments that were previously held in the Trust Account (as defined in the Business Combination Agreement), which would not have been realized if the Transactions had been consummated on January 1, 2020.
	f.	Represents the elimination of the write off to expense of the deposit and extension payments related to that certain contribution agreement, dated as of November 27, 2019 and as subsequently terminated on April 24, 2020, by and among Grenadier Energy Partners II, LLC, HighPeak Assets II, Pure an HighPeak Energy, and recognized by HPK LP during the period from January 1, 2020 through August 21, 2020 that would not have been recognized in the current year had the Transactions been consummated on January 1, 2020.
	g.	Represents the associated income tax effect on the interest in the historical results of the Company’s assets and the pro forma adjustments attributable to the Company, using an estimated combined federal and state statutory income tax rate of approximately 21%, which reflects the corporate rate enacted at the pro forma period dates.
	h.	Reflects the adjusted basic and diluted income per common share after giving effect to the Transactions as if they had been consummated on January 1, 2020. For more information, see Note 3, Pro Forma Earnings Per Share.

 

Pro Forma Adjustments to the Statement of Operations for the year ended December 31, 2019:

 

	a.	Represents Pure’s historical consolidated statement of operations for the year ended December 31, 2019.
	b.	Represents Predecessors’ historical consolidated statement of operations for the year ended December 31, 2019.
	c.	Represents HighPeak II’s historical consolidated statement of operations for the year ended December 31, 2019 (there was no activity that effected the consolidated statement of operations subsequent to September 30, 2019, other than the gain on contribution to affiliate and equity in loss of affiliate – see Adjustments (h) and (i) below, respectively).
	d.	Represents the adjustment to record a net reduction to depletion, depreciation, and amortization expense of $906,000 with respect to the Company’s assets, had they been acquired on January 1, 2019. The net adjustment results from using the December 31, 2019 HPK LP proved reserves for the entirety of 2019 on the combined assets.
	e.	Represents the reduction to general and administrative expense related to $4.4 million in business combination costs incurred by HPK LP during 2019 that would not have been incurred had the Transactions been consummated on January 1, 2019. The additional downward adjustment represents the elimination of $2.9 million in business combination costs that were incurred by Pure during 2019 that would not have been incurred had the transactions closed as of January 1, 2019.

 

 

	f.	Represents the elimination of the write off to expense of an abandoned project to acquire acreage that is nonrecurring in nature and the Company would not have pursued this acquisition had the Transactions been consummated on January 1, 2019.
	g.	Represents the adjustment to eliminate the historical investment income of Pure associated with the investments that were previously held in the Trust Account, which would not have been realized if the Transactions had been consummated on January 1, 2019.
	h.	Represents the elimination of the gain on the contributions to affiliate recognized on HighPeak II for 2019 related to HighPeak I being considered the acquirer in the HPK LP business combination that closed effective October 1, 2019 in the amount of $86.3 million that would not have been recognized in the current year had the Transactions been consummated on January 1, 2019.
	i.	Represents the elimination of equity in losses of affiliate (HPK LP) recognized on HighPeak II’s financial statements in 2019 so as not to double a portion of the loss that is shown in column (b) above.
	j.	Represents the associated income tax effect on the interest in the historical results of the Company’s assets and the pro forma adjustments attributable to the Company, using an estimated combined federal and state statutory income tax rate of approximately 21%, which reflects the corporate rate enacted at the pro forma period dates.
	k.	Reflects the adjusted basic and diluted income per common share after giving effect to the Transactions as if they had been consummated on January 1, 2019. For more information, see Note 3, Pro Forma Earnings Per Share.

 

3.     Pro Forma Earnings Per Share

 

For the year ended December 31, 2020:

 

The table below reflects the pro forma basic and diluted loss per common share after giving effect to the Transactions had such Transactions been consummated on January 1, 2020. After further adjusting historical activity to reflect the Transactions having been consummated on January 1, 2020, HighPeak Energy’s pro forma loss per common share would have been $(0.25) on both a basic and diluted basis (in thousands except per share information).

 

		Pro Forma
Basic and Diluted EPS
Numerator:
Net Loss		$	(23,310	)
Denominator:
Historical Weighted Average Shares of HighPeak Energy			95,629
Adjustment Assuming Ending Shares Outstanding Entire Year			30
Basic Weighted Average Shares Outstanding			91,659
Basic and Diluted EPS		$	(0.25	)

 

 

For the year ended December 31, 2019:

 

The table below reflects the pro forma basic and diluted loss per common share after giving effect to the Transactions had such Transactions been consummated on January 1, 2019. After further adjusting historical activity to reflect the Transactions having been consummated on January 1, 2019, HighPeak Energy’s pro forma loss per common share would have been ($0.10) on both a basic and diluted basis.

 

 

		Pro Forma
Basic and Diluted EPS
Numerator:
Net Loss		$	(8,838	)
Denominator:
Basic Weighted Average Shares Outstanding (Ending Shares Outstanding)			91,655
Basic and Diluted EPS		$	(0.10	)

 

 

SELECTED HISTORICAL FINANCIAL DATA

  

The selected historical financial data was derived from the Annual Report on Form 10-K of the Company included elsewhere in this prospectus and from the Company’s prospectus that was filed with the SEC on November 10, 2020 (File No. 333-248898). The information below is only a summary and should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Annual Report on Form 10-K, both included elsewhere in this prospectus.

 

The following tables contain selected historical financial data for the periods and as of the dates indicated.

 

		Successor Period from August 22, 2020 through December 31, 2020				Predecessor Period from January 1, 2020 through August 21, 2020				Predecessors through December 31, 2019				HighPeak I Year Ended December 31, 2018
Statement of Operations Data:
Operating Revenues:
Crude oil sales		$	15,988			$	8,069			$	7,849			$	1,299
Natural gas and NGL sales		$	412			$	154			$	266			$	93
Total operating revenues		$	16,400			$	8,223			$	8,115			$	1,392
Operating Costs and Expenses:
Oil and natural gas production		$	2,653			$	4,870			$	3,372			$	936
Production and ad valorem taxes		$	866			$	566			$	449			$	69
Exploration and abandonments		$	5,032			$	4			$	2,850			$	695
Depletion, depreciation and amortization		$	9,877			$	6,835			$	4,269			$	886
Accretion of discount on asset retirement obligations		$	51			$	89			$	72			$	25
General and administrative		$	2,275			$	4,840			$	8,682			$	4,769
Stock-based compensation
Total operating costs and expenses		$	37,050			$	16,754			$	19,694			$	7,380
Loss from operations		$	(20,650	)		$	(8,531	)		$	(11,579	)		$	(5,988	)
Interest income		$	6				—				—				—
Interest expense		$	(8	)			—				—				—
Other expense			—			$	(76,503	)			—				—
Loss before income taxes		$	(20,652	)		$	(85,034	)		$	(11,579	)		$	(5,988	)
Income tax benefit		$	(4,223	)			—				—				—
Net loss		$	(16,429	)		$	(85,304	)		$	(11,579	)		$	(5,988	)
Cash Flow Data:
Net cash provided by (used in) operating activities		$	5,413			$	(4,102	)		$	(772	)		$	(4,672	)
Cash used in investing activities		$	(71,939	)		$	(67,886	)		$	(51,434	)		$	(54,655	)
Cash provided by financing activities		$	84,135			$	51,220			$	74,023			$	58,799

 

		As of December 31, 2020				As of December 31, 2019
Balance Sheet Data:
Current assets		$	33,295			$	92,026
Oil and natural gas properties, net			502,636				404,794
Other property and equipment and other noncurrent assets, net			1,999				1,088
Total assets		$	537,930			$	497,908
Current liabilities		$	22,435			$	30,980
Deferred income taxes			38,898				—
Asset retirement obligation			2,293				2,212
Other noncurrent liabilities			78				—
Stockholders’ equity / partners’ capital			474,226				464,716
Total liabilities and stockholders’ equity / partners’ capital		$	537,930			$	497,908

 

---

 

(1)

The year ended December 31, 2020 presented above shows the results of operations of the Company from August 22, 2020 through December 31, 2020 and HPK LP from January 1, 2020 through August 21, 2020. It also shows the combined results of operations of HPK LP and HighPeak I for the year ended December 31, 2019 (HighPeak I’s results of operations data excludes its equity in losses of affiliate which is HighPeak I’s share of HPK LP’s net loss from the effective date of its contribution of subsidiaries to HPK LP, October 1, 2019 to December 31, 2019, which is the only activity on HighPeak I’s statement of operations during that period).

 

 

Business

 

The following discussion of our business should be read in conjunction with the “Selected Historical Financial Data” and the accompanying financial statements and related notes included elsewhere in this prospectus. The estimated proved reserve information for the Company’s assets as of December 31, 2020 contained in this prospectus is based on the reserve report prepared by our internal engineers and audited by Cawley, Gillespie & Associates, Inc. independent reserve engineers (such report being referred to as the “2020 Reserve Report”). A copy of the 2020 Reserve Report is attached to this registration statement of which this prospectus forms a part as Exhibit 99.1. Unless the context otherwise requires, with respect to descriptions of the financials and operations of the Company’s assets, references herein to the “company,” “we,” “us” or “our” relate, prior to the business combination, our assets as owned and operated by HPK LP or, prior to their respective acquisitions thereby, by the HighPeak Funds and, following the Closing of the business combination, to our assets as owned and operated by HighPeak Energy.

 

General

 

HighPeak Energy is a Delaware corporation initially formed on October 29, 2019, as a wholly owned subsidiary of Pure, solely for the purpose of combining the businesses previously conducted by Pure and HPK LP, which was completed on August 21, 2020. Our common stock and warrants are listed on the Nasdaq under the symbols “HPK” and “HPKEW,” respectively. HighPeak Energy’s CVRs are currently quoted on the OTC under the symbol “HPKER.” Further, the Company has applied to list the CVRs on the Nasdaq.

 

There is no assurance, however, that the CVRs will be listed on the Nasdaq.

 

Overview

 

HighPeak Energy is a Delaware corporation initially formed on October 29, 2019, as a wholly owned subsidiary of Pure, solely for the purpose of combining the businesses previously conducted by Pure and HPK LP, referred to herein as the “HighPeak business combination,” which was completed on August 21, 2020. Pure was formed November 13, 2017 as a special purpose acquisition company for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. HPK Energy, LP, a Delaware limited partnership, was formed on August 28, 2019 for the purpose of acquiring certain of the subsidiaries of HighPeak I and HighPeak II. HighPeak I and HighPeak II were formed in June 2014 and March 2018, respectively, in each case for the purpose of acquiring and developing interests in producing oil and natural gas properties located in North America. HighPeak Energy operates and controls the business and affairs of the Company and consolidates its financial and operating results with Pure and HPK LP.

 

HighPeak Energy is an independent oil and natural gas company engaged in the acquisition, development and production of oil, natural gas and NGL reserves. The Company’s assets are primarily located in Howard County, Texas, which lies within the northeastern part of the oil-rich Midland Basin.

 

We expect to use proceeds from equity sold to the selling securityholders in connection with our business combination with our cash flow, borrowings under our Revolving Credit Agreement and other available funds to fund our development drilling program.

 

We are led by our Chairman and CEO, Jack Hightower, an industry veteran with over 50 years of experience in the oil and natural gas industry, primarily in the Permian Basin managing multiple E&P platforms. Mr. Hightower has an established track record of implementing disciplined growth strategies and generating equity holder growth in both public and private companies. He is joined by a highly qualified team of experienced, oil and gas professionals, many of whom have technical and operational experience in the Permian Basin and have worked with Mr. Hightower previously.

 

 

Overview of the Company’s assets  

 

We focus on the Midland Basin and specifically the Howard County area of the Midland Basin. Over the last eight decades the Howard County area of the Midland Basin was partially developed with vertical wells using conventional methods, and has recently experienced significant redevelopment activity in the Lower Spraberry and Wolfcamp A formations utilizing modern horizontal drilling technology, with some operators having additional success developing the Middle Spraberry, Jo Mill, Wolfcamp B and Wolfcamp D formations, through the use of modern, high-intensity hydraulic fracturing techniques, decreased frac spacing, increased proppant usage and increased lateral lengths. Our interpretation of available IHS Markit data shows that Howard County has high oil mix percentage.  The high margins that higher oil percentages bring, has encouraged an active level of drilling activity since 2016 and resulted in significant production growth compared with other counties in the Midland Basin.

 

Our assets include certain rights, title and interests in oil and natural gas assets located primarily in Howard County. As of December 31, 2020, our assets consisted of two generally contiguous leasehold positions of approximately 59,092 gross (50,636 net) acres covering various subsurface depths. We operate approximately 95% of the net acreage across the Company’s assets and approximately 97% of the net operated acreage provides for horizontal well locations with lateral lengths of 10,000 feet or greater in the formations covered by our assets. Our development drilling plan is initially focused on the horizontal drilling development of the Wolfcamp A and Lower Spraberry formations utilizing multi-well pad development to lower drilling and completion cycle times, create infrastructure and facility economies of scale, reduce overall costs, and to optimize and maximize oil and gas recoveries, return on investment, and value creation.

 

Background of the Company’s assets

 

On May 4, 2020, Pure, HighPeak Energy, MergerSub and the HPK Contributors entered into the Business Combination Agreement, pursuant to which, among other things, and subject to the terms and conditions contained therein, HighPeak Energy agreed to indirectly acquire the Company’s assets. Under the terms of the Business Combination Agreement, at the Closing, the HPK Contributors contributed HPK LP to HighPeak Energy in exchange for shares of HighPeak Energy common stock.

 

HPK LP was formed in August 2019 to effect a contribution by the HighPeak Funds of HighPeak Assets I, HighPeak Assets II, HighPeak Energy Holdings, LLC and cash to HPK LP for equity interests in HPK LP. HighPeak I and HighPeak II were formed in June 2014 and March 2018, respectively, in each case for the purpose of acquiring and developing interests in producing oil and natural gas assets and to engage in all aspects of the oil and gas industry, primarily in North America. HighPeak I, through its subsidiary HighPeak Assets I, acquired leasehold acreage and existing vertical producing wells through several acquisitions and an organic leasing campaign throughout 2017, 2018 and 2019. HighPeak II, through its subsidiary HighPeak Assets II, acquired leasehold acreage and existing vertical producing wells through several acquisitions and an organic leasing campaign throughout 2018 and 2019.

 

Properties

 

The Company’s assets are located in the north eastern part of the Midland Basin. The majority of the acreage position is located across the eastern half of Howard County in two largely contiguous acreage blocks. The Midland Basin is part of the Permian Basin of West Texas and Eastern New Mexico. The Permian Basin covers an area of about 96,000 square miles and is comprised of five (5) sub-regions including the Midland Basin, the Central Basin Platform, the Delaware Basin, the Northwest Shelf and the Eastern Shelf. The Central Basin Platform (“CBP”) is a central uplift, with the Delaware Basin located to the west of the CBP, and the Midland Basin located to the east of the CBP. The bulk of the Permian Basin’s increase in oil production since 2007 has come from several target zones including the Spraberry and Wolfcamp formations. The Permian Basin has produced billions of barrels of oil and gas and is estimated by the United States Geologic Survey to contain significant remaining hydrocarbon potential.

 

Through December 31, 2020, the Company has drilled a total of 28 gross (27.3 net) horizontal wells across our assets including (i) 5 gross (5.0 net) horizontal wells that are in the final stages of completion and being placed on production, (ii) 1 gross (1.0 net) horizontal salt-water disposal well and (iii) 2 gross (2.0 net) horizontal wells that have been drilled but not completed. In addition, the Company had 2 gross (2.0 net) wells that were in the process of being drilled as of December 31, 2020. Further, nine of the twelve wells that were drilled but uncompleted as of the closing of the HighPeak business combination have been completed and placed on production and three of said wells are part of the aforementioned five wells in various stages of completion. The production is sourced from the Lower Spraberry Shale and the Wolfcamp A formations.

 

 

HighPeak Energy is currently developing its properties using one (1) drilling rig. Please see “Risk Factors—Risks Related to Our Business—Oil, natural gas and NGL prices are volatile. Sustained periods of low, or declines in, oil, natural gas and NGL 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” and “Risk Factors—Risks Related to Our Business —The recent and ongoing outbreak of COVID-19 and other pandemic outbreaks could negatively impact HighPeak Energy’s business and results of operations.” HighPeak Energy expects to fund its forecasted capital expenditures with cash on its balance sheet, cash generated by operations, its Revolving Credit Facility and potentially through additional debt and/or equity financing.

 

HighPeak Energy has discretion to modify its capital program. Because HighPeak Energy operates a high percentage of its acreage, capital expenditure amounts and timing are largely discretionary and within its control. HighPeak Energy determines its capital expenditures depending on a variety of factors, including, but not limited to, the success of its drilling activities, prevailing and anticipated prices for oil and natural gas, the availability of necessary equipment, infrastructure and capital, the receipt and timing of required regulatory permits and approvals, drilling and acquisition costs and the level of participation by other working interest owners. A deferral of planned capital expenditures, particularly with respect to drilling and completing new wells, could result in a reduction in anticipated production and cash flows. Additionally, if HighPeak Energy curtails or reallocates priorities in its drilling program, HighPeak Energy may lose a portion of its acreage through lease expirations. However, in the event of any such curtailment or reallocation of priorities, HighPeak Energy would expect to prioritize lease retention to minimize any expirations.

 

Reserve Summary

 

The estimated proved reserves of the Company’s assets as of December 31, 2020 were prepared by Cawley, Gillespie and Associates, Inc. (“CG&A”). As of December 31, 2020, the Company’s assets contained 22,515 MBoe of estimated proved reserves. In addition, as of December 31, 2020, the estimated proved reserves of the Company’s assets were estimated by CG&A to be 94% oil and NGL and 6% natural gas. The following table provides summary information regarding the estimated proved reserves data of the Company’s assets based on the 2020 Reserve Report as of December 31, 2020:

 

		As of December 31, 2020
		Proved Total				% Oil &				%
Region		(MBoe)(1)				NGL				Developed
Midland Basin			22,515				94	%			46	%

 

---

(1)

The estimated net proved reserves as of December 31, 2020 were determined using the unweighted arithmetic average first-day-of-the month prices for the prior twelve (12) months in accordance guidelines established by the SEC. For oil and NGL volumes, this average WTI spot price of $39.57 per barrel was adjusted for quality, transportation and a regional price differential. For natural gas volumes, this average Henry Hub spot price of $1.985 per MMBtu was adjusted for energy content, gathering, transportation and processing fees and a regional price differential. All prices are held constant throughout the lives of the properties. The average adjusted prices realized over the remaining lives of the Company’s assets by CG&A were $38.08 per barrel of oil, $12.27 per barrel of NGL and ($1.304) per Mcf of natural gas as of December 31, 2020.

 

Reserve Data

 

Preparation of Reserve Estimates

 

The reserve estimates as of December 31, 2020 included in this prospectus are based on evaluations prepared by CG&A in accordance with Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Evaluation Engineers and definitions and guidelines established by the SEC (the “2020 Reserve Report”). CG&A was selected for their historical experience and geographic expertise in engineering similar resources. The 2020 Reserve Report pertaining to reserve estimates as of December 31, 2020, of HighPeak Energy, prepared by CG&A, were led by W. Todd Brooker. Mr. Brooker is a Licensed Professional Engineer in the State of Texas and has been practicing at CG&A for 28 years and, including such 28 years, has over 30 years of total prior industry experience. A copy of the 2020 Reserve Report is attached to this prospectus as Exhibit 99.1.

 

 

Proved reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time. If deterministic methods are used, reasonable certainty means a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90% probability that the quantities actually recovered will equal or exceed the estimate. A high degree of confidence exists if the quantity is much more likely to be achieved than not, and, as changes due to increased availability of geoscience (geological, geophysical, and geochemical), engineering, and economic data are made to estimated ultimate recovery (“EUR”) with time, reasonably certain EUR is much more likely to increase or remain constant than to decrease. The technical and economic data used in the estimation of the proved reserves include, but are not limited to, well logs, geologic maps, well-test data, production data (including flow rates), well data (including lateral lengths), historical price and cost information, and property ownership interests. CG&A uses this technical data, together with standard engineering and geoscience methods, or a combination of methods, including performance analysis, volumetric analysis, and analogy. The proved developed reserves and EURs per well are estimated using performance analysis and volumetric analysis. The estimates of the proved developed reserves and EURs for each developed well are used to estimate the proved undeveloped reserves for each proved undeveloped location (utilizing type curves, statistical analysis, and analogy).

 

Internal Controls

 

The internal staffs of petroleum engineers and geoscience professionals at HighPeak Energy work closely with their independent reserve engineers to ensure the integrity, accuracy and timeliness of data furnished to their independent reserve engineers in the preparation of their reserve report. Periodically, HighPeak Energy’s technical teams meet with the independent reserve engineers to review properties and discuss methods and assumptions used to prepare reserve estimates for the Company’s assets.

 

Reserve engineering is a subjective process of estimating volumes of economically recoverable oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation. As a result, the estimates of different engineers often vary. In addition, the results of drilling, testing and production may justify revisions of such estimates. Accordingly, estimates of economically recoverable oil, natural gas and NGL and of future net revenues are based on a number of variables and assumptions, all of which may vary from actual results, including geologic interpretation, prices, future production rates and costs. Please read the section entitled “Risk Factors” appearing elsewhere in this prospectus.

 

The 2020 Reserve Report as of December 31, 2020 was prepared by geologists and reservoir engineers who integrate geological, geophysical, engineering and economic data to produce high quality reserve estimates and economic forecasts. The process for the 2020 Reserve Report for the Company’s assets was supervised by Christopher Mundy, Vice President, Reserves and Evaluations, for HighPeak Energy, who has approximately 24 years of experience in oil and gas operations, reservoir engineering and management, reserves management, unconventional and conventional reservoir characterization and strategic planning.

 

The reserve estimates of the Company’s assets and the related 2020 Reserve Report as of December 31, 2020 were reviewed and approved by our technical staff, other members of senior management and our Chief Executive Officer. The 2020 Reserve Report prepared by CG&A contains further discussion of the reserve estimates and the procedures used in connection with its preparation.

 

The reserve estimates as of December 31, 2020, included in this prospectus are based on evaluations prepared by the independent petroleum engineering firm CG&A representing 100% of the Company’s assets’ total net proved reserves in accordance with Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Evaluation Engineers and definitions and guidelines established by the SEC. The Independent Reserve Engineers were selected for their historical experience and geographic expertise in engineering similar resources.

 

 

Estimated Proved Reserves

 

The following table presents the estimated net proved oil and natural gas reserves as of December 31, 2020, based on the 2020 Reserve Report of the Company’s assets as of such date.

 

 

		As of
		December 31,
		2020
Proved Developed Reserves:
Oil (MBbl)			8,730
Natural Gas (MMcf)			3,572
NGL (MBbl)			957
Total (MBoe)			10,282
Proved Undeveloped Reserves:
Oil (MBbl)			10,302
Natural Gas (MMcf)			4,367
NGL (MBbl)			1,203
Total (MBoe)			12,233
Total Proved Reserves:
Oil (MBbl)			19,032
Natural Gas (MMcf)			7,939
NGL (MBbl)			2,160
Total (MBoe)			22,515

 

Development of Proved Undeveloped Reserves

 

The following table summarizes the changes in proved undeveloped reserves of the Predecessors during the period from January 1, 2020 through August 21, 2020 (the “Predecessor Period”):

		Predecessors
		Total (MBoe)
Proved undeveloped reserves at January 1, 2020			6,534
Conversions into proved developed reserves			(529	)
Revisions			(241	)
Proved undeveloped reserves at August 21, 2020			5,764

 

The following table summarizes the changes in HighPeak Energy’s proved undeveloped reserves during the period from August 22, 2020 through December 31, 2020 (the “Successor Period”):

		Successor
		Total (MBoe)
Proved undeveloped reserves at August 22, 2020			5,764
Extensions and discoveries			7,015
Revisions			(546	)
Proved undeveloped reserves at December 31, 2020			12,233

 

 

Year Ended December 31, 2020

 

As of December 31, 2020, HighPeak Energy’s assets contained approximately 12,233 MBoe of proved undeveloped reserves, consisting of 10,302 MBbl of oil, 4,367 MMcf of natural gas and 1,203 MBbl of NGL. Proved undeveloped reserves will be converted from undeveloped to developed as the majority of capital is spent on each location and as the applicable wells begin production.

 

Proved undeveloped reserves changed during the Successor Period primarily as a result of the following significant factors:

 

●

Extensions and discoveries of 7,015 MBoe related to new proved undeveloped locations added related to HighPeak Energy’s drilling activities; and

 

●

Downward revisions of 546 MBoe including 409 MBoe related to proved undeveloped locations that were removed from the development plan due to the Company’s election not to renew certain leases, 102 MBoe related to adjustments to forecasts and 35 MBoe attributable to a decrease in oil, natural gas and NGL prices.

 

Proved undeveloped reserves changed during the Predecessor Period primarily as a result of the following significant factors:

 

●

conversions into proved developed reserves of 529 MBoe as a result of the Company’s ongoing drilling program in early 2020 prior to the Company shutting down its drilling program late in the first quarter of 2020 due to COVID-19 and the downturn in oil prices.

 

●

downward revisions of 241 MBoe including 181 MBoe resulting from adjustments to our forecasts and 60 MBoe resulting from a decrease in oil, natural gas and NGL prices.

 

To date, the Company has spent the majority of its capital budget on drilling unproved locations rather than converting proved undeveloped reserves to proved developed reserves. A portion of the Company’s development capital spent during the Successor Period was for the development of a water infrastructure system and the drilling of a salt-water disposal well to handle the Company’s increased water production and reduce its water costs and reduce the use of trucking for its produced water disposal activities.

 

For additional information, see the “Supplemental Oil and Gas Reserve Information (Unaudited)” included in the financial statements of the HighPeak Funds included elsewhere in this prospectus.

 

PV-10

 

PV-10 is a non-GAAP financial measure and differs from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. We refer to PV-10 as the present value of estimated future net cash flows of estimated proved reserves as calculated in the 2020 Reserve Report using a discount rate of 10%. This amount includes projected revenues, estimated production costs, estimated future development costs and estimated cash flows related to future asset retirement obligations.

 

Unlike PV-10, the standardized measure takes into account future U.S. federal income taxes, future Texas margin taxes and future abandonment obligations on wells with no proved reserves as of December 31, 2020. Neither PV-10 nor standardized measure represents an estimate of the fair market value of the applicable oil and natural gas properties. It is industry standard to use PV-10 as a measure to compare the relative size and value of proved reserves held by companies without regard to the specific tax characteristics of such entities.

 

The following table presents the undiscounted estimated future net cash flows, PV-10 and Standardized measure of the proved reserves of the Company at December 31, 2020 (in thousands):

 

		Proved Developed				Proved Undeveloped				Total Proved
Estimated future net cash flows		$	229,599			$	177,896			$	407,495
Present value of estimated future net cash flows		$	162,582			$	72,908			$	235,490
Present value of future income taxes/abandonment costs										$	(13,298	)
Standardized measure										$	222,192

 

 

Production, Revenue and Price History

 

For a description of the historical production, revenues, average sales prices and unit costs of the Company, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations.”

 

The following tables summarize the average net sales volumes, average unhedged sales prices by product and lease operating expenses of the Company for the years ended December 31, 2020 and 2019:

 

Year Ended December 31, 2020

Oil

NGL

Natural Gas

Total

Sales Volumes

Average Sales Price

Sales Volumes

Average Sales Price

Sales Volumes

Average Sales Price

Sales Volumes

Average Sales Price

Lease Operating Expense

(MBbl)

($/Bbl)

(MBbl)

($/Bbl)

(MMcf)

($/Mcf)

(MBoe)

($/Boe)

($/Boe)

634

$

37.96

38

$

14.06

199

$

1.04

705

$

34.94

$

10.68

Average net daily sales volumes (Boe/d)

1,925

 

 

Productive Wells

 

Productive wells consist of producing wells and wells capable of production, including natural gas wells awaiting pipeline connections to commence deliveries and oil wells awaiting connection to production facilities. Gross wells are the total number of producing wells in which HighPeak Energy holds an interest, and net wells are the sum of the fractional working interests owned in gross wells. The following table sets forth information relating to the productive wells in which HighPeak Energy holds a working interest as of December 31, 2020.

 

		Oil												Gas
		Gross				Net				Average Working Interest				Gross				Net				Average Working Interest
Horizontal:
Operated			19				18.3				96	%			-				-				n/a
Non-operated			-				-				n/a				-				-				n/a
Vertical:
Operated			35				30.9				88	%			6				4.5				75	%
Non-operated			49				11.6				24	%			6				2.0				33	%
Total:
Operated			54				49.1				91	%			6				4.5				75	%
Non-operated			49				11.6				24	%			6				2.0				33	%

 

Acreage

 

The following table sets forth certain information regarding the total developed and undeveloped acreage in which HighPeak Energy holds an interest as of December 31, 2020. Approximately 24% of the net acreage of HighPeak Energy was held by production at December 31, 2020.

 

Developed Acres(1)(4)							Undeveloped Acres(4)								Total Acres
Gross(2)			Net(3)				Gross(2)				Net(3)				Gross(2)				Net(3)
15,602				11,100				43,490				39,536				59,092				50,636

 

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(1)	Developed acres are acres spaced or assigned to productive wells or wells capable of production.

(2)	A gross acre is an acre in which the Company’s assets include a working interest. The number of gross acres is the total number of acres in which the Company’s assets include a working interest.

(3)	A net acre is deemed to exist when the sum of the fractional ownership working interests in gross acres equals one. The number of net acres is the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof.

(4)	Minor amounts of our developed and undeveloped acres do not cover all formation depths in the underlying acreage.

 

Undeveloped Acreage Expirations

 

The following table sets forth the number of total net undeveloped acres as of December 31, 2020 across HighPeak Energy’s properties that will expire in 2021, 2022, 2023, 2024, 2025 and thereafter, unless production is established within the spacing units covering the acreage prior to the expiration dates or unless such leasehold rights are extended or renewed.

 

2021			2022				2023				2024				2025				Thereafter
30,257				2,430				112				5,522				-				-

 

With respect to the 30,257 net acres expiring in 2021 across our properties, HighPeak Energy intends to retain substantially all 30,257 net acres through initiating completion operations of existing wells and the drilling of new wells, with the remaining being retained either through lease renewals or extensions. HighPeak Energy intends to retain substantially all of its undeveloped acreage through its development plan. Please see “Risk Factors—Risks Related to Our Business— Certain of the undeveloped leasehold acreage of the Company’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.”

 

 

 

Drilling Activities

 

The following table describes new development and exploratory wells drilled within the Company’s assets during the period from August 22, 2020 through December 31, 2020 (Successor), and the period from January 1, 2020 through August 22, 2020 and the years ended December 31, 2019 and 2018 (Predecessors). The information should not be indicative of future performance, nor should it be assumed there is necessarily any correlation among the number of productive wells drilled, quantities of reserves found or economic value. A dry well is a well that proves to be incapable of producing either oil and natural gas in sufficient quantities to justify completion. A productive well is a well that is mechanically capable of production hydrocarbons. Completion refers to installation of permanent equipment for production of oil and natural gas, or, in the case of a dry well, to reporting to the appropriate authority that the well has been abandoned. As of December 31, 2020 and not included in the following table, were 2 gross (2.0 net) wells in the process of being drilled and 2 gross (2.0 net) wells in the process of being completed. As of December 31, 2020, HighPeak Energy was running a one-rig program which may change based on capital availability and other factors.

 

		Period from August 22, 2020 through December 31, 2020 (Successor)								Period from January 1, 2020 through August 21, 2020 (Predecessors)								Year Ended December 31, 2019								Year Ended December 31, 2018
		Gross				Net				Gross				Net				Gross				Net				Gross				Net
Development wells:
Productive			-				-				1				1.0				1				0.8				-				-
Dry			-				-				-				-				-				-				-				-
Exploratory wells:
Productive			14				13.8				6				6.0				2				2.0				1				0.8
Dry			-				-				-				-				-				-				-				-
Service wells:
Salt-Water Disposal			1				1.0				-				-				-				-				-				-

 

 

Delivery Commitments

 

There no material commitments to deliver a fixed and determinable quantity of oil or natural gas production from the Company’s assets to customers in the near future under existing contracts. However, the Company has committed to deliver a total of 5.5 MMBbl of produced water for disposal with two different third-party salt-water disposal companies, 2.5 MMBbl between September 30, 2020 and September 30, 2021 and 3.0 MMBbl between July 24, 2020 and July 24, 2022. As of December 31, 2020, the Company has delivered approximately 0.7 MMBbl and 0.7 MMBbl, respectively under the two agreements. Both agreements call for a penalty of $0.45 per Bbl not delivered should the Company not perform under the agreements, indicating a monetary commitment of approximately $1.8 million as of December 31, 2020. Given the current production levels coupled with the wells planned to come on production in 2021, the Company expects to meet the volume commitments under these agreements.

 

Operations

 

General

 

As of December 31, 2020, HighPeak Energy’s properties consisted of 59,092 gross (50,636 net) acres with an average working interest of approximately 86%.

 

Facilities

 

Production facilities related to HighPeak Energy’s properties are located near the producing wells and consist of salt-water disposal wells and related facilities, a salt-water disposal pipeline system throughout our northern acreage, storage tanks, two-phase and/or three-phase separation equipment, flowlines, metering equipment and safety systems. Predominant artificial lift methods include electrical submersible pumps (“ESP”), rod pumps and some plunger lift. HighPeak Energy’s mostly contiguous acreage position allows for optimized capital expenditures for production facilities and associated water handling infrastructure.

 

Our properties are well serviced by existing oil, gas and water infrastructure and gathering systems. Currently, all the oil production is transported by truck, but there is access to a variety of markets that will achieve attractive terms related to available market indices. The natural gas production from our properties is gathered by third-party processors with the majority of the gas production currently processed to extract natural gas liquids. The extracted liquids and residue gas are sold to various intrastate and interstate markets on a competitive pricing basis.

 

Marketing and Customers

 

The following table sets forth the percentage of revenues attributable to customers who have accounted for 10% or more of revenues attributable to the Company’s assets during the years ended December 31, 2020, 2019 and 2018.

 

		Years Ended December 31,
Major Customers		2020				2019				2018
Lion Oil Trading and Transportation, LLC			80	%			*				*
Enlink Crude Purchasing, LLC			17	%			67	%			32	%
Sunoco Partners Marketing & Terminals, LP			*				21	%			49	%

 

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*	Less than 10%.

 

 

No other purchaser accounted for 10% or more of revenue attributable to the Company’s assets on a combined basis in the years ended December 31, 2020, 2019, or 2018. The loss of any such purchaser could adversely affect revenues attributable to the Company’s assets in the short term. Please see “Risk Factors—Risks Related to Our Business—HighPeak Energy depends upon a small number of significant purchasers for the sale of most of its oil, natural gas and NGL production. The loss of one or more of such purchasers could, among other factors, limit HighPeak Energy’s access to suitable markets for the oil, natural gas and NGL it produces.”

 

For oil production, HighPeak currently operates under month-to-month or short-term contracts, with production typically transported by truck. We are currently negotiating an agreement for future oil production from our northern acreage. Under the agreement, our production will be gathered and purchased by a reputable third-party with firm transportation rates and negotiated pricing adjusting to known and published indices with a fixed primary term and an evergreen option thereafter. In addition, HighPeak Energy sells its natural gas production from the Company’s assets to multiple third-party purchasers pursuant to the terms of gas processing and purchase contracts at varying rates. The natural gas production is gathered and processed under agreements with a primary term and generally an evergreen extension option.

 

Competition

 

The oil and natural gas industry is intensely competitive, and HighPeak Energy competes with other companies that have greater resources. Many of these companies not only explore for and produce oil and natural gas, but also carry on midstream and refining operations and market petroleum and other products on a regional, national or worldwide basis. These companies may be able to pay more for productive oil and natural gas properties and exploratory prospects or to define, evaluate, bid for and purchase a greater number of properties and prospects than HighPeak Energy’s financial or human resources permit. In addition, these companies may have a greater ability to continue exploration activities during periods of low oil and natural gas market prices. HighPeak Energy’s larger or more integrated competitors may be able to absorb the burden of existing, and any changes to, federal, state and local laws and regulations more easily than HighPeak Energy can, which could adversely affect HighPeak Energy’s competitive position, as applicable. HighPeak Energy’s ability to acquire additional properties and to discover reserves in the future will be dependent upon its ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, because HighPeak Energy will have fewer financial and human resources than many companies in their industry, HighPeak Energy may be at a disadvantage in bidding for exploratory prospects and producing oil and natural gas properties.

 

There is also competition between oil and natural gas producers and other industries producing energy and fuel. For example, HighPeak Energy also faces indirect competition from alternative energy sources, including wind and solar. Furthermore, competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the governments of the United States and the jurisdictions in which HighPeak Energy operates. It is not possible to predict the nature of any such legislation or regulation which may ultimately be adopted or its effects upon HighPeak Energy’s future operations as related to the Company’s assets. Such laws and regulations may substantially increase the costs of developing oil and natural gas reserves and may prevent or delay the commencement or continuation of a given operation. HighPeak Energy’s larger competitors may be able to absorb the burden of existing, and any changes to, federal, state and local laws and regulations more easily than HighPeak Energy can, which would adversely affect HighPeak Energy’s competitive positions, as applicable. See “Risk Factors—Risks Related to Our Business—Competition in the oil and natural gas industry is intense, which will make it more difficult for HighPeak Energy to acquire properties, market oil or natural gas and secure trained personnel.”

 

Seasonality of Business

 

Weather conditions can affect the demand for, and prices of, oil and natural gas. Demand for natural gas is typically higher in the fourth and first quarters resulting in higher prices while the demand for oil is typically higher during the second and third quarters. Due to these seasonal fluctuations, results of operations for individual quarterly periods may not be indicative of the results that may be realized on an annual basis.

 

 

Title to Properties

 

As is customary in the oil and natural gas industry, HighPeak Energy, as operator of the Company’s assets, initially conducts (at a minimum) a cursory review of the title to properties in connection with acquisition of leasehold acreage. HighPeak Energy has also obtained title opinion coverage on a majority of the Company’s assets and has performed customary reviews of the title to substantially all of the Company’s assets. Additionally, at such time as HighPeak Energy determines to conduct drilling operations on those properties, HighPeak Energy will conduct a thorough title examination, will obtain division order title opinions, and will perform curative work with respect to any significant defects that may exist prior to: (i) commencement of drilling operations and (ii) the initial disbursement of associated revenues. HighPeak Energy has obtained title opinions on substantially all its producing properties. The oil and natural gas properties within the Company’s assets are subject to customary royalty and other interests, liens for current taxes and other burdens which HighPeak Energy believes does not materially interfere with the use of, or affect the carrying value of, the properties.

 

Prior to completing an acquisition of producing oil and natural gas properties, HighPeak Energy may perform title reviews on the most significant leases and may obtain a title opinion, obtain an updated title opinion or review previously obtained title opinions.

 

HighPeak Energy believes it has satisfactory title to all the material properties within the Company’s assets in accordance with standards generally accepted in the oil and natural gas industry. Although title to the Company’s assets is subject to encumbrances in some cases, such as customary interests generally retained in connection with the acquisition of real property, customary royalty interests and contract terms and restrictions, liens under operating agreements, liens related to environmental liabilities associated with historical operations, liens for current taxes and other burdens, easements, restrictions and minor encumbrances customary in the oil and natural gas industry, none of these liens, restrictions, easements, burdens or encumbrances will likely materially detract from the value of the properties within the Company’s assets or from HighPeak Energy’s interests in these properties or materially interfere with HighPeak Energy’s use of these properties in the operation of their business. In addition, HighPeak Energy believes they have obtained sufficient rights-of-way grants and permits from public authorities and private parties for them to operate their business in all material respects as described in this prospectus.

 

Oil and Natural Gas Leases

 

The typical oil and natural gas lease agreement covering the properties within the Company’s assets provides for the payment of royalties to the mineral owner for all oil and natural gas produced from any wells drilled on the leased premises. The lessor royalties and other leasehold burdens on the properties within the Company’s assets are approximately 25%.

 

Regulation of the Oil and Natural Gas Industry

 

Our operations are substantially affected by federal, state and local laws and regulations. Failure to comply with applicable laws and regulations can result in substantial penalties. The regulatory burden on the industry increases the cost of doing business and affects profitability. Although we believe we are in substantial compliance with all applicable laws and regulations, such laws and regulations are frequently amended or reinterpreted. Therefore, we are unable to predict the future costs or impact of compliance. Additional proposals and proceedings that affect the oil and natural gas industry are regularly considered by Congress, the states, FERC, the EPA, the Department of Transportation (“DOT”), other federal agencies, and the courts. We cannot predict when or whether any such proposals may become effective. We do not believe that we would be affected by any such action materially differently than similarly situated competitors.

In addition, unforeseen environmental incidents may occur or past non-compliance with environmental laws or regulations may be discovered.

 

Regulation of Production of Oil and Natural Gas

 

Oil and gas production and related operations are substantially affected by federal, state and local laws and regulations. In particular, oil and natural gas production and related operations are, or have been, subject to price controls, taxes and numerous other laws and regulations. All of the jurisdictions in which the Company’s assets are located have statutory provisions regulating the development and production of oil and natural gas, including provisions related to permits for the drilling of wells, bonding requirements to drill or operate wells, the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, sourcing and disposal of water used in the drilling and completion process, and the abandonment of wells. Oil and gas operations are also subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units or proration units, the number of wells which may be drilled in an area, and the unitization or pooling of crude oil or natural gas wells, as well as regulations that generally prohibit the venting or flaring of natural gas, and impose certain requirements regarding the ratability or fair apportionment of production from fields and individual wells.

 

 

Failure to comply with applicable laws and regulations can result in substantial penalties. The regulatory burden on the industry increases the cost of doing business and affects profitability. Such laws and regulations are frequently amended or reinterpreted. Therefore, it is not possible to predict the future costs or impact of compliance. Additional proposals and proceedings that affect the oil and natural gas industry are regularly considered by Congress, the states, FERC, the EPA, the DOT, other federal agencies, and the courts. It is not possible to predict when or whether any such proposals may become effective.

 

Federal, state and local statutes and regulations require permits for drilling, salt-water disposal and pipeline operations, drilling bonds and reports concerning operations. The Company’s assets are located in Texas, which regulates drilling and operating activities by, among other things, requiring permits for the drilling of wells, maintaining bonding requirements to drill or operate wells, and regulating the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled and the plugging and abandonment of wells.

 

The laws of Texas also govern a number of conservation matters, including provisions for the unitization or pooling of oil and natural gas properties, the establishment of maximum allowable rates of production from oil and natural gas wells, the regulation of well spacing or density, and plugging and abandonment of wells. The effect of these regulations is to limit the amount of oil and natural gas the wells within the Company’s assets can produce and to limit the number of wells or the locations that can be drilled within the Company’s assets, although operators can apply for exceptions to such regulations or to have reductions in well spacing or density. Moreover, various states impose a production or severance tax with respect to the production and sale of oil, natural gas and NGL within its jurisdiction. The failure to comply with these rules and regulations can result in substantial penalties.

 

Regulation Affecting Sales and Transportation of Commodities

 

Sales prices of oil, natural gas and NGL are not currently regulated and are made at market prices. Although prices of these energy commodities are currently unregulated, Congress historically has been active in their regulation. We cannot predict whether new legislation to regulate oil and natural gas, or the prices charged for these commodities might be proposed, what proposals, if any, might actually be enacted by Congress or the various state legislatures and what effect, if any, the proposals might have on our operations. Sales of oil and natural gas may be subject to certain state and potentially federal reporting requirements.

 

The price and terms of service of transportation of the commodities, including access to pipeline transportation capacity, are subject to extensive federal and state regulation. Such regulation may affect the marketing of oil and natural gas produced, as well as the revenues received for sales of such production. Gathering systems may be subject to state ratable take and common purchaser statutes. Ratable take statutes generally require gatherers to take, without undue discrimination, oil and natural gas production that may be tendered to the gatherer for handling. Similarly, common purchaser statutes generally require gatherers to purchase, or accept for gathering, without undue discrimination as to source of supply or producer. These statutes are designed to prohibit discrimination in favor of one producer over another producer or one source of supply over another source of supply. These statutes may affect whether and to what extent gathering capacity is available for oil and natural gas production, if any, of the drilling program and the cost of such capacity. Further, state laws and regulations govern rates and terms of access to intrastate pipeline systems, which may similarly affect market access and cost.

 

The FERC regulates interstate natural gas pipeline transportation rates and service conditions. The FERC is continually proposing and implementing new rules and regulations affecting interstate transportation. The stated purpose of many of these regulatory changes is to promote competition among the various sectors of the natural gas industry and to promote market transparency. We do not believe that our drilling program will be affected by any such FERC action in a manner materially differently than other similarly situated natural gas producers.

 

Gathering services, which occur upstream of FERC jurisdictional transmission services, are regulated by the states onshore and in state waters. Although the FERC has set forth a general test for determining whether facilities perform a non-jurisdictional gathering function or a jurisdictional transmission function, the FERC’s determinations as to the classification of facilities is done on a case-by-case basis. State regulation of natural gas gathering facilities generally includes various safety, environmental and, in some circumstances, nondiscriminatory take requirements. Although such regulation has not generally been affirmatively applied by state agencies, natural gas gathering may receive greater regulatory scrutiny in the future.

 

 

In addition to the regulation of natural gas pipeline transportation, the FERC has jurisdiction over the purchase or sale of gas or the purchase or sale of transportation services subject to the FERC’s jurisdiction pursuant to the Energy Policy Act of 2005. Under this law, it is unlawful for “any entity,” including producers such as us, that are otherwise not subject to the FERC’s jurisdiction under the Natural Gas Act of 1938 to use any deceptive or manipulative device or contrivance in connection with the purchase or sale of gas or the purchase or sale of transportation services subject to regulation by the FERC, in contravention of rules prescribed by the FERC. The FERC’s rules implementing this provision make it unlawful, in connection with the purchase or sale of gas subject to the jurisdiction of the FERC, or the purchase or sale of transportation services subject to the jurisdiction of the FERC, for any entity, directly or indirectly, to use or employ any device, scheme or artifice to defraud, to make any untrue statement of material fact or omit to make any such statement necessary to make the statements made not misleading, or to engage in any act or practice that operates as a fraud or deceit upon any person. The Energy Policy Act of 2005 also gives the FERC authority to impose civil penalties for violations of the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978 up to $1,269,500 per day per violation (adjusted annually based on inflation). The anti-manipulation rule applies to activities of otherwise non-jurisdictional entities to the extent the activities are conducted “in connection with” gas sales, purchases or transportation subject to FERC jurisdiction, which includes the annual reporting requirements under Order 704 (defined below).

 

In December 2007, the FERC issued a final rule on the annual natural gas transaction reporting requirements, as amended by subsequent orders on rehearing (“Order 704”). Under Order 704, any market participant, including a producer such as us, that engages in wholesale sales or purchases of gas that equal or exceed 2.2 million MMBtus of physical natural gas in the previous calendar year, must annually report such sales and purchases to the FERC on Form No. 552 on May 1 of each year. Form No. 552 contains aggregate volumes of natural gas purchased or sold at wholesale in the prior calendar year to the extent such transactions utilize or contribute to the formation of price indices. It is the responsibility of the reporting entity to determine which individual transactions should be reported based on the guidance of Order 704. Order 704 is intended to increase the transparency of the wholesale gas markets and to assist the FERC in monitoring those markets and in detecting market manipulation.

 

The FERC also regulates rates and service conditions for interstate transportation of liquids, including oil and NGL, under the Interstate Commerce Act (the “ICA”). Prices received from the sale of liquids may be affected by the cost of transporting those products to market. The ICA requires that pipelines maintain a tariff on file with the FERC. The tariff sets forth the established rates as well as the rules and regulations governing the service. The ICA requires, among other things, that rates and terms and conditions of service on interstate common carrier pipelines be “just and reasonable.” Such pipelines must also provide jurisdictional service in a manner that is not unduly discriminatory or unduly preferential. Shippers have the power to challenge new and existing rates and terms and conditions of service before the FERC.

 

Rates of interstate liquids pipelines are currently regulated by the FERC primarily through an annual indexing methodology, under which pipelines increase or decrease their rates in accordance with an index adjustment specified by the FERC. For the five-year period beginning on July 1, 2016, the FERC established an annual index adjustment equal to the change in the producer price index for finished goods plus 1.23%. This adjustment is subject to review every five (5) years. Under the FERC’s regulations, a liquids pipeline can request the authority to charge market-based rates for transportation service if it satisfies certain criteria, and also can request a rate increase that exceeds the rate obtained through application of the indexing methodology by using a cost-of-service approach, but only after the pipeline establishes that a substantial divergence exists between the actual costs experienced by the pipeline and the rates resulting from application of the indexing methodology. Increases in liquids transportation rates may result in lower revenue and cash flows.

 

In addition, due to common carrier regulatory obligations of liquids pipelines, capacity must be prorated among shippers in an equitable manner in the event there are nominations in excess of capacity. Therefore, requests for service by new shippers or increased volume by existing shippers may reduce the capacity available to us. Any prolonged interruption in the operation or curtailment of available capacity of the pipelines that we rely upon for liquids transportation could have a material adverse effect on our business, financial condition, results of operations and cash flows. However, we believe that access to liquids pipeline transportation services generally will be available to us to the same extent as to our similarly situated competitors.

 

 

Intrastate liquids pipeline transportation rates are subject to regulation by state regulatory commissions. The basis for intrastate liquids pipeline regulation and the degree of regulatory oversight and scrutiny given to intrastate liquids pipeline rates, varies from state to state. We believe that the regulation of liquids pipeline transportation rates will not affect our operations in any way that is materially different from the effects on our similarly situated competitors.

 

In addition to the FERC’s regulations, we are required to observe anti-market manipulation laws with regard to our physical sales of energy commodities. In November 2009, the FTC issued regulations pursuant to the Energy Independence and Security Act of 2007 intended to prohibit market manipulation in the petroleum industry. Violators of the regulations face civil penalties of up to $1,210,340 per violation per day (adjusted annually based on inflation). In July 2010, Congress passed the Dodd-Frank Act, which incorporated an expansion of the authority of the CFTC to prohibit market manipulation in the markets regulated by the CFTC. This authority, with respect to crude oil swaps and futures contracts, is similar to the anti-manipulation authority granted to the FTC with respect to crude oil purchases and sales. In July 2011, the CFTC issued final rules to implement its new anti-manipulation authority. The rules subject violators to a civil penalty of up to the greater of $1,162,183 (adjusted annually based on inflation) or triple the monetary gain to the person for each violation.

 

Regulation of Environmental and Occupational Safety and Health Matters

 

Oil and natural gas development operations are subject to numerous stringent federal, regional, state and local statutes and regulations governing occupational safety and health, the discharge of materials into the environment or otherwise relating to environmental protection, some of which carry substantial administrative, civil and criminal penalties for failure to comply. These laws and regulations may require the acquisition of a permit before drilling or other regulated activity commences; restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with drilling, production and transporting through pipelines; govern the sourcing and disposal of water used in the drilling and completion process; limit or prohibit drilling activities in certain areas and on certain lands lying within wilderness, wetlands, frontier, seismically active areas and other protected areas; require some form of remedial action to prevent or mitigate pollution from former operations such as plugging abandoned wells or closing earthen pits; establish specific safety and health criteria addressing worker protection; and impose substantial liabilities for pollution resulting from operations or failure to comply with regulatory filings. In addition, these laws and regulations may restrict the rate of production.

 

The regulatory burden on the oil and natural gas industry increases the cost of doing business in the industry and consequently affects profitability. The trend in environmental regulation has been to place more restrictions and limitations on activities that may affect the environment, and thus, any changes in environmental laws and regulations or re-interpretation of enforcement policies that result in more stringent and costly construction, drilling, water management, completion, emission or discharge limits or waste handling, disposal or remediation obligations could increase the cost to our operators of developing our properties. Moreover, accidental releases or spills may occur in the course of operations on our properties, causing our operators to incur significant costs and liabilities as a result of such releases or spills, including any third-party claims for damage to property, natural resources or persons.

 

The following is a summary of the more significant existing environmental and occupational health and safety laws and regulations, as amended from time to time, to which operations related to the Company’s assets may be subject.

 

Hazardous Substances and Waste Handling

 

The CERCLA, also known as the “Superfund” law, and comparable state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons that are considered responsible for the release of a “hazardous substance” into the environment. These persons include the current and past owner or operator of the disposal site or the site where the release occurred and persons that disposed or arranged for the disposal or the transportation for disposal of the hazardous substances at the site where the release occurred. Under CERCLA, such persons may be subject to joint and several strict liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. The failure of an operator other than HighPeak Energy to comply with applicable environmental regulations may, in certain circumstances, be attributed to HighPeak Energy.

 

 

The RCRA and analogous state laws, impose detailed requirements for the generation, handling, storage, treatment and disposal of nonhazardous and hazardous solid wastes. RCRA specifically excludes drilling fluids, produced waters and other wastes associated with the development or production of crude oil, natural gas or geothermal energy from regulation as hazardous wastes. However, these wastes may be regulated by the EPA or state agencies under RCRA’s less stringent nonhazardous solid waste provisions, state laws or other federal laws. Moreover, it is possible these particular oil and natural gas development and production wastes now classified as nonhazardous solid wastes could be classified as hazardous wastes in the future. For example, in December 2016, the EPA and environmental groups entered into a consent decree to address the EPA’s alleged failure to timely assess its RCRA Subtitle D criteria regulations exempting certain exploration and production related oil and gas wastes from regulation as hazardous wastes under RCRA. Ultimately, the EPA decided that revision of these regulations was not necessary at this time; however, this decision may be reconsidered in the future. A loss of the RCRA exclusion for drilling fluids, produced waters and related wastes could result in an increase in the costs to manage and dispose of generated wastes. In addition, in the course of operating the Company’s assets, it is possible that some amounts of ordinary industrial wastes will be generated, such as paint wastes, waste solvents, laboratory wastes and waste compressor oils that may be regulated as hazardous wastes if such wastes have hazardous characteristics.

 

The Company’s assets consist of numerous properties that have been used for oil and natural gas development and production activities for many years. Hazardous substances, wastes or petroleum hydrocarbons may have been released on, under or from properties within the Company’s assets, or on, under or from other locations, including off-site locations, where such substances have been taken for recycling or disposal. In addition, some of the properties within the Company’s assets have been operated by third-parties or by previous owners or operators who have treated and disposed of hazardous substances, wastes or petroleum hydrocarbons. These properties and the substances disposed or released on, under or from them may be subject to CERCLA, RCRA and analogous state laws. Under such laws, HighPeak Energy could be required to undertake responsive or corrective measures with respect to the Company’s assets, which could include removal of previously disposed substances and wastes, cleanup of contaminated property or performance of remedial plugging or pit closure operations to prevent future contamination.

 

Water Discharges, Fluid Disposal and NORM

 

The CWA and comparable state laws impose restrictions and strict controls regarding the discharge of pollutants, including produced waters and other oil and natural gas wastes, into or near navigable waters. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or the state. The discharge of dredge and fill material in regulated waters, including wetlands, is also prohibited, unless authorized by a permit issued by the U.S. Army Corps of Engineers (the “Corps”). The scope of jurisdiction under the CWA has been subject to several rulemakings by the EPA in recent years and is subject to ongoing litigation; additionally, the Biden Administration may choose to develop a new interpretation. Therefore, the future reach of the CWA is uncertain at this time. To the extent any rule expands the scope of the CWA’s jurisdiction, HighPeak Energy could face increased costs and delays with respect to obtaining permits for dredge and fill activities in wetland areas. Obtaining permits has the potential to delay the development of oil and natural gas projects. These laws and any implementing regulations provide for administrative, civil and criminal penalties for any unauthorized discharges of oil and other substances in reportable quantities and may impose substantial potential liability for the costs of removal, remediation and damages.

 

Pursuant to these laws and regulations, HighPeak Energy may be required to obtain and maintain approvals or permits for the discharge of wastewater or storm water and are required to develop and implement spill prevention, control and countermeasure plans, also referred to as “SPCC plans,” in connection with on-site storage of significant quantities of oil.

 

 

The primary federal law related specifically to oil spill liability is the OPA, which amends and augments the oil spill provisions of the CWA and imposes certain duties and liabilities on certain “responsible parties” related to the prevention of oil spills and damages resulting from such spills in or threatening waters of the United States or adjoining shorelines. For example, operators of certain oil and natural gas facilities must develop, implement and maintain facility response plans, conduct annual spill training for certain employees and provide varying degrees of financial assurance. Owners or operators of a facility, vessel or pipeline that is a source of an oil discharge or that poses the substantial threat of discharge is one type of “responsible party” who is liable. The OPA applies joint and several liability, without regard to fault, to each liable party for oil removal costs and a variety of public and private damages. Although defenses exist, they are limited.

 

Fluids resulting from oil and natural gas production, consisting primarily of salt-water, are disposed by injection in belowground disposal wells regulated under the Underground Injection Control (“UIC”) program and analogous state laws. The UIC program requires permits from the EPA or an analogous state agency for the construction and operation of disposal wells, establishes minimum standards for disposal well operations, and may restrict the types and quantities of fluids that may be disposed. In addition, state and federal regulatory agencies have focused on a possible connection between oil and gas activity and induced seismicity. For example, in 2015, the United States Geological Study identified eight states, including Texas, with areas of induced seismicity that could be attributed to fluid injection or oil and gas extraction.

 

In response to these concerns, some states, including Texas, have imposed additional requirements for the permitting of produced water disposal wells, such as volume and pressure limitations or seismicity thresholds for temporary cessations of activity. The adoption and implementation of any new laws or regulations that restrict our operators’ ability to use hydraulic fracturing or dispose of produced water gathered from drilling and production activities by limiting volumes, disposal rates, disposal well locations or otherwise, or requiring them to shut down disposal wells, could have a material adverse effect on our business, financial condition and results of operations.

 

In addition, naturally occurring radioactive material (“NORM”) is brought to the surface in connection with oil and gas production. Comprehensive federal regulation does not currently exist for NORM; however, the EPA has studied the impacts of technologically enhanced NORM, and several states, including Texas, regulate the disposal of NORM. Concerns have arisen over traditional NORM disposal practices (including discharge through publicly owned treatment works into surface waters), which may increase the costs associated with management of NORM. To the extent that federal or state regulation increases the compliance costs for NORM disposal, operators may incur additional costs that may make some properties unprofitable to operate.

 

Air Emissions

 

The CAA and comparable state laws restrict the emission of air pollutants from many sources (e.g., compressor stations), through the imposition of air emissions standards, construction and operating permitting programs and other compliance requirements. These laws and regulations may require HighPeak Energy to obtain pre-approval for the construction or modification of certain projects or facilities expected to produce or significantly increase air emissions, obtain and strictly comply with stringent air permit requirements or utilize specific equipment or technologies to control emissions of certain pollutants. For example, in October 2015, the EPA lowered the National Ambient Air Quality Standard for ozone from 75 to 70 parts per billion and completed attainment/non-attainment designations in July 2018. While the EPA has determined that counties in which HighPeak Energy currently operates are in attainment with the new ozone standards, these determinations may be revised in the future. Reclassification of areas or imposition of more stringent standards may make it more difficult to construct new facilities or modify existing facilities in these newly designated non-attainment areas and result in increased expenditures for pollution control equipment, the costs of which could be significant.

 

In addition, the EPA has adopted new rules under the CAA that require the reduction of volatile organic compounds from certain fractured and refractured oil and natural gas wells for which well completion operations are conducted and further require that most wells use reduced emission completions, also known as “green completions.” These regulations also establish specific new requirements regarding emissions from production-related wet seal and reciprocating compressors, and from pneumatic controllers and storage vessels. In addition, the regulations place new requirements to detect and repair volatile organic compounds at certain oil and gas facilities. In May 2016, the EPA also finalized rules regarding criteria for aggregating multiple small surface sites into a single source for air-quality permitting purposes applicable to the oil and gas industry. This rule could cause small facilities, on an aggregate basis, to be deemed a major source, thereby triggering more stringent air permitting processes and requirements. Compliance with these and other air pollution control and permitting requirements has the potential to delay the development of oil and natural gas projects and increase the costs of development, which costs could be significant.

 

 

Regulation of GHG Emissions

 

In response to findings that emissions of carbon dioxide, methane and other GHGs present an endangerment to public health and the environment, the EPA has adopted regulations under existing provisions of the CAA that, among other things, establish Prevention of Significant Deterioration (“PSD”), construction and Title V operating permit reviews for certain large stationary sources.

 

At the federal level, no comprehensive climate change legislation has been implemented to date. The EPA has, however, adopted rules under authority of the CAA that, among other things, establish PSD construction and Title V operating permit reviews for GHG emissions from certain large stationary sources that are also potential major sources of certain principal, or criteria, pollutant emissions. Under these regulations, facilities required to obtain PSD permits must meet “best available control technology” standards for those GHG emissions. In addition, the EPA has adopted rules requiring the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources in the U.S., including, among others, onshore and offshore production facilities, which include certain of our operators’ operations. The EPA has expanded the GHG reporting requirements to all segments of the oil and natural gas industry, including gathering and boosting facilities as well as completions and workovers from hydraulically fractured oil wells.

 

Federal agencies also have begun directly regulating emissions of methane from oil and natural gas operations. For example, in June 2016, the EPA published New Source Performance Standards, known as Subpart OOOOa, that requires certain new, modified or reconstructed facilities in the oil and natural gas sector to reduce these methane gas emissions. In September 2020, the Trump Administration published regulations to rescind methane specific requirements and remove the transmission and storage segments from the oil and natural gas source category. However, on January 20, 2021, President Biden signed an executive order calling for the suspension, revision or recission of the September 2020 rule and the reinstatement or issuance of methane emissions standards for new, modified and existing oil and gas facilities. Several states have also adopted rules to control and minimize methane emissions from the production of oil and natural gas, and others have considered or may consider doing so in the future.

 

At the international level, in December 2015, the United States and 194 other participating countries adopted the Paris Agreement, which calls for each participating country to establish their own nationally determined standards for reducing carbon output. Although the United States had withdrawn from such agreement, President Biden has signed executed orders recommitting the United States to the Paris Agreement and directing the federal government to begin formulating the United States’ nationally determined emissions reduction goal under the agreement. The impacts of this order, and any legislation or regulation promulgated to fulfill the United States’ commitments under the Paris Agreement, cannot be predicted at this time.

 

The adoption and implementation of any international, federal or state legislation or regulations that require reporting of GHGs or otherwise restrict emissions of GHGs could result in increased compliance costs or additional operating restrictions for our operators, and could have a material adverse effect on our business, financial condition and results of operations. On January 27, 2021, President Biden signed an executive order calling for substantial action on climate change, including, among other things, the increased use of zero-emissions vehicles by the federal government, the elimination of subsidiaries provided to the fossil fuel industry, and increased emphasis on climate-related risks across agencies and economic sectors. There is also a risk that financial institutions will be required to adopt policies that have the effect of reducing the funding provided to the fossil fuel sector. Recently, the Federal Reserve announced it has joined the Network for Greening the Financial System, a consortium of financial regulators focused on addressing climate-related risks in the financial sector. Limitation of investments in and financing for fossil fuel energy companies could result in the restriction, delay or cancellation of drilling programs or development or production activities. Ultimately, this could make it more difficult for operators to secure funding for exploration and production activities. Additionally, activist shareholders have introduced proposals that may seek to force companies to adopt aggressive emission reduction targets or restrict more carbon-intensive activities. While we cannot predict the outcomes of such proposals, they could make it more difficult for operators to engage in exploration and production activities. Finally, many scientists have concluded that increasing concentrations of GHG in the atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climate events that could have an adverse effect on HighPeak Energy’s operations.

 

 

Hydraulic Fracturing Activities

 

Hydraulic fracturing is an important and common practice used to stimulate production of oil and/or natural gas from dense subsurface rock formations. The hydraulic fracturing process involves the injection of water, proppants and chemicals under pressure into targeted subsurface formations to fracture the surrounding rock and stimulate production. Hydraulic fracturing is regularly used by operators of the Company’s assets. Hydraulic fracturing is typically regulated by state oil and natural gas commissions, but the EPA has asserted federal regulatory authority pursuant to the SDWA over certain hydraulic fracturing activities involving the use of diesel fuels and published permitting guidance in February 2014 addressing the performance of such activities using diesel fuels. The EPA has issued final regulations under the CAA establishing performance standards, including standards for the capture of air emissions released during hydraulic fracturing, and also finalized rules in June 2016 that prohibit the discharge of wastewater from hydraulic fracturing operations to publicly owned wastewater treatment plants.

 

At the state level, several states have adopted or are considering legal requirements that could impose more stringent permitting, disclosure and well construction requirements on hydraulic fracturing activities. For example, the Railroad Commission has adopted a “well integrity rule,” which updated the requirements for drilling, putting pipe down and cementing wells. The rule also imposes new testing and reporting requirements, such as (i) the requirement to submit cementing reports after well completion or after cessation of drilling, whichever is later, and (ii) the imposition of additional testing on wells less than 1,000 feet below usable groundwater. Local governments also may seek to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular.

 

Certain governmental reviews are either underway or have been conducted that focus on the environmental aspects of hydraulic fracturing practices. For example, in December 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources. The EPA report concluded that “water cycle” activities associated with hydraulic fracturing may impact drinking water resources under certain limited circumstances.

 

Compliance with existing laws has not had a material adverse effect on operations related to the Company’s assets, but if new or more stringent federal, state or local legal restrictions relating to the hydraulic fracturing process are adopted in areas where the Company’s assets are located, operators could incur potentially significant added costs to comply with such requirements, experience delays or curtailment in the pursuit of development activities, and perhaps even be precluded from drilling wells.

 

ESA and Migratory Birds

 

The ESA and (in some cases) comparable state laws were established to protect endangered and threatened species. Pursuant to the ESA, if a species is listed as threatened or endangered, restrictions may be imposed on activities adversely affecting that species’ habitat. The FWS may designate critical habitat and suitable habitat areas that it believes are necessary for survival of a threatened or endangered species. A critical habitat or suitable habitat designation could result in further material restrictions to land use and may materially delay or prohibit land access for oil and natural gas development. Moreover, as a result of a settlement approved by the U.S. District Court for the District of Columbia in September 2011, the FWS was required to make a determination on listing of more than 250 species as endangered or threatened under the ESA by no later than completion of the agency’s 2017 fiscal year. The agency missed the deadline but continues to review species for listing under the ESA. Similar protections are offered to migratory birds under the Migratory Bird Treaty Act. The federal government in the past has pursued enforcement actions against oil and natural gas companies under the Migratory Bird Treaty Act after dead migratory birds were found near reserve pits associated with drilling activities. Although the Department of Interior issued a new opinion in 2017 revoking its prior enforcement policy and concluded that an incidental take is not a violation of the Migratory Bird Treaty Act, the District Court for the Southern District of New York vacated this opinion in August 2020. In any event, the identification or designation of previously unprotected species as threatened or endangered in areas where underlying property operations are conducted could cause increased costs arising from species protection measures or could result in limitations on development activities that could have an adverse impact on the ability to develop and produce reserves within the Company’s assets. For example, recently, there have been renewed calls to review protections currently in place for the Dunes Sagebrush Lizard, whose habitat includes portions of the Permian Basin, and to reconsider listing the species under the ESA. If this species or others are listed, the FWS and similar state agencies may designate critical or suitable habitat areas that they believe are necessary for the survival of threatened or endangered species. If a portion of the Company’s assets were to be designated as a critical or suitable habitat, it could adversely impact the value of the Company’s assets.

 

 

OSHA

 

HighPeak Energy will be subject to the requirements of the OSHA and comparable state statutes whose purpose is to protect the health and safety of workers. Violations can result in civil or criminal penalties as well as required abatement. In addition, the OSHA hazard communication standard, the Emergency Planning and Community Right-to-Know Act and comparable state statutes and any implementing regulations require that HighPeak Energy organizes and/or disclose information about hazardous materials used or produced in its operations and that this information be provided to employees, state and local governmental authorities and citizens.

 

Related Permits and Authorizations

 

Many environmental laws require permits or other authorizations from state and/or federal agencies before initiating certain drilling, construction, production, operation or other oil and natural gas activities, and require maintaining these permits and compliance with their requirements for on-going operations. These permits are generally subject to protest, appeal or litigation, which could in certain cases delay or halt projects and cease production or operation of wells, pipelines and other operations related to the Company’s assets.

 

Related Insurance 

 

The oil and natural gas industry involves a variety of operating risks, including the risk of fire, explosions, blow outs, pipe failures and, in some cases, abnormally high pressure formations which could lead to environmental hazards such as oil spills, natural gas leaks and the discharge of toxic gases. If any of these should occur, we could incur legal defense costs and could be required to pay amounts due to injury, loss of life, damage or destruction to property, natural resources and equipment, pollution or environmental damage, regulatory investigations and penalties and suspension of operations.

 

HighPeak Energy maintains insurance against some risks associated with above or underground contamination that may occur as a result of development activities. We currently have insurance policies for onshore property (oil lease property/production equipment) for selected locations, rig physical damage protection, comprehensive general liability, commercial automobile, workers compensation, excess umbrella liability and other coverage. Our insurance is subject to exclusion and limitations, and there is no assurance that such coverage will fully or adequately protect us against liability from all potential consequences, damages and losses. Any of these operational hazards could cause a significant disruption to our business. A loss not fully covered by insurance could have a material adverse effect on our financial position, results of operations and cash flows. This insurance is limited to activities at the well site and there can be no assurance that this insurance will continue to be commercially available or that this insurance will be available at premium levels that justify its purchase by HighPeak Energy.

 

Human Capital

 

We believe that our employees are the foundation to fostering the safe operation of our assets. We foster a collaborative, inclusive, and safety-minded work environment, focused on working safely every day. We seek to identify qualified internal and external talent for our organization, enabling us to execute on our strategic objectives.

 

As of December 31, 2020, we employed 25 full-time employees dedicated to operating the Company’s assets. In connection with the HighPeak business combination, HighPeak Energy acquired the entity that employs the employees dedicated to operating the Company’s assets and retained such employees that are necessary to efficiently operate the Company’s assets. None of these employees are covered by collective bargaining agreements, and we consider our employee relations to be good.

 

Employee Health and Safety

 

Safety is important to us and begins with the protection and safety of our employees, contractors and communities where we operate. We value people above all else and remain committed to making safety and health our top priority. We continually seek to maintain and deepen our safety culture by providing a safe working environment that encourages active employee engagement, including implementing safety programs to achieve improvements in our safety culture.

 

The Company has taken steps to keep its employees safe during the COVID-19 pandemic by implementing preventative measures and developing response plans intended to minimize unnecessary risk of exposure and infection among its employees. The Company has also modified certain business practices (including those related to non-operational employee work locations, such as a significant reduction in physical participation in meetings, events and conferences) to conform to government restrictions and best practices encouraged by the Center for Disease Control and Prevention, and other governmental and regulatory authorities.

 

Diversity and Inclusion

 

We are committed to fostering a work environment in which all employees treat each other with dignity and respect. This commitment extends to providing equal employment and advancement opportunities based on merit and experience. We continually strive to attract a diverse workforce by identifying potential candidates to advance and strengthen our human capital management program.

 

Our employee demographic profile allows us to promote inclusion of thought, skill, knowledge, and culture across our operations to achieve our social obligations and commitments.

 

Talent Development and Retention

 

We value and provide opportunities for cross training and increased responsibilities, including leadership learning. These efforts allow us to recruit from within our organization for future vocational and occupational opportunities. Our management promotes formal and informal learning and development throughout the organization. We offer developmental programs focused on building the skills of our employees and to help advance employee careers, knowledge, and skillsets through training and related programs.

 

Legal Proceedings

 

HighPeak Energy is not party to lawsuits related to the Company’s assets other than those arising in the ordinary course of business or that will be retained by the contributors. Due to the nature of the oil and natural gas business, HighPeak Energy is, from time to time, involved in other routine litigation or subject to disputes or claims related to the operation of the Company’s assets, including workers’ compensation claims and employment related disputes. In the opinion of management, none of these other pending litigation, disputes or claims against HighPeak I and HighPeak II, if decided adversely, will have a material adverse effect on the Company’s assets.

 

Offices

 

The principal field office for HighPeak Energy is located at 303 West Wall Street, Suite 2202, Midland, Texas 79701.

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the historical financial statements and related notes included elsewhere in this prospectus. This discussion contains “forward looking statements” reflecting our current expectations, estimates and assumptions concerning events and financial trends that may affect our future operating results or financial position. Actual results and the timing of events may differ materially from those contained in these forward looking statements due to a number of factors. Factors that could cause or contribute to such differences include, but are not limited to, market prices for oil and natural gas, capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and elsewhere in this prospectus. Please read Cautionary Note Regarding Forward Looking Statements. Also, please read the risk factors and other cautionary statements described under “Risk Factors.” We assume no obligation to update any of these forward looking statements, except as required by applicable law.

 

Overview

 

HighPeak Energy, Inc., a Delaware corporation, was formed in October 2019 solely for the purpose of combining the businesses of Pure and HPK LP, referred to herein as the “HighPeak business combination,” which was completed on August 21, 2020. HPK LP was formed in August 2019 for the purpose combining the assets of HighPeak I and HighPeak II into one entity. HighPeak I was formed in June 2014 for the purpose of acquiring, exploring and developing oil and natural gas properties, although it had no activity until 2017. Beginning in late 2017, HighPeak I began acquiring its assets through an organic leasing campaign and a series of acquisitions consisting primarily of leasehold acreage and existing vertical producing wells.

 

The Company’s assets are located primarily in Howard County, Texas, which lies within the north eastern part of the oil-rich Midland Basin. As of December 31, 2020, the assets consisted of two highly contiguous leasehold positions of approximately 59,092 gross (50,636 net) acres, approximately 24% of which were held by production, with an average working interest of 86%. Approximately 97% of the operated acreage provides for horizontal wells with lateral lengths of 10,000 feet or greater. For the year ended December 31, 2020, approximately 95% and 5% of production from the assets were attributable to liquids (both oil and NGL) and natural gas, respectively. As of December 31, 2020, HighPeak Energy was drilling with one (1) rig. We are the operator on approximately 95% of the net acreage across our assets. Further, as of December 31, 2020, there were approximately 115 gross (71.7 net) producing wells, including 19 gross (18.3 net) horizontal wells, with total sales volumes of approximately 3,426 Boe/d in December 2020. As of December 31, 2020, of the 22,515 MBoe of proved reserves of the assets, 46% were developed, 94% of which were liquids.

 

The financial results as presented in this section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” consist of the historical results of HPK LP from August 28, 2019 (Inception) through December 31, 2019 combined with HighPeak I for the year ended December 31, 2019 (excluding HighPeak I’s equity in losses of HPK LP which was its only activity during the period following its business combination with and into HPK LP), HPK LP for the period from January 1, 2020 through August 21, 2020 and the Company from August 22, 2020 through December 31, 2020. At the Closing of the HighPeak business combination on August 21, 2020, the Company’s “predecessors” for accounting purposes were HPK LP for the period from October 1, 2019 through August 21, 2020 and HighPeak I from January 1, 2017 through September 30, 2019 (collectively, the “Predecessors”).

 

Outlook

 

HighPeak Energy’s financial position and future prospects, including its revenues, operating results, profitability, liquidity, future growth and the value of its assets, depend primarily on prevailing commodity prices. The oil and natural gas industry is cyclical and commodity prices are highly volatile. For example, during the period from January 1, 2018 through December 31, 2020, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $70.76, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $4.72. For the month of April 2020, the calendar month average NYMEX WTI crude oil price was $16.70 per Bbl and the last trading day NYMEX natural gas price was $1.63 per MMBtu.

 

Due to the absence of any debt, the Company has not historically entered into any hedges. With the addition of the Revolving Credit Facility in December 2020, HighPeak Energy will be required to enter into hedging arrangements during the first quarter of 2021.

 

 

Impact of the COVID-19 Pandemic and 2020 Plan Changes

 

The COVID-19 pandemic has resulted in a severe worldwide economic downturn, significantly disrupting the demand for oil and natural gas throughout the world, and has created significant volatility, uncertainty and turmoil in the oil and gas industry. The decrease in demand for oil combined with pressures on the global supply-demand balance for oil and related products, resulted in oil prices declining significantly beginning in late February 2020. The length of this demand disruption is unknown, and there is significant uncertainty regarding the long-term impact to global oil demand, which will ultimately depend on various factors and consequences beyond the Company's control, such as the duration and scope of the pandemic, the length and severity of the worldwide economic downturn, the ability of OPEC, Russia and other oil producing nations to manage the global oil supply, additional actions by businesses and governments in response to the pandemic, the economic downturn and the decrease in oil demand, the speed and effectiveness of responses to combat the virus, and the time necessary to balance oil supply and demand to restore oil pricing. In response to these developments, the Company has implemented measures to mitigate the impact of the COVID-19 pandemic on its employees, operations and financial position. These measures include, but are not limited to, the following:

 

Employee Safety. The Company has taken steps to keep its employees safe during the COVID-19 pandemic by implementing preventative measures and developing response plans intended to minimize unnecessary risk of exposure and infection among its employees. The Company has also modified certain business practices (including those related to non-operational employee work locations, such as a significant reduction in physical participation in meetings, events and conferences) to conform to government restrictions and best practices encouraged by the Centers for Disease Control and Prevention, and other governmental and regulatory authorities.

 

Expense Management. With the reduction in revenue, the Company has implemented, and will continue to evaluate other cost saving initiatives, including:

 

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Continuing to optimize drilling, completion and operational efficiencies, resulting in lower operating costs per unit of production.

 

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Reducing annual general and administrative and other overhead related costs through various cost reduction efforts across the organization.

 

Balance Sheet, Cash Flow and Liquidity. The Company has taken the following actions to strengthen its financial position and increase liquidity:

 

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Maintained a debt free balance sheet and pursued increased liquidity by adding a credit facility with a modest borrowing base at attractive interest rates.

 

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Poised to use derivative positions to reduce the effects of oil price volatility on its net cash provided by operating activities.

 

The Company continues to assess the global impacts of the COVID-19 pandemic and may modify its plans as the health and economic impacts of COVID-19 continue to evolve.

 

Financial and Operating Performance

 

The Company’s financial and operating performance for the period from August 22, 2020 through December 31, 2020 plus the period from January 1, 2020 through August 21, 2020 of its Predecessors included the following highlights:

 

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Net loss attributable to common stockholders for the period from August 22, 2020 through December 31, 2020 was $16.4 million ($0.18 per diluted share) plus the net loss of the Company’s Predecessor for the period from January 1, 2020 through August 21, 2020 of $85.0 million compared with a net loss of the Company’s Predecessors of $11.6 million for the year ended December 31, 2019. The primary components of the $89.9 million decrease in earnings attributable to common stockholders include:

 

 

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a $76.5 million charge to expense related to an acquisition that was terminated in April 2020 primarily attributable to the downturn in oil prices related to COVID-19 whereby the Company had paid a $61.5 million nonrefundable deposit during 2019 plus a $15 million extension payment paid in 2020 that was also nonrefundable;

 

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a $15.8 million increase in stock-based compensation expense primarily attributable to $15.5 million in stock-based compensation related to stock options that were granted in August 2020 upon the closing of the HighPeak business combination whereby approximately 75% of the stock options vested immediately causing a charge to earnings plus 62,500 shares of non-restricted stock issued to our independent directors in November 2020 totaling $302,000 in stock-based compensation expense;

 

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a $12.0 million increase in depletion, depreciation and amortization expense due to a 317% increase in overall sales volumes, partially offset by an 8% decrease in the depletion, depreciation and amortization rate from $25.04 to $23.08 per Boe, both as a result of increased proved reserves due to the Company’s successful horizontal drilling program in the Permian Basin;

 

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a $5.2 million increase in production costs, including taxes, primarily attributable to the 317% increase in sales volumes as a result of the Company’s successful horizontal drilling program in the Permian Basin partially offset by 23% lower taxes on a dollar per Boe basis due to lower overall realized prices of 26%; and

 

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a $2.2 million increase in exploration and abandonment expenses related to the impairment of $4.8 million during 2020 related to various undeveloped leasehold costs that the Company was not successful in obtaining extensions on, partially offset by lower geophysical data purchases of almost $2.6 million that were incurred in 2019;

 

partially offset by:

 

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a $16.5 million increase in oil and gas revenues due to a 317% increase in daily sales volumes due to the Company’s successful horizontal drilling program in the Permian Basin, partially offset by a 27% decrease in average realized commodity prices per Boe;

 

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a $2.3 million increase in the Company's income tax benefit due to the net loss experienced in 2020 and the fact that the Predecessors were pass through entities for income tax purposes and did not recognize any tax expense or benefit on their financial statements; and

 

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a $1.1 million decrease in general and administrative costs due primarily to a significant amount of expenses relating to the HighPeak business combination that were incurred during 2019 plus various cost reduction efforts implemented across the organization during 2020 in response to the COVID-19 pandemic and downturn in crude oil prices, partially offset by increased costs in late 2020 associated with being a public company.

 

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During the period from August 22, 2020 through December 31, 2020, average daily sales volumes totaled 3,292 Boe/d and during the period from January 1, 2020 through August 21, 2020, average sales volumes totaled 1,154 Boe/d for an overall average for the year ended December 31, 2020 of 1,925 Boe/d, an increase of 317% over 2019, due to the Company's successful horizontal drilling program in the Permian Basin.

 

 

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Weighted average realized oil prices per Bbl decreased during the year ended December 31, 2020 to $37.96 ($40.15 during the period from August 22, 2020 through December 31, 2020 and $34.26 during the period from January 1, 2020 through August 21, 2020), compared with $53.96 for 2019. Weighted average NGL prices per Bbl were $14.06 during the year ended December 31, 2020 ($19.44 during the period from August 22, 2020 through December 31, 2020 and $9.31 per Bbl during the period from January 1, 2020 through August 21, 2020). This partially caused the decreased natural gas prices during 2020 as the Company recorded wet wellhead natural gas sales prior to 2020 which combines the revenues received from residue gas and NGL into one revenue component and sales volumes equal to wet wellhead volumes rather than processed residue natural gas and NGL at the tailgate of the processing plants. Weighted average gas prices per Mcf increased to $1.04 during the year ended December 31, 2020 ($1.45 during the period from August 22, 2020 through December 31, 2020 and $0.52 during the period from January 1, 2020 through August 21, 2020) compared with $1.92 during 2019.

 

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Cash provided by operating activities totaled $5.4 million for the period from August 22, 2020 through December 31, 2020.

 

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The Company raised $84.5 million of capital, net of offering costs, related to the HighPeak business combination that closed on August 21, 2020 while maintaining a balance sheet with no outstanding debt. The Company also closed a Revolving Credit Facility in December 2020 with an initial borrowing capacity of $20 million with nothing drawn as of December 31, 2020. This capital gave the Company flexibility in the short term to recommence our development drilling program whereby we have added one drilling rig that has drilled one salt-water disposal well and four producing wells and as of December 31, 2020 was drilling on a two well pad in our development area. Shortly after Closing, we also added two completion crews to frac eight (8) of our twelve (12) uncompleted wells that were drilled but not fully completed when operations were shut down earlier this year due primarily to the COVID-19 pandemic and to finish completing our four (4) additional uncompleted wells. We reduced to one completion crew prior to year-end that will focus on completing the wells both recently drilled and wells currently drilling.

 

The Company currently plans to operate one (1) drilling rig and an average of one (1) frac fleet in the Permian Basin during the first three months of 2021. However, the scope, duration and magnitude of the direct and indirect effects of the COVID-19 pandemic are continuing to evolve and in ways that are difficult or impossible to anticipate. Given the dynamic nature of this situation, the Company is maintaining flexibility in its capital plan and will continue to evaluate drilling and completion activity on an economic basis, with future activity levels assessed monthly.

 

During the year ended December 31, 2020, the Company successfully drilled twenty-one (21) horizontal wells in our northern acreage, thirteen of which are in the Wolfcamp A formation and eight of which are in the Lower Spraberry formations. In addition, the Company completed a horizontal salt-water disposal well near the center of our northern acreage production area which began accepting water for disposal in January 2021. Of the four (4) exploration/extension wells in progress as of December 31, 2020, two (2) of which were in the process of being drilled and two (2) of which were in the process of being completed, three (3) are in the Wolfcamp A formation and one (1) is in the Lower Spraberry formations.

 

Results of Operations

 

Sources of Revenues

 

HighPeak Energy’s revenues are derived from the sale of oil and natural gas production and the sale of NGL that are extracted from natural gas during processing. Production revenues are derived entirely from the continental United States. For the years ended December 31, 2020 and 2019, revenues from our assets were derived approximately 98% and 97%, respectively, from oil sales and 2% and 3%, respectively, from natural gas and NGL sales.

 

HighPeak Energy’s revenues are presented net of certain gathering, transportation and processing expenses incurred to deliver production of its assets’ oil, natural gas and NGL to the market. Cost levels of these expenses can vary based on the volume of oil, natural gas and NGL produced as well as the cost of commodity processing. Oil, natural gas and NGL prices are inherently volatile and are influenced by many factors outside the Company’s control. To reduce the impact of fluctuations in oil, natural gas and NGL prices on revenues, the Company may periodically enter into derivative contracts with respect to a portion of its estimated oil, natural gas and NGL production through various transactions that fix the future prices received.

 

Principal Components of Cost Structure

 

Costs associated with producing oil, natural gas and NGL are substantial. Some of these costs vary with commodity prices, some trend with the type and volume of production, and others are a function of the number of wells owned. The sections below summarize the primary operating costs typically incurred:

 

●

Lease Operating Expenses. Lease operating expenses (“LOE”) are the costs incurred in the operation of producing properties and workover costs. Expenses for utilities, direct labor, water injection and disposal, workover rigs and workover expenses, materials and supplies comprise the most significant portion of LOE. Certain items, such as direct labor and materials and supplies, generally remain relatively fixed across broad production volume ranges, but can fluctuate depending on activities performed during a specific period. For instance, repairs to pumping equipment or surface facilities result in increased LOE in periods during which they are performed. Certain operating cost components are variable and increase or decrease as the level of produced hydrocarbons and water increases or decreases. For example, power costs are incurred in connection with various production-related activities, such as pumping to recover oil and natural gas and separation and treatment of water produced in connection with oil and natural gas production.

 

 

HighPeak Energy monitors the operation of its assets to ensure that it is incurring LOE at an acceptable level. For example, it monitors LOE per Boe to determine if any wells or properties should be shut in, recompleted or sold. This unit rate also allows the Company to monitor these costs to identify trends and to benchmark against other producers. Although the Company strives to reduce its LOE, these expenses can increase or decrease on a per-unit basis as a result of various factors as it operates its assets or makes acquisitions and dispositions of properties. For example, the Company may increase field-level expenditures to optimize their operations, incurring higher expenses in one quarter relative to another, or they may acquire or dispose of properties that have different LOE per Boe. These initiatives would influence overall operating cost and could cause fluctuations when comparing LOE on a period-to-period basis.

 

●

Production and other taxes. Production and other taxes are paid on produced oil and natural gas based on rates established by federal, state or local taxing authorities. In general, production and other taxes paid correlate to changes in oil, natural gas and NGL revenues. Production taxes are based on the market value of production at the wellhead. The Company is also subject to ad valorem taxes in the counties where production is located. Ad valorem taxes are based on the fair market value of the mineral interests for producing wells.

 

●

Depletion – Oil and Gas Properties. Depletion is the systematic expensing of the capitalized costs incurred to acquire and develop oil and natural gas properties. The Company uses the successful efforts method of accounting for oil and gas properties. Accordingly, all costs associated with acquisition, successful exploration wells and development of oil and gas reserves, including directly related overhead costs and asset retirement costs are capitalized. However, the costs of abandoned properties, exploratory dry holes, geophysical costs and annual lease rentals are charged to expense as incurred. All capitalized costs of oil and gas properties are amortized on the unit-of-production method using estimates of proved reserves. Any remaining investments in unproved properties are not amortized until proved reserves associated with the projects can be determined or until impairment occurs.

 

●

General and Administrative Expenses. General and administrative expenses (“G&A”) are costs incurred for overhead, including payroll and benefits for corporate staff and costs of maintaining a headquarters, costs of managing production and development operations, IT expenses and audit and other fees for professional services, including legal compliance and acquisition-related expenses.

 

Factors Affecting the Comparability of the Predecessors Historical Financial Results

 

The comparability of the Predecessors’ results of operations among the periods presented, and for future periods, is impacted by the following factors:

 

●

The historical financial statements included herein are the financial statements of HighPeak I from January 1, 2019 to September 30, 2019, and the financial statements of HPK LP for the period from August 28, 2019 (Inception) through December 31, 2019 and for the period beginning January 1, 2020 and ending on August 21, 2020, as the Predecessors for financial reporting purposes, on a stand-alone basis, and as such, do not include financial information regarding the HighPeak II assets for all periods;

 

●

As a corporation, for U.S. federal income tax purposes, HighPeak Energy is subject to U.S. federal income taxes at a statutory rate of 21% of pretax earnings. This is a significant change from the Predecessors’ historical tax treatment because the Predecessors were each treated as a partnership for U.S. federal income tax purposes and, as such, the partners of the Predecessors reported their share of the Predecessors’ income or loss on their respective income tax returns;

 

 

●

Our assets will incur certain additional general and administrative expenses related to being owned by a publicly traded company, that were not previously incurred in HPK LP’s cost structure, including, but not limited to, Exchange Act reporting expenses; expenses associated with compliance with the Sarbanes-Oxley Act of 2002; expenses associated with being listed on a national securities exchange; incremental independent auditor fees; incremental legal fees; investor relations expenses; registrar and transfer agent fees; incremental director and officer liability insurance costs and independent director compensation;

 

●

The Predecessors completed acquisitions during the periods presented, including primarily the acquisition of undeveloped acreage for approximately $2.8 million, $6.3 million and $40.2 million during the period beginning January 1, 2020 and ending on August 21, 2020 and the years ended December 31, 2019 and 2018, respectively, and to a lesser extent producing properties and proved undeveloped reserves of approximately $585,000, $4.6 million and $881,000 during the period beginning January 1, 2020 and ending on August 21, 2020 and the years ended December 31, 2019 and 2018, respectively; and

 

●

During the period beginning January 1, 2020 and ending on August 21, 2020, HPK LP recognized a charge to expense of $76.5 million related to the termination of the Grenadier Acquisition (as defined below).

 

Year Ended December 31, 2020 Compared with Year Ended December 31, 2019

 

Oil and natural gas revenues.

 

Average daily sales volumes are as follows:

 

		Year Ended December 31, 2020
		Successor				Predecessors
		August 22, 2020 through December 31, 2020				January 1, 2020 through August 21, 2020				Year Ended December 31, 2019				Year to Year % Change
Oil (Bbls)			3,017				1,007				399				334	%
NGL (Bbls)			134				86				-				100	%
Natural Gas (Mcf)			849				373				380				43	%
Total (Boe)			3,292				1,154				462				317	%

 

The increase in average daily Boe sales volumes for the year ended December 31, 2020, compared with 2019 was due to the Company's successful horizontal drilling program in the Wolfcamp A and Lower Spraberry formations.

 

The oil, NGL and natural gas prices that the Company reports are based on the market prices received for each commodity. The weighted average prices are as follows:

 

		Year Ended December 31, 2020
		Successor				Predecessors
		August 22, 2020 through December 31, 2020				January 1, 2020 through August 21, 2020				Year Ended December 31, 2019				Year to Year % Change
Oil per Bbl		$	40.15			$	34.26			$	53.96				(28	)%
NGL per Bbl		$	19.44			$	9.31			$	n/a				100	%
Gas per Mcf		$	1.45			$	0.52			$	1.92				(39	)%
Total per Boe		$	37.74			$	30.44			$	48.13				(26	)%

 

 

The decrease in prices for oil and natural gas for the year ended December 31, 2020, compared with 2019 was due to a lower commodity price environment primarily as a result of the COVID-19 pandemic and over-supply.

 

Oil and natural gas production costs.

 

Oil and natural gas production costs in total and per Boe are as follows (in thousands, except percentages and per Boe amounts):

 

		Year Ended December 31, 2020
		Successor				Predecessors
		August 22, 2020 through December 31, 2020				January 1, 2020 through August 21, 2020				Year Ended December 31, 2019				Year to Year % Change
Lease operating expenses		$	2,653			$	4,870			$	3,372				123	%
Lease operating expenses per Boe		$	6.10			$	18.03			$	20.00				(66	)%

 

The increase in lease operating expenses can be attributed to the fact that by the end of 2020 we had nineteen (19) producing horizontal wells compared with only four (4) wells at the end of 2019. Likewise, the decrease in lease operating expense per Boe for the year ended December 31, 2020, compared with 2019, was primarily attributable to the increased production volumes associated with the higher well count.

 

Production and ad valorem taxes.

 

Production and ad valorem taxes are as follows (in thousands, except percentages):

 

		Year Ended December 31, 2020
		Successor				Predecessors
		August 22, 2020 through December 31, 2020				January 1, 2020 through August 21, 2020				Year Ended December 31, 2019				Year to Year % Change
Production and ad valorem taxes		$	886			$	566			$	449				223	%

 

In general, production taxes and ad valorem taxes are directly related to commodity price changes; however, Texas ad valorem taxes are based upon prior year commodity prices, whereas production taxes are based upon current year commodity prices.

 

 

Production and ad valorem taxes per Boe are as follows:

 

		Year Ended December 31, 2020
		Successor				Predecessors
		August 22, 2020 through December 31, 2020				January 1, 2020 through August 21, 2020				Year Ended December 31, 2019				Year to Year % Change
Production taxes per Boe		$	1.78			$	1.42			$	1.65				2	%
Ad valorem taxes per Boe		$	0.26			$	0.68			$	1.01				(63	)%

 

Production taxes per Boe for the year ended December 31, 2020, compared with 2019, remained relatively unchanged. The decrease in ad valorem taxes per Boe for the year ended December 31, 2020, compared with 2019, was primarily due to a large number of wells that have come on production during 2020 that will have no ad valorem tax in the upcoming year as 2021 will be the first year that they will be assessed ad valorem taxes. In Texas, ad valorem taxes are based on a valuation of the wells on January 1 of a given year.

 

Depletion, depreciation and amortization expense.

 

Depletion, depreciation and amortization (“DD&A”) expense and DD&A expense per Boe are as follows (in thousands, except percentages and per Boe amounts):

 

		Year Ended December 31, 2020
		Successor				Predecessors
		August 22, 2020 through December 31, 2020				January 1, 2020 through August 21, 2020				Year Ended December 31, 2019				Year to Year % Change
DD&A expense		$	9,877			$	6,385			$	4,269				281	%
DD&A expense per Boe		$	22.73			$	23.64			$	25.32				(9	)%

 

The increase in DD&A was primarily due to the increased production associated with our successful horizontal drilling program. Also, the decrease in DD&A per Boe was primarily due to additions of proved reserves attributable to the Company's successful horizontal drilling program in the Wolfcamp A and Lower Spraberry formations.

 

 

General and administrative expense.

 

General and administrative expense and general and administrative expense per Boe as well as stock-based compensation expense are as follows (in thousands, except percentages and per Boe amounts):

 

		Year Ended December 31, 2020
		Successor				Predecessors
		August 22, 2020 through December 31, 2020				January 1, 2020 through August 21, 2020				Year Ended December 31, 2019				Year to Year % Change
General and administrative expense		$	2,775			$	4,840			$	8,682				(12	)%
General and administrative expense per Boe		$	6.39			$	17.92			$	51.49				(82	)%
Stock based compensation expense		$	15,776			$	-			$	-				100	%

 

The decrease in general and administrative expense for the year ended December 31, 2020, compared with 2019, is primarily due to the expenses related to the HighPeak business combination incurred during 2019 plus various cost reduction efforts implemented across the organization during 2020 in response to the COVID-19 pandemic and downturn in crude oil prices, partially offset by the increase in administrative costs incurred related to being a public company beginning in August 2020. The decrease in general and administrative expenses per Boe during the year ended December 31, 2020 can also be attributed to our successful horizontal drilling program in the Wolfcamp A and Lower Spraberry formations.

 

The increase in noncash stock-based compensation expense is due to stock options granted to officers and employees shortly after the Closing in connection with the HighPeak business combination. Approximately 75% of the stock options granted vested immediately. In addition, the Company issued 62,500 fully vested shares of common stock to the non-management directors in the fourth quarter of 2020.

 

Income tax benefit.

 

Income tax benefit and effective income tax rates are as follows (in thousands, except percentages):

 

		Year Ended December 31, 2020
		Successor					Predecessors
		August 22, 2020 through December 31, 2020					January 1, 2020 through August 21, 2020				Year Ended December 31, 2019				Year to Year % Change
Income tax benefit		$	4,223				$	-			$	-				100	%
Effective income tax rate		20.4			%			0.0	%			0.0	%			100	%

 

The change in income tax benefit during the year ended December 31, 2020, compared with 2019, was due to the fact that the Predecessors were treated as partnerships for U.S. federal income tax purposes and, as such, the partners of the Predecessors reported their share of the Predecessor’s income or loss on their respective income tax returns.  In contrast, HighPeak Energy is a corporation for U.S. federal income tax purposes and is subject to U.S. federal income taxes on any income or loss from the operation of the Company’s assets following the HighPeak business combination on August 21, 2020.  The effective income tax rate differs from the statutory rate primarily due to permanent differences between GAAP income and taxable income.  See “Note 12” in the Annual Report on Form 10-K included elsewhere in this prospectus. 

 

 

Liquidity and Capital Resources

 

Liquidity.  In response to the COVID-19 pandemic and commensurate decrease in oil and gas prices, the Company took steps during 2020 to reduce, defer or cancel certain planned capital expenditures, shut-in the majority of its production and reduce its overall cost structure commensurate with its expected level of activities. During July 2020, the Company began putting its wells back on production based on the recovery of oil and gas prices. Subsequent to the Closing of the HighPeak business combination, the Company began completing the twelve (12) wells that were drilled but not yet completed when operations were shut down early in 2020. The Company also began running one (1) drilling rig at that time. The Company drilled and completed a salt-water disposal well near the center of our current northern acreage operating area and constructed a water disposal infrastructure system to dispose the water that we anticipate producing with the development drilling planned in 2021 and beyond. Also, in late December 2020, the Company entered into a Revolving Credit Facility with an initial borrowing base of $40 million; however, the Company elected to reduce the aggregate elected commitments to $20 million. The Revolving Credit Facility was undrawn at year end. Associated with the Revolving Credit Facility, the Company is required to enter into commodity hedging instruments to protect against price fluctuations on a portion of its proved developed producing reserves commencing in the first quarter of 2021.

 

The Company's primary sources of short-term liquidity are (i) cash and cash equivalents, (ii) net cash provided by operating activities, (iii) borrowings from our Revolving Credit Facility, (iv) on an opportunistic basis, issuances of debt or equity securities and (v) other sources, such as sales of nonstrategic assets.

 

As of December 31, 2020, the Company had no outstanding borrowings and approximately $20 million available to borrow under its Revolving Credit Facility. The Company also had unrestricted cash on hand of $19.6 million as of December 31, 2020.  In March 2021, the Company’s borrowing base and bank commitments under the Revolving Credit Facility were increased to $50 million, subject to finalization of customary documentation. 

 

The Company's primary needs for cash are for (i) capital expenditures, (ii) acquisitions of oil and gas properties, (iii) payments of contractual obligations, and (iv) working capital obligations. Funding for these cash needs may be provided by any combination of the Company's sources of liquidity. Although the Company expects that its sources of funding will be adequate to fund its 2021 planned capital expenditures and provide adequate liquidity to fund other needs, no assurance can be given that such funding sources will be adequate to meet the Company's future needs.

 

2021 capital budget.  In response to the uncertainty around the duration and overall impact to the Company caused by the COVID-19 pandemic, the Company has set its capital budget for 2021 at approximately $115 to $125 million for drilling, completion, facilities and equipping oil wells plus $20 to $25 million for field infrastructure buildout and other costs. HighPeak Energy expects to fund its forecasted capital expenditures with cash on its balance sheet, cash generated by operations and through borrowings under its Revolving Credit Facility. The Company's capital expenditures for the year ended December 31, 2020 were $118.8 million.

 

Capital resources.  Cash flows from operating, investing and financing activities are summarized below (in thousands).

 

		Year Ended December 31, 2020
		Successor				Predecessors
		August 22, 2020 through December 31, 2020				January 1, 2020 through August 21, 2020				Year Ended December 31, 2019				Year to Year Change
Net cash provided by (used in) operating activities		$	5,413			$	(4,102	)		$	(772	)		$	2,080
Net cash used in investing activities		$	(71,939	)		$	(67,886	)		$	(51,434	)		$	(97,930	)
Net cash provided by financing activities		$	84,135			$	51,220			$	74,023			$	70,874

 

Operating activities. The increase in net cash flow provided by operating activities for the year ended December 31, 2020, compared with 2019, was primarily due to an increase in cash flow from the statement of operations related mostly to increased revenues associated with increased production volumes as a result of our successful horizontal drilling program. Partially offsetting this increase was a decrease in accounts payable and accrued liabilities primarily related the relatively high amount of accrued expenses related to the HighPeak business combination, an increase in accounts receivable from the increased oil and gas revenues related to increased production volumes in December 2020 versus 2019 and federal income taxes receivable.

 

 

Investing activities. The increase in net cash used in investing activities for the year ended December 31, 2020, compared with 2019, was primarily due to increases in additions to oil and gas properties as the Company began a development drilling program with two rigs in late-2019 and continued through March 2020 at which time it paused its development drilling program. The Company recommenced its development drilling program with one rig in September 2020. The Company also funded an extension payment of $15.0 million related to an acquisition in 2020 that was terminated and funded notes receivable to Pure of $7.5 million related to the HighPeak business combination. Partially offsetting these increases in cash used in investing activities was a decrease in the amount of acquisitions of oil and gas properties during the year ended December 31, 2020 compared with 2019.

 

Financing activities. The Company's significant financing activities are as follows:

 

●

2020: The Company (i) received $84.5 million from the aforementioned HighPeak business combination, net of issuance fees, (ii) received $54.0 million in capital contributions from its partners prior to the Closing of the aforementioned HighPeak business combination, (iii) made distributions to its partners totaling $2.8 million prior to the Closing of the aforementioned HighPeak business combination, and (iv) spent $405,000 on debt issuance costs related to closing its Revolving Credit Facility in December 2020.

 

●

2019: The Company’s Predecessors received $74.0 million in capital contributions from its partners.

 

Contractual obligations.  The Company's contractual obligations include leases (primarily related to contracted drilling rigs, equipment and office facilities), capital funding obligations and other liabilities. Other joint owners in the properties operated by the Company could incur portions of the costs represented by these commitments.

 

Critical Accounting Estimates

 

The Company prepares its consolidated and combined financial statements in accordance with GAAP. See “Note 2” in the Annual Report on Form 10-K included elsewhere in this prospectus for additional information. The following is a discussion of the Company's most critical accounting estimates, judgments and uncertainties that are inherent in the Company's application of GAAP.

 

Asset retirement obligations. The Company has significant obligations to remove tangible equipment and facilities and to restore the land at the end of oil and gas production operations. The Company's removal and restoration obligations are primarily associated with plugging and abandoning wells. Estimating the future restoration and removal costs is difficult and requires management to make estimates and judgments because most of the removal obligations are many years in the future and contracts and regulations often have vague descriptions of what constitutes removal. Asset removal technologies and costs are constantly changing, as are regulatory, political, environmental, safety and public relations considerations.

 

Inherent in the present value calculation are numerous assumptions and judgments including the ultimate settlement amounts, credit-adjusted discount rates, timing of settlement and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the present value of the existing asset retirement obligations, a corresponding adjustment is generally made to the oil and gas property or other property and equipment balance. See Note 7 of Notes to Consolidated and Combined Financial Statements included elsewhere in this prospectus for additional information.

 

 

Successful efforts method of accounting. The Company utilizes the successful efforts method of accounting for oil and gas producing activities as opposed to the alternate acceptable full cost method. In general, the Company believes that net assets and net income are more conservatively measured under the successful efforts method of accounting for oil and gas producing activities than under the full cost method, particularly during periods of active exploration. The critical difference between the successful efforts method of accounting and the full cost method is that under the successful efforts method, exploratory dry holes and geological and geophysical exploration costs are charged against earnings during the periods in which they occur; whereas, under the full cost method of accounting, such costs and expenses are capitalized as assets, pooled with the costs of successful wells and charged against the earnings of future periods as a component of depletion expense.

 

Proved reserve estimates. Estimates of the Company's proved reserves included in this prospectus are prepared in accordance with GAAP and SEC guidelines. The accuracy of a reserve estimate is a function of:

 

●

the quality and quantity of available data;

 

●

the interpretation of that data;

 

●

the accuracy of various mandated economic assumptions; and

 

●

the judgment of the persons preparing the estimate.

 

The Company's proved reserve information included in this prospectus as of December 31, 2020 and 2019 was prepared by independent petroleum engineers. Because these estimates depend on many assumptions, all of which may substantially differ from future actual results, proved reserve estimates will be different from the quantities of oil and gas that are ultimately recovered. In addition, results of drilling, testing and production after the date of an estimate may justify material revisions, positively or negatively, to the estimate of proved reserves.

 

It should not be assumed that the Standardized Measure included in this prospectus as of December 31, 2020 is the current market value of the Company's estimated proved reserves. In accordance with SEC requirements, the Company based the 2020 Standardized Measure on a twelve month average of commodity prices on the first day of each month in 2020 and prevailing costs on the date of the estimate. Actual future prices and costs may be materially higher or lower than the prices and costs utilized in the estimate. See "Items 1 and 2. Business and Properties" and Unaudited Supplementary Information included in "Item 8. Financial Statements and Supplementary Data" for additional information.

 

The Company's estimates of proved reserves materially impact depletion expense. If the estimates of proved reserves decline, the rate at which the Company records depletion expense will increase, reducing future net income. Such a decline may result from lower commodity prices, which may make it uneconomical to drill for and produce higher cost fields. In addition, a decline in proved reserve estimates may impact the outcome of the Company's assessment of its proved properties for impairment.

 

Impairment of proved oil and gas properties. The Company reviews its proved properties to be held and used whenever management determines that events or circumstances indicate that the recorded carrying value of the properties may not be recoverable. Management assesses whether or not an impairment provision is necessary based upon estimated future recoverable proved and risk-adjusted probable and possible reserves, Management's price outlooks, production and capital costs expected to be incurred to recover the reserves, discount rates commensurate with the nature of the properties and net cash flows that may be generated by the properties. Proved oil and gas properties are reviewed for impairment at the level at which depletion of proved properties is calculated. See Note 2 of Notes to Consolidated and Combined Financial Statements included elsewhere in this prospectus for additional information.

 

 

Impairment of unproved oil and gas properties. At December 31, 2020, the Company carried unproved property costs of $152.7 million. Management assesses unproved oil and gas properties for impairment on a project-by-project basis. Management's impairment assessments include evaluating the results of exploration activities, Management's price outlooks and planned future sales or expiration of all or a portion of such projects.

 

Suspended wells. The Company suspends the costs of exploratory wells that discover hydrocarbons pending a final determination of the commercial potential of the discovery. The ultimate disposition of these well costs is dependent on the results of future drilling activity and development decisions. If the Company decides not to pursue additional appraisal activities or development of these fields, the costs of these wells will be charged to exploration and abandonment expense.

 

The Company does not carry the costs of drilling an exploratory well as an asset in its consolidated balance sheets following the completion of drilling unless both of the following conditions are met:

 

●

The well has found a sufficient quantity of reserves to justify its completion as a producing well; and

 

●

The Company is making sufficient progress assessing the reserves and the economic and operating viability of the project.

 

Due to the capital-intensive nature and the geographical location of certain projects, it may take an extended period of time to evaluate the future potential of an exploration project and economics associated with making a determination of its commercial viability. In these instances, the project's feasibility is not contingent upon price improvements or advances in technology, but rather the Company's ongoing efforts and expenditures related to accurately predicting the hydrocarbon recoverability based on well information, gaining access to other companies' production, transportation or processing facilities and/or getting partner approval to drill additional appraisal wells. These activities are ongoing and being pursued constantly. Consequently, the Company's assessment of suspended exploratory well costs is continuous until a decision can be made that the well has found sufficient quantities of proved reserves to sanction the project or is determined to be noncommercial and is impaired. See Note 5 of Notes to Consolidated and Combined Financial Statements included elsewhere in this prospectus for additional information.

 

Deferred tax asset valuation allowances. The Company continually assesses both positive and negative evidence to determine whether it is more likely than not that its deferred tax assets will be realized prior to their expiration. HighPeak Energy monitors Company-specific, oil and gas industry and worldwide economic factors and based on that information, along with other data, reassesses the likelihood that the Company's net operating loss carryforwards and other deferred tax attributes in each jurisdiction will be utilized prior to their expiration. There can be no assurance that facts and circumstances will not materially change and require the Company to establish deferred tax asset valuation allowances in certain jurisdictions in a future period.

 

Litigation and environmental contingencies. The Company makes judgments and estimates in recording liabilities for ongoing litigation and environmental remediation. Actual costs can vary from such estimates for a variety of reasons. The costs to settle litigation can vary from estimates based on differing interpretations of laws and opinions and assessments on the amount of damages. Similarly, environmental remediation liabilities are subject to change because of changes in laws and regulations, developing information relating to the extent and nature of site contamination and improvements in technology. A liability is recorded for these types of contingencies if the Company determines the loss to be both probable and reasonably estimable. See Note 9 of Notes to Consolidated and Combined Financial Statements included elsewhere in this prospectus for additional information.

 

Valuation of stock-based compensation. The Company calculates the fair value of stock-based compensation using various valuation methods. The valuation methods require the use of estimates to derive the inputs necessary to determine fair value. The Company utilizes (i) the Black-Scholes option pricing model to measure the fair value of stock options, and (ii) the closing stock price on the date of grant for the fair value of unrestricted stock awards. See Note 8 of Notes to Consolidated and Combined Financial Statements included elsewhere in this prospectus for additional information.

 

 

Valuation of other assets and liabilities at fair value. The Company periodically measures and records certain assets and liabilities at fair value. The assets and liabilities the Company measures and records at fair value on a recurring basis include commodity derivative contracts and interest rate contracts. Other assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances. The assets and liabilities the Company measures and records at fair value on a nonrecurring basis include inventories, proved and unproved oil and gas properties and other long-lived assets that are written down to fair value when they are determined to be impaired or held for sale. The Company also measures and discloses certain financial assets and liabilities at fair value, such as long-term debt. The valuation methods used by the Company to measure the fair values of these assets and liabilities may require considerable management judgment and estimates to derive the inputs necessary to determine fair value estimates, such as future prices, credit-adjusted risk-free rates and current volatility factors. See Note 4 of Notes to Consolidated and Combined Financial Statements included elsewhere in this prospectus for additional information.

 

New Accounting Pronouncements

 

The effects of new accounting pronouncements are discussed in Note 2 of Notes to Consolidated and Combined Financial Statements included elsewhere in this prospectus.

 

Quantitative and Qualitative Disclosures About Market Risk

 

HighPeak Energy’s major market risk exposure is the pricing it receives for its sales of oil, natural gas and NGL. Pricing for oil, natural gas and NGL has been volatile and unpredictable for several years, and HighPeak Energy expects this volatility to continue in the future.

 

During the period from January 1, 2018 through December 31, 2020, the calendar month average NYMEX WTI crude oil price per Bbl ranged from a low of $16.70 to a high of $70.76, and the last trading day NYMEX natural gas price per MMBtu ranged from a low of $1.50 to a high of $4.72. For the month of April 2020, the calendar month average NYMEX WTI crude oil price was $16.70 per Bbl and the last trading day NYMEX natural gas price was $1.63 per MMBtu. A $1.00 per barrel increase (decrease) in the weighted average oil price for the year ended December 31, 2020 would have increased (decreased) the Company’s revenues by approximately $646,000 on an annualized basis and a $0.10 per Mcf increase (decrease) in the weighted average natural gas price for the year ended December 31, 2020 would have increased (decreased) the Company’s revenues by approximately $20,000 on an annualized basis.

 

Due to this volatility, the Company may begin to use, commodity derivative instruments, such as collars, puts and swaps, to hedge price risk associated with a portion of anticipated production. These hedging instruments allow the Company to reduce, but not eliminate, the potential effects of the variability in cash flow from operations due to fluctuations in oil and natural gas prices and provide increased certainty of cash flows for its drilling program. These instruments provide only partial price protection against declines in oil and natural gas prices and may partially limit the Company’s potential gains from future increases in prices. The Company may enter into hedging arrangements to protect its capital expenditure budget and to protect its Revolving Credit Facility borrowing base. The Company does not enter into any commodity derivative instruments, including derivatives, for speculative or trading purposes.

 

Counterparty and Customer Credit Risk

 

The HighPeak Energy derivative contracts, if any, expose it to credit risk in the event of nonperformance by counterparties. It is anticipated that if the Company enters into any commodity contracts, the collateral for the outstanding borrowings under any Revolving Credit Facility the Company may enter into may be used as collateral for the Company’s commodity derivatives. The Company evaluates the credit standing of its counterparties as it deems appropriate. It is anticipated that any counterparties to HighPeak Energy’s derivative contracts would have investment grade ratings.

 

HighPeak Energy’s principal exposures to credit risk are through receivables from the sale of oil and natural gas production due to the concentration of its oil and natural gas receivables with a few significant customers. The inability or failure of the Company’s significant customers to meet their obligations to the Company or their insolvency or liquidation may adversely affect the Company’s financial results.

 

 

The average forward prices based on December 31, 2020 market quotes were as follows:

 

		Year Ending December 31 2021				Year Ending December 31, 2022
Average forward NYMEX oil price per Bbl		$	48.34			$	46.76
Average forward NYMEX gas price per MMBtu		$	2.67			$	2.58

 

The average forward purchase prices based on March 12, 2021 market quotes were as follows:

 

		Year Ending December 31, 2020				Year Ending December 31, 2021
Average forward NYMEX oil price per Bbl		$	63.45			$	57.87
Average forward NYMEX gas price per MMBtu		$	2.76			$	2.63

 

The Company's primary concentration of credit risks are associated with (i) the collection of receivables resulting from the sale of oil and natural gas production and (ii) the risk of a counterparty's failure to meet its obligations under derivative contracts with the Company.

 

The Company monitors exposure to counterparties primarily by reviewing credit ratings, financial criteria and payment history. 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's oil and gas is sold to various purchasers who must be prequalified under the Company's credit risk policies and procedures. Historically, the Company's credit losses on oil and gas receivables have not been material.

 

The Company uses credit and other financial criteria to evaluate the credit standing of, and to select, counterparties to its derivative instruments. Although the Company does not obtain collateral or otherwise secure the fair value of its derivative instruments, associated credit risk is mitigated by the Company's credit risk policies and procedures.

 

The Company entered into International Swap Dealers Association Master Agreements ("ISDA Agreements") with its derivative counterparties. The terms of the ISDA Agreements provide the Company and the counterparties with right of set off upon the occurrence of defined acts of default by either the Company or a counterparty to a derivative contract, whereby the party not in default may set off all derivative liabilities owed to the defaulting party against all derivative asset receivables from the defaulting party.

 

 

MANAGEMENT

 

Directors and Executive Officers

 

The directors and executive officers of HighPeak Energy as of March 17, 2021 include:

 

Name	Age	Position
Jack Hightower	72	Chairman of the Board and Chief Executive Officer
Michael L. Hollis	45	President and Director
Rodney L. Woodard	65	Chief Operating Officer
Steven W. Tholen	70	Chief Financial Officer
Keith Forbes	58	Vice President and Chief Accounting Officer
Larry C. Oldham	67	Director
Keith A. Covington	57	Director
Michael H. Gustin	70	Director
Jay M. Chernosky	61	Director
Sharon Fulgham	43	Director

 

Jack Hightower is our Chairman of the Board and Chief Executive Officer (“CEO”). Prior to the business combination, Mr. Hightower served as Chairman of the board of directors, Chief Executive Officer and President of Pure since Pure’s incorporation in November of 2017. Mr. Hightower has over 50 years of experience in the oil and gas industry managing multiple E&P platforms. Mr. Hightower currently serves as the Chairman of the board of directors and CEO of the general partner of the HighPeak Funds, a position held since 2014. Mr. Hightower served as Chairman, President and CEO of Bluestem Energy Partners, LP (“Bluestem”) from 2011 to 2013. Prior to forming Bluestem, Mr. Hightower served as Chairman, President, and CEO of Celero Energy II, LP (“Celero II”) from 2006 to 2009 and as Chairman, President and CEO of Celero Energy, LP (“Celero”) from 2004 to 2005. Prior to forming Celero, Mr. Hightower served as Chairman, President and CEO of Pure Resources, Inc. (“Pure Resources”) (NYSE: PRS), which became the 11th largest publicly traded independent E&P company in North America. In October 2002, Unocal tendered for the Pure Resources shares it did not already own. In March 1995, Mr. Hightower founded Titan (Nasdaq: TEXP), the predecessor to Pure Resources, and served as Chairman, President and CEO. Prior to founding Titan, Mr. Hightower served as Chairman, President and CEO of Enertex Inc. (“Enertex”), the general partner and operator of record for several oil and gas partnerships from 1991 to 1994. Mr. Hightower graduated from Texas Tech University in 1970 with Bachelor of Business Administration degrees in Administrative Finance and Money, Banking & Investments.

 

Mr. Hightower has been selected as a Class C director, to serve until the 2023 annual meeting of stockholders of HighPeak Energy, or until his earlier death or resignation. We believe Jack Hightower is well-qualified to serve as a member of the HighPeak Energy Board due to his executive leadership and industry experience.

 

Michael L. Hollis is our President and serves on our Board. Prior to the business combination, Mr. Hollis served as Pure’s President beginning December 9, 2019. Prior to joining Pure, Mr. Hollis served as President and Chief Operating Officer (“COO”) to Diamondback Energy, Inc. (“Diamondback”) (Nasdaq: FANG), a Permian focused oil and gas producer, from January 2017 through September 2019, prior to which he served as COO since 2015 and Vice President of Drilling. Since 2011, Mr. Hollis also served on the board of directors for Diamondback as well as on the board of directors of Viper Energy Partners LP (Nasdaq: VNOM). Prior to his positions at Diamondback, Mr. Hollis was a Drilling Manager at Chesapeake Energy Corporation and also held roles of increasing responsibility in production, completions and drilling engineering at ConocoPhillips and Burlington Resources Inc. Mr. Hollis has over 20 years of oil and gas experience and graduated from Louisiana State University in 1998 with a Bachelor of Science in Chemical Engineering.

 

Mr. Hollis has been selected as a Class B director, to serve until the 2022 annual meeting of stockholders of HighPeak Energy, or until his earlier death or resignation. We believe that Mr. Hollis’ over twenty (20) years of experience and knowledge in the oil and natural gas industry, experience as an officer and director of a public oil and gas company and his recent operating experience in the Permian Basin make him well-qualified to serve as a director of HighPeak Energy.

 

 

Rodney L. Woodard is our Chief Operating Officer. Prior to the business combination, Mr. Woodard served as Pure’s COO and served as a director of Pure’s board of directors since Pure’s inception in November 2017 and as HighPeak Energy’s COO since HighPeak Energy’s inception in October 2019. Mr. Woodard has over 40 years of experience in the oil and gas industry as a CEO, COO, and leader of Engineering and Operations of numerous E&P companies. Mr. Woodard has served as the Executive Vice President & COO for the HighPeak Funds from 2017 to the present. From 2016 to 2017, Mr. Woodard presented portfolio company investment proposals to acquire and develop oil and gas assets in the Permian Basin to several private equity firms. Mr. Woodard served as the President and COO of Atlantic Resources Co., LLC (“Atlantic”) from 2015 to 2016. Prior to Atlantic, Mr. Woodard served as CEO and COO of Celero II, a Natural Gas Partners portfolio company, with operations principally in the Permian Basin from 2006 to 2015. Prior to Celero II, Mr. Woodard served as Executive Vice President and COO of Celero, a Quantum Energy Partners portfolio company from 2004 to 2006. From 2002 to 2004, Mr. Woodard was Vice President of Reserves and Evaluations with Pure Resources (NYSE: PRS) and was a co-founder of its predecessor, Titan Exploration (Nasdaq: TEXP). From 1986 to 1995, Mr. Woodard held various positions of increasing responsibility at Selma International Investments Ltd. From 1979 to 1986, Mr. Woodard held various positions at Delta Drilling Company, obtaining the position of Division Manager for West Texas. Mr. Woodard held various positions at Amoco Production Company from 1977 to 1979. Mr. Woodard graduated from The Pennsylvania State University in 1977 with a Bachelor of Science degree in Mechanical Engineering.

 

Steven W. Tholen is our Chief Financial Officer (“CFO”) and is a Corporate Finance Executive with over 30 years of experience in building, leading and advising corporations through complex restructurings, purchase and sales transactions, and capital market transactions. Mr. Tholen has served as the Chief Financial Officer for the HighPeak Funds since 2014. Previously, Mr. Tholen served as co-founder and Executive Vice President – Finance of Fieldco Construction Services, Inc., which provided oilfield construction services to clients throughout East Texas & Western Louisiana, from 2011 to 2014. From 2009 to 2013, Mr. Tholen served as founder and President of SDL&T Energy Partners, a source of equity & debt financing to fund energy companies and energy projects worldwide. From 2001 to 2008, Mr. Tholen was Senior Vice President & CFO of Harvest Natural Resources, Inc., an E&P company with properties in the United States, Venezuela, Indonesia, Gabon, and Russia. From 1995 to 2000, Mr. Tholen served as Vice President and CFO of Penn Virginia Corporation, an independent natural gas and oil company. From 1990 to 1995, Mr. Tholen was Treasurer/Manager of Business Administration of Cabot Oil & Gas Corporation, a North American independent natural gas producer. Mr. Tholen graduated from St. John’s University with a Bachelor of Science degree in Physics in 1971 and earned his MBA-Finance from The University of Denver, Daniels School of Business in 1979.

 

Keith Forbes has served as our Vice President and Chief Accounting Officer (“CAO”) since November 2020 and previously served as our Vice President and Controller from HighPeak Energy’s formation until November 2020. Mr. Forbes has over 30 years of experience in various field and corporate accounting functions and business organization functions for large, geographically diverse public companies. Before his appointment as CAO to HighPeak Energy, Mr. Forbes served as Vice President and Controller of the HighPeak Funds since 2017. Mr. Forbes additionally served as Director—Business Optimization at Quicksilver Resources Inc. from December 2015 through April 2016, and as Assistant Controller—Operations and Revenue at Quicksilver Resources Inc. from June 2012 through November 2015. Mr. Forbes is a certified public accountant in Texas. Mr. Forbes graduated from Pittsburg State University with a Bachelors of Business Administrations degree in Accounting in 1985.

 

Jay M. Chernosky serves on our Board and is currently a Principal of Travis Energy Partners LP since 2019, Jayco Holdings I, LP since 2005, Jayco Holdings II, LP since 2010, Jayco Holdings LLC since 2005, Bertrand Properties LP and Bertrand Properties, Inc. since 2000, which are private family owned real estate and energy investment entities. Mr. Chernosky was previously a Managing Director of the Energy & Power Corporate & Investment Banking group at Wells Fargo Securities from 2009 until his retirement in 2019. Mr. Chernosky joined Wells Fargo’s predecessor firm Wachovia Securities in 1993 as a co-founder of the energy practice. Prior to joining Wells Fargo Securities, Mr. Chernosky was with the Energy Division of First City, Texas - Houston for ten years, ultimately serving as vice president and manager of the Western Group of the Petroleum and Minerals Department from 1983 until 1993.

 

 

During his career, Mr. Chernosky was charged with developing strategic and financial ideas and solutions for relationships he managed for the bank, and was also responsible for the origination and execution of public and private capital markets activities, including equities, bonds, convertibles, private placements, loan syndications and merger and acquisition advisory services. In this time, Mr. Chernosky’s primary focus was on the upstream sector of oil & gas. Currently, Mr. Chernosky serves on the board of directors of Colt Midstream LLC, a private gas gathering and processing company focused in the Fort Worth Basin of Texas since 2019. Mr. Chernosky also serves on the regional board of directors of OneGoal Houston, a non-profit organization geared to increase the success rate of college admission and graduation for youth attending high school in low income districts since 2012. In addition, Mr. Chernosky serves on the Endowment Board of the Christian Community Service Center since 2010.

 

Mr. Chernosky has previously served on the board of directors and is an active member of the Houston Producers’ Forum, the Houston Energy Finance Group and the regional board of the Independent Petroleum Association of America. Mr. Chernosky graduated from The University of Texas at Austin with a Bachelor of Business Administration in 1981 and received a Masters of Business Administration from the University of Houston in 1983. Mr. Chernosky is also a graduate of the Southwestern Graduate School of Banking at Southern Methodist University in 1993.

 

Mr. Chernosky has been selected as a Class A director, to serve until the 2021 annual meeting of stockholders of HighPeak Energy, or until his earlier death or resignation. Based on Mr. Chernosky’s prior experience in the oil & natural gas industry, his broad experience in energy investment banking, capital markets and merger and acquisition advisory services, and his previous board experience, Mr. Chernosky is well qualified to serve as a director of HighPeak Energy.

 

Keith A. Covington serves on our Board and is an active real estate investor specializing in residential properties in southern California for the past 24 years, most recently serving as a General Partner for Magnolia Partners since 2002. Mr. Covington was a founding board member of Pure Resources, an energy company engaged in the exploration and development of oil and gas properties which had a market capitalization of over $1 billion and served such directorship from 2000 to 2002. As an independent director for over two years, Mr. Covington served as chairman of the audit committee and member of the compensation committee of Pure Resources and was a co-member of the special committee responsible for evaluating, negotiating and recommending on behalf of company shareholders the acquisition Pure Resources to Unocal Corporation (acquired by Chevron Corporation) in October 2002. Mr. Covington spent over 11 years at Davis Companies from 1991 to 2002, where he was Vice President and earlier served as Principal of Stone Canyon Venture Partners, LLC. Mr. Covington’s tenure included responsibility in the real estate and private equity/venture capital groups within the organization. Investment and operational experience within these areas included investments in trophy commercial and mixed use real estate assets, gaming ventures, a chain of upscale health clubs, resort properties and hotels, a restaurant and a technology company. His responsibilities included extensive independent due diligence for potential acquisitions, financial analysis and comprehensive asset management for equity investments in real estate assets and operating companies valued at over $10 billion. Prior professional experience includes Janss Corporation, a Santa Monica, CA real estate developer where he was responsible for due diligence and financial structuring and leasing of residential and commercial real estate projects from 1989 to 1990. Mr. Covington started his career as a Financial Analyst at PaineWebber Group Inc. (UBS Investment Bank) in New York with experience in real estate investment banking transactions including sale/leasebacks and the firm’s largest initial public offering and real estate master limited partnership from 1985 to 1987. Mr. Covington received his MBA from the Stanford Graduate School of Business and earned a Bachelor of Arts cum laude in Economics from Claremont McKenna College. Mr. Covington maintains a California real estate broker’s license and has maintained board governance expertise through participation in KPMG’s Audit Committee Institute. Mr. Covington has previously served as CFO for the El Segundo Senior Housing Board for over five (5) years.

 

Mr. Covington has been selected as a Class B director, to serve until the 2022 annual meeting of stockholders of HighPeak Energy, or until his earlier death or resignation. Based on Mr. Covington’s prior board experience in the oil and natural gas industry and broad experience in significant financial transactions, Mr. Covington is well qualified to serve as a director of HighPeak Energy.

 

 

Sharon Fulgham serves on our Board and is currently a partner of the Fulgham Law Firm, P.C. since August 2017. Ms. Fulgham has also been associated with Carlisle Title since December 2017 and has been their corporate attorney since November 2019. Prior to working at Fulgham Law Firm, P.C., Ms. Fulgham was a partner at Kelly Hart & Hallman from January 2016 to November 2016 and an associate at Kelly Hart & Hallman from 2009 to 2016. During her legal career, Ms. Fulgham has represented numerous public and private companies in litigation matters including commercial and employment disputes. Specifically, she has extensive experience representing companies in the oil and gas sector, as well as experience in the title industry preparing title documents for real estate closings and instruction to brokers and realtors.

 

Over the past decade, Ms. Fulgham has served the Fort Worth community extensively through the Junior League of Fort Worth, Inc. both as a community volunteer and in leadership roles within the organization. She served as Vice President of Administration and sat on the board of directors from 2015 to 2016. Currently, Ms. Fulgham is a sustaining member and serves on the League’s Legal Committee. Ms. Fulgham graduated cum laude from Texas Christian University with a Bachelor of Science in Biology in 2000 and went on to obtain her Juris Doctorate from the University of Houston in 2004.

 

Ms. Fulgham has been selected as a Class A director, to serve until the 2021 annual meeting of stockholders of HighPeak Energy, or until her earlier death or resignation. Based on Ms. Fulgham’s prior experience representing companies in the oil & natural gas sector and previous board experience, Ms. Fulgham is well qualified to serve as a director of HighPeak Energy.

 

Michael H. Gustin serves on our Board and is currently the CEO of Pilot Exploration, Inc., a position he has held since 2015. He is also currently founder and CEO of Quantum Fluids, LLC, a business that is concentrated on developing new, innovative and proprietary technology for hand sanitizers and other surface disinfecting products. Mr. Gustin is a seasoned professional within the oil and gas industry, with more than 50 years of diversified experience. From 1999 to 2015, Mr. Gustin held positions in senior management playing vital roles in developing Geoscience International, Inc., Skidmore Energy, Inc., Lone Star Energy, Cs Solutions, Inc. and Vapor Solutions Inc. Mr. Gustin has also served as president of Crew Energy, Vertex International, Inc., Great Western Natural Resources, Inc. and Defiance Offshore International over the course of 1985 to 1999, and was responsible for the management of eight land rotary rigs and design and construction of an offshore drilling barge in Long Beach, California during this period. These companies conducted various oil and gas exploration, development and drilling (onshore and offshore) and other related activities both in the U.S. and foreign countries.

 

From 1981 to 1986, he formed the Thor group of companies, which for 20 years was involved in the funding of Research and Development projects relating to cost effective “pre-seismic” alternate methods of integrated exploration techniques.

 

Mr. Gustin has earlier experience working for Readings & Bates and Zapata, both in the U.S. and abroad in their onshore and offshore drilling activities. At Reading & Bates, he ultimately reached a position as a technical training specialist emphasizing on subsea well control and drilling technology. Mr. Gustin has worked in eight (8) countries (drilling onshore and offshore) in the North Sea, Adriatic Sea, Persian Gulf, Mediterranean Sea, Offshore Morocco, Atlantic Ocean, Egypt, Sahara Desert (Algeria), Atlas Mountains N.A., Canada, five (5) states in the U.S.A., and offshore in the “Gulf of Mexico.” Mr. Gustin co-founded Win For Life Foundation, now known as Anchors For Life Foundation, a non-profit organization, in 1992 and is still currently active with this group (www.anchorsforlifefoundation.org).

 

Mr. Gustin graduated from University of Houston in 1976 with a degree in social sciences. Mr. Gustin has been selected as a Class C director, to serve until the 2023 annual meeting of stockholders of HighPeak Energy, or until his earlier death or resignation. We believe Mr. Gustin’s broad experience in operations throughout the oil & gas industry and his extensive entrepreneurial experience makes him well qualified to serve as a director of HighPeak Energy.

 

 

Larry C. Oldham serves on our Board and currently serves as a Manager and Advisor of Gateway Royalty V LLC (“Gateway V”) since 2019. Gateway V is the fifth entity of the Gateway Royalty companies, which were founded by Mr. Oldham’s son and have been successful in acquiring oil and gas minerals and royalties in the Utica Shale since 2012. Mr. Oldham is also a Manager of Gateway Royalty III LLC since 2016 and Gateway Royalty IV LLC since 2018 and has been actively advising Gateway Royalty II LLC and Gateway Royalty I LLC since 2014 and 2012, respectively. Additionally, Mr. Oldham serves as Manager of Oldham Properties, Ltd. since 1990 and is currently an Operating Partner in Mountain Capital LLC, a private equity firm out of Houston, Texas since 2015. In 1979, Mr. Oldham founded Parallel Petroleum Corporation (“Parallel”), an independent energy company headquartered in Midland, Texas, which is engaged in the acquisition, development and production of long-lived oil and gas properties, primarily in the Permian Basin. Parallel was taken public in 1980 and in December 2009 was acquired by affiliate of Apollo Global Management, LLC (“Apollo”), which was sold to Samsung C&T Corporation in December of 2011. Prior to being acquired, Mr. Oldham served as Parallel’s President from 1994 to 2009, CEO from 2004 to 2009 and director from 1979 until 2009. During Mr. Oldham’s years at Parallel, some of the most notable property acquisitions were the Fullerton Property in Andrews County, Diamond M Canyon Reef Field in Scurry County and the acquisition of all Fina’s West Texas assets in July 1999. Prior to Parallel’s formation, Mr. Oldham was employed by Dorchester Gas Corporation from 1976 to 1979 and KPMG Peat Marwick, LLP from 1975 to 1976. Mr. Oldham earned a Bachelor of Business Administration in Accounting from West Texas State University (now West Texas A&M University) in 1975 and was a 2012 Distinguished Alumni Award recipient. Mr. Oldham is a CPA and is a member of the Permian Basin Landman’s Association and the Permian Basin Producers Association.

 

Mr. Oldham has been selected as a Class C director, to serve until the 2023 annual meeting of stockholders of HighPeak Energy, or until his earlier death or resignation. We believe that Mr. Oldham’s over forty (40) years of experience and knowledge in the oil and natural gas industry, accounting experience, experience and knowledge of the Permian Basin and his experience in the public arena make him well-qualified to serve as a director of HighPeak Energy.

 

Director Qualifications

 

At the Closing, the Board consisted of Messrs. Jack Hightower, Michael L. Hollis, Jay M. Chernosky, Keith A. Covington, Michael H. Gustin and Larry C. Oldham and Mme. Sharon Fulgham. Pursuant to the Stockholders’ Agreement, the Principal Stockholder Group nominated Messrs. Jack Hightower, Michael L. Hollis and Michael H. Gustin and Mme. Sharon Fulgham to become directors of the Company at the Closing. The Principal Stockholder’s Group separately agreed with one of their limited partners, the John Paul DeJoria Family Trust, that in connection with its significant commitment under the Forward Purchase Agreement Amendment, as long as the Principal Stockholder’s Group has the right to nominate at least two (2) directors of the Company under the Stockholders’ Agreement to the Board, the John Paul DeJoria Family Trust will have the right to select one (1) of such director nominees, and Messr. Michael H. Gustin was selected to serve as the initial nominee.

 

Following the Closing, Sponsor and its affiliates collectively held more than 50% of the voting power of the Company’s voting securities for the election of directors. As a result, the Company expects to be a controlled company within the meaning of the Nasdaq Listing Rule 5615 and Nasdaq corporate governance standards, and may elect not to comply with certain Nasdaq corporate governance requirements, including the requirements that a majority of the Board consist of independent directors and that the Nominating and Corporate Governance Committee (as defined below) and Compensation Committee (as defined below) be composed entirely of independent directors. These requirements will not apply to the Company as long as it remains a controlled company.

 

Independence of Directors

 

Under the listing rules of the Nasdaq, the Company is required to have a majority of independent directors serving on the Board at such time that the Company no longer is considered a controlled company within the meaning of the Nasdaq corporate governance standards. Notwithstanding, the Board has determined that Messrs. Larry C. Oldham, Keith A. Covington and Jay M. Chernosky and Mme. Sharon Fulgham are independent within the meaning of Nasdaq Marketplace Rule 5605(a)(2).

 

Committees of the Board

 

The standing committees of the Board consist of an audit committee (the “Audit Committee”), a compensation committee (the “Compensation Committee”) and a nominating and corporate governance committee (the “Nominating and Corporate Governance Committee”). Each of the committees reports to the Board. The composition, duties and responsibilities of these committees are set forth below.

 

 

Audit Committee. The principal functions of the Company’s Audit Committee are detailed in the Company’s Audit Committee charter, which is available on the Company’s website, and include:

 

●

audits of the Company’s financial statements;

 

●

the integrity of the Company’s financial statements;

 

●

the Company’s process relating to risk management and the conduct and systems of internal control over financial reporting and disclosure controls and procedures; and

 

●

the qualifications, engagement, compensation, independence and performance of the Company’s independent auditor.

 

Under the Nasdaq listing standards and applicable SEC rules, the Company is required to have at least three members on the Audit Committee, all of whom must be independent. The Audit Committee consists of Messrs. Larry C. Oldham, Jay M. Chernosky and Keith A. Covington, with Messr. Larry C. Oldham serving as the Chair. The Company believes that Messrs. Larry C. Oldham, Jay M. Chernosky and Keith A. Covington qualify as independent directors according to the rules and regulations of the SEC with respect to Audit Committee membership. The Company also believes that Mr. Larry C. Oldham qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d) of Regulation S-K.

 

Compensation Committee. The principal functions of the Company’s Compensation Committee are detailed in the Company’s Compensation Committee charter, which is available on the Company’s website, and include:

 

●

oversee the Company’s overall compensation philosophy that applies to all Company employees;

 

●

review, evaluate and approve the agreements, plans, policies and programs of the Company to compensate the Company’s executive officers and directors;

 

●

once required, review and discuss the Compensation Discussion and Analysis (“CD&A”) to be included in the Company’s proxy statement for its annual meeting of stockholders (“Annual Proxy Statement”) or Annual Report on Form 10-K, as applicable, and determine whether to recommend to the Board that the CD&A be included in the Annual Proxy or Annual Report on Form 10-K, as applicable, in accordance with applicable rules and regulations;

 

●

produce the Compensation Committee Report as required by Item 407(e)(5) of Regulation S-K for inclusion in the Company’s Annual Proxy Statement or Annual Report on Form 10-K, as applicable, in accordance with applicable rules and regulations;

 

●

otherwise discharge the Board’s responsibilities relating to the compensation of the Company’s executive officers and directors; and

 

●

perform such other functions as the Board may assign to the Compensation Committee from time to time.

 

The Compensation Committee consists of Messrs. Jack Hightower, Michael L. Hollis, Keith A. Covington and Mme. Sharon Fulgham, with Mr. Jack Hightower serving as the Chair. The Company believes that Mr. Keith A. Covington and Ms. Sharon Fulgham qualify as independent directors according to the rules and regulations of the Nasdaq with respect to Compensation Committee membership.

 

Nominating and Corporate Governance Committee. The principal functions of the Company’s Nominating and Corporate Governance Committee are detailed in the Company’s Nominating and Corporate Governance Committee charter, which is available on the Company’s website, and include:

 

●

advise the Board and make recommendations regarding appropriate corporate governance practices and assist the Board in implementing those practices;

 

 

●

assist the Board by identifying individuals qualified to become members of the Board, consistent with the criteria approved of by the Board, and recommending director nominees to the Board for election at the annual meeting of stockholders or for appointment to fill vacancies on the Board;

 

●

advise the Board about the appropriate composition of the Board and its committees;

 

●

lead the Board in the annual performance evaluation of the Board and its committees, and of management;

 

●

direct all matters relating to the succession of the Company’s Chief Executive Officer; and

 

●

perform such other functions as the Board may assign to the Nominating and Corporate Governance Committee from time to time.

 

The Nominating and Corporate Governance Committee also develops and recommends to the Board corporate governance principles and practices and assists in implementing them, including conducting a regular review of the Company’s corporate governance principles and practices. The Nominating and Corporate Governance Committee oversees the annual performance evaluation of the Board and the committees of the Board and makes a report to the Board on succession planning.

 

The Nominating and Corporate Governance Committee consists of Messrs. Jack Hightower, Michael L. Hollis, Jay M. Chernosky and Michael H. Gustin, with Mr. Jack Hightower serving as the Chair. The Company believes that Messr. Jay M. Chernosky qualifies as an independent director according to the rules and regulations of the Nasdaq with respect to the Nominating and Corporate Governance Committee membership.

 

Code of Conduct and Financial Code of Ethics

 

Our Board has adopted a Code of Conduct and a Financial Code of Ethics applicable to the Company’s directors, officers and employees in accordance with applicable securities laws and the corporate governance rules of the Nasdaq. Copies of our Code of Conduct and Financial Code of Ethics are available on our corporate website at www.highpeakenergy.com. The information on our website is not a part of this prospectus. Any amendments to or waivers of certain provisions of our Code of Conduct may be made only by our Board and will be disclosed on our corporate website promptly following the date of such amendment or waiver as required by applicable securities laws and the corporate governance rules of the Nasdaq.

 

 

EXECUTIVE COMPENSATION

 

Prior to the HighPeak business combination, no executive officer received any cash compensation for services rendered to us. Following the HighPeak business combination, HighPeak Energy Employees, Inc. (“HighPeak Employer”) employs our executive officers and, effective as of the HighPeak business combination, we began compensating our executive officers, directors and employees through HighPeak Employer. Because we did not employ any employees prior to the HighPeak business combination, there is no compensation to report for the portion of the preceding fiscal year prior to such business combination. Consequently, the disclosures below report the compensation of our named executive officers for the period beginning on the Closing of the HighPeak business combination and ending on December 31, 2020.

 

We are currently considered a smaller reporting company for purposes of the SEC’s executive compensation disclosure rules. In accordance with such rules, we are required to provide a Summary Compensation Table and an Outstanding Equity Awards at Fiscal Year End Table, as well as limited narrative disclosures. Further, our reporting obligations extend only to the individuals serving as our chief executive officer, and our two other most highly compensated executive officers. For the fiscal year ended December 31, 2020, our “Named Executive Officers” were:

 

●

Jack Hightower, Chief Executive Officer;

 

●

Michael L. Hollis, President; and

 

●

Rodney L. Woodard, Chief Operating Officer.

 

2020 Summary Compensation Table

 

The following table summarizes the compensation awarded to, earned by or paid to our Named Executive Officers for the portion of the fiscal year beginning on the Closing of the business combination and ending December 31, 2020.

 

Name and principal position		Year		Salary ($)				Option Awards ($)(1)				All Other Compensation ($)(2)				Total ($)
Jack Hightower, Chief Executive Officer		2020		$	190,083			$	11,609,315			$	3,667			$	11,803,065
Michael L. Hollis, President		2020		$	173,485			$	2,575,000			$	5,000			$	2,753,485
Rodney L. Woodard, Chief Operating Officer		2020		$	124,909			$	1,339,000			$	3,600			$	1,467,509

 

(1)           Amounts reported in the “Option Awards” column reflects the aggregate grant date fair value, computed in accordance with Financial Accounting Standard Board (“FASB”) ASC Topic 718, of awards made to each Named Executive Officer during fiscal year 2020.  Pursuant to SEC rules, the amounts shown exclude the effect of estimated forfeitures.  For additional information regarding the assumptions underlying this calculation please see Note 8 of Notes to Consolidated and Combined Financial Statements for the fiscal year ended December 31, 2020, located elsewhere in this prospectus.

 

(2)         Amounts reported in the “All Other Compensation” column are company contributions to the Named Executive Officers’ 401(k) plan retirement accounts.

 

 

Narrative Disclosure to Summary Compensation Table

 

Employment Agreements

 

We have not entered into any employment, severance, change in control or similar agreements with any of our Named Executive Officers, nor are we otherwise currently responsible for any payment upon the termination of any of our Named Executive Officers. Treatment of option awards upon the termination of a Named Executive Officer’s employment or a change in control is described in more detail below under the section titled “Additional Narrative Disclosure—Potential Payments Upon Termination or Change in Control.”

 

Base Salary

 

Each Named Executive Officer’s base salary is a fixed component of annual compensation for performing specific job duties and functions.  The annual base salary rate for each of the Named Executive Officers was established at levels commensurate with historical compensation with any adjustments deemed necessary to attract and retain individuals with superior talent appropriate and relative to their expertise and experience. 

 

Annual Bonus

 

Annual cash incentive awards are used to motivate and reward our executives. We do not maintain a formal annual cash incentive award plan, instead, such awards are determined on a discretionary basis and are generally based on individual and Company performance. We intend to adopt a formal bonus plan in which certain of our employees, including the Named Executive Officers, will be eligible to participate going forward but have not done so as of the date of this prospectus. For 2020, no Named Executive Officer was determined to have earned an annual cash incentive award.

 

Long Term Incentive Compensation

 

Prior to the HighPeak business combination, we adopted, and the shareholders approved, the HighPeak Energy, Inc. Long Term Incentive Plan. To incentivize members of management and to align the interests of members of management with the interests of our stockholders following the HighPeak business combination, we continue to sponsor the LTIP. The LTIP provides for potential grants of options, dividend equivalents, cash awards and substitute awards to our employees and service providers, as well as stock awards to our directors. The Board has appointed the Compensation Committee of the Board to administer the LTIP.

 

Subject to adjustment in accordance with the terms of the LTIP, the Share Pool (as defined in the LTIP) is reserved and available for delivery with respect to awards under the LTIP), and 11,907,006 shares of HighPeak Energy common stock have been made available for the issuance of shares upon the exercise of incentive stock options. On January 1, 2021 and January 1 of each calendar year occurring thereafter and prior to the expiration of the LTIP, the Share Pool will automatically be increased by (i) the number of shares of HighPeak Energy common stock issued pursuant to the LTIP during the immediately preceding calendar year and (ii) 13% of the number of shares of HighPeak Energy common stock that are newly issued by HighPeak Energy (other than those issued pursuant to the LTIP) during the immediately preceding calendar year.

 

In connection with the HighPeak business combination, we granted the following options (the “Options”) to purchase shares of HighPeak Energy common stock to our executive officers: 5,953,495 to Mr. Hightower, 1,250,000 to Mr. Hollis, and 650,000 to Mr. Woodard. The Option granted to Mr. Hightower was fully vested as of the date of grant. The Options granted to Messrs. Hollis and Woodard vest in three equal installments: one-third on the date of grant, one-third on the first anniversary of the date of grant, and one-third on the second anniversary of the date of grant, subject to the Named Executive Officers continuous employment through each such vesting date. Pursuant to the award agreements unvested options will accelerate on a change in control as described in more detail below under the section titled “—Additional Narrative Disclosure—Potential Payments Upon Termination or Change in Control.” 

 

Other Compensation Elements

 

We offer participation in broad-based retirement, health and welfare plans to all of our employees. We currently maintain a retirement plan intended to provide benefits under section 401(k) of the Internal Revenue Code where employees, including our Named Executive Officers, are allowed to contribute portions of their base compensation to a tax-qualified retirement account. See “Additional Narrative Disclosure—Retirement Benefits” for more information. In addition, we provide minimal perquisites to our Named Executive Officers, including a reimbursements for certain expenses related to cell phone usage.

 

 

Outstanding Equity Awards at 2020 Fiscal Year-End

 

The following table reflects information regarding outstanding equity-based awards held by our Named Executive Officers as of December 31, 2020.

 

Name	Option Awards (1)
	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)	Option Expiration Date
Jack Hightower	5,953,495	—	10.00	8/23/2030
Michael L. Hollis	416,667	833,333	10.00	8/23/2030
Rodney L. Woodard	216,667	433,333	10.00	8/23/2030

 

(1)      The option awards reported in these columns that were originally granted to Mr. Hightower on August 24, 2020, in connection with the Closing of the business combination were fully vested as of the date of grant. The option awards reported in these columns originally granted to Messrs. Hollis and Woodard on August 24, 2020, in connection with the Closing of the business combination are subject to time-based vesting conditions. The options held by Messrs. Hollis and Woodard vest as follows, subject to each executive’s continuous employment through each such vesting date: one-third on the date of grant, one-third on the first anniversary of the date of grant, and one-third on the second anniversary of the date of grant. The treatment of these awards upon certain termination and change in control events is described below under “Additional Narrative Disclosure—Potential Payments Upon a Termination or Change in Control.”

 

Additional Narrative Disclosure

 

Retirement Benefits

 

We have not maintained, and do not currently maintain, a defined benefit pension plan or nonqualified deferred compensation plan. We currently maintain a retirement plan intended to provide benefits under section 401(k) of the Internal Revenue Code whereby employees, including our Named Executive Officers, are allowed to contribute portions of their base compensation to a tax-qualified retirement account. We provide matching contributions equal to 4.0% of the first 4.0% of employees’ eligible compensation contributed to the plan.

 

Potential Payments Upon Termination or Change in Control

 

As described above under the section titled “Narrative Disclosure to the Summary Compensation Table—Employment Agreements,” we have not entered into any employment, severance, change in control or similar agreements with any of our Named Executive Officers, nor are we otherwise currently responsible for any payment upon the termination of any of our Named Executive Officers.

 

 

A Named Executive Officer’s outstanding, unvested option awards will be forfeited and immediately terminate in the event of a Named Executive Officer’s termination of employment for any reason. A Named Executives Officer’s outstanding, unvested option awards will become 100% vested upon the consummation of a “change in control.” For purposes of the Options, “change in control” is generally defined as the occurrence of any of the following events:

 

(i) The acquisition by any individual, entity or group of beneficial ownership of 50% or more of either (x) the then-outstanding shares of common stock or (y) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (other than any acquisition directly from the Company, or by the Company or its subsidiaries, or any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company);

 

(ii) The individuals constituting the Board cease, subject to certain exceptions, for any reason (other than death or disability) to constitute at least a majority of the Board;

 

(iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or an acquisition of assets of another entity, in each case, unless, following such transaction, (A) the outstanding stock and voting securities immediately prior to such transaction represent or are converted into or exchanged for securities which represent or are convertible into more than 50% of, respectively, the then-outstanding shares of common stock or common equity interests and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors or other governing body, as the case may be, of the entity resulting from such transaction (including an entity which as a result of such transaction owns the Company, or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (B) no individual, entity or group, excluding the Company, its subsidiaries and any employee benefit plan (or related trust) sponsored or maintained by the Company or the entity resulting from such transaction (or any entity controlled by either the Company or the entity resulting from such transaction), beneficially owns, directly or indirectly, 50% or more of, respectively, of the then-outstanding shares of common stock or common equity interests of the entity resulting from such transaction or the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors or other governing body of such entity except to the extent that such ownership results solely from direct or indirect ownership of the Company that existed prior to such transaction, and (C) at least a majority of the members of the Board or similar governing body of the entity resulting from such transaction were directors at the time of the execution of the initial agreement, or of the action of the Board, providing for such transaction; or

 

(iv) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company; or

 

(v) If any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) having beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of less than 30% as of the business combination acquires the ability to appoint a majority of the Board.

 

Director Compensation

 

Prior to the Closing of the business combination, we did not pay any compensation to our non-employee directors. Following the Closing of the business combination, we implemented a comprehensive director compensation program which is described in more detail below.

 

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² Note to HighPeak: We prepared this disclosure based on the Director Compensation Plan resolutions we prepared and the Form 4s that were filed for the directors. Please review for any inconsistencies with your actual practice and the numbers in the table for accuracy.

 

 

The following table summarizes the compensation awarded or paid to the non-employee members of our board of directors for the portion of the fiscal year beginning on the Closing of the business combination and ending December 31, 2020.

 

Name	Fees Earned or Paid in Cash ($)(1)	Stock Awards ($)(2)	Total ($)
Larry C. Oldham	32,500	60,250	92,750
Jay M. Chernosky	25,000	60,250	85,250
Keith A. Covington	25,000	60,250	85,250
Michael H. Gustin	25,000	60,250	85,250
Sharon Fulgham	25,000	60,250	85,250

 

(1)              Amounts reported in this column reflect the value of awards that the director elected to receive in cash, as described in more detail below in the narrative following this table.

 

(2)              Amounts reported in the “Stock Awards” column reflects the aggregate grant date fair value, computed in accordance with FASB ASC Topic 718, of awards of restricted stock granted to each director during fiscal year 2020.  Pursuant to SEC rules, the amounts shown exclude the effect of estimated forfeitures.  The grant date fair value of each restricted stock award was based on a per share price of $4.82, which is the closing price of HighPeak Energy common stock on the November 5, 2020 grant date of the awards. For additional information regarding the assumptions underlying this calculation please see Note 8 of Notes to Consolidated and Combined Financial Statements for the fiscal year ended December 31, 2020, which is included elsewhere in this prospectus. The aggregate number of all stock awards held by each director as of December 31, 2020 was 12,500.

 

Prior to the Closing of the HighPeak business combination, we did not pay any compensation to our non-employee individual directors. Following the Closing of the HighPeak business combination, our Board adopted a comprehensive director compensation program to attract and retain qualified non-employee directors who are critical to the future value growth and governance of our Company. The compensation package for our non-employee directors requires a significant portion of the total compensation package to be equity-based to align the interest of our directors with our stockholders. Directors who are also our employees do not receive any additional compensation for their service on our Board. Under the director compensation program, our non-employee directors are entitled to the following compensation:

 

●

No annual cash retainer;

 

●

For the year ended December 31, 2020, stock awards pursuant to the LTIP with a value of $150,000, determined based on the $10.00 price of HighPeak Energy common stock on the date the directors were appointed to the Board, which were fully vested on the date of grant;

 

●

For the year ended December 31, 2020, to the Chairman of the Audit Committee of the Board and Lead Director, an additional stock award pursuant to the LTIP with a value of $7,500, determined based on the $10.00 price of HighPeak Energy common stock on the date the directors were appointed to the Board, which shall be fully vested on the date of grant; provided, however, that such award may be paid in cash at such director’s election;

 

●

For all years after December 31, 2020, restricted stock awards pursuant to the Company’s LTIP with a grant date fair value (determined without regard to any substantial risk of forfeiture) of $150,000, determined based on the average closing price of HighPeak Energy’s common stock during the 10 trading days preceding the date of grant, which shall vest ratably on the anniversary date(s) of the director’s election to the Board and ending on the anniversary date on which the director has served the full term of his or her election;

 

 

●

For all years after December 31, 2020, to the Chairman of the Audit Committee of the Board, an additional restricted stock award pursuant to the LTIP with a grant date fair value (determined without regard to any substantial risk of forfeiture) of $7,500, determined based on the closing price of HighPeak Energy common stock during the 10 trading days preceding the date of grant, which shall vest ratably on the anniversary date(s) of the director’s election to the Board and ending on the anniversary date on which the director has serviced the full term of his or her election; provided, however, that such award may be paid in cash at such director’s election made prior to the grant of such award; and

 

Each director may elect, prior to the grant of any award pursuant to procedures established by the Company, to receive up to $25,000 of such award in a single lump sum cash payment payable within 30 days following the date of the meeting of the Board in which director equity awards are granted.

 

Each director is entitled to be reimbursed for: (i) travel and miscellaneous expenses to attend meetings and activities of the Board or any of its committees; (ii) travel and miscellaneous expenses related to such director’s participation in general education and orientation program for directors; and (iii) travel and miscellaneous expenses for each director’s spouse who accompanies a director to attend meetings and activities of the Board or any of its committees. Each director is also fully indemnified by us for actions associated with serving as a director to the fullest extent permitted under Delaware law.

 

 

DESCRIPTION OF SECURITIES

 

The following summary of the material terms of HighPeak Energy’s securities is not intended to be a complete summary of the rights and preferences of such securities. HighPeak Energy’s securities are governed by HighPeak Energy’s A&R Charter, HighPeak Energy’s bylaws, the DGCL, the CVR Agreement and the Warrant Agreement Amendment. We urge you to read the A&R Charter in its entirety for a complete description of the rights and preferences of HighPeak Energy’s securities and HighPeak Energy’s bylaws.

 

Authorized and Outstanding Common Stock

 

The A&R Charter authorizes the issuance of 600,000,000 shares of HighPeak Energy common stock and 10,000,000 shares of preferred stock, par value $0.0001 per share. The outstanding shares of HighPeak Energy common stock are duly authorized, validly issued, fully paid and non-assessable. Common stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. As of March 15, 2021, there were 92,675,898 shares of common stock issued and outstanding.

 

Common Stock

 

Voting Power

 

Except otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, holders of common stock are entitled to one vote for each share held on all matters to be voted on by stockholders, including the election of directors. The Board is divided into three classes, each of which will serve for a term of three (3) years with only one class of directors being elected in each year. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares eligible to vote for the election of directors can elect all of the directors.

 

Dividends

 

Holders of common stock will be entitled to receive such dividends and other distributions, if any, as may be declared from time to time by the Board in its discretion out of funds legally available therefor and shall share equally on a per share basis in such dividends and distributions.

 

Liquidation, Dissolution and Winding Up

 

In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of HighPeak Energy, the holders of common stock will be entitled to receive an equal amount per share of all HighPeak Energy’s assets of whatever kind available for distribution to stockholders, after the rights of the holders of HighPeak Energy’s creditors and holders of preferred stock, if any, have been satisfied.

 

Preferred Stock

 

The A&R Charter provides that shares of preferred stock may be issued from time to time in one or more series. The Board is authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special rights and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. The Board may, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the voting common stock and could have anti-takeover effects. The ability of the Board to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control of HighPeak Energy or the removal of existing management. HighPeak Energy currently has no preferred stock outstanding as of the date of this prospectus. Although HighPeak Energy does not currently intend to issue any shares of preferred stock, HighPeak Energy cannot assure you that it will not do so in the future.

 

 

Warrants

 

The Company currently has outstanding 9,500,174 warrants consisting of (i) 8,089,509 warrants issued pursuant to the Forward Purchase Agreement Amendment plus (ii) 1,561,308 warrants issued pursuant to the business combination to holders of Pure’s then outstanding warrants and Pure Class A Common Stock, respectively less (iii) 1,038,009 warrants exercised.

 

At the Closing, the Company entered into the Amendment and Assignment to Warrant Agreement (the “Warrant Agreement Amendment”), by and among the Company, Pure and Continental. The Warrant Agreement Amendment assigned the existing Warrant Agreement, dated April 12, 2018, by and among Pure, Pure’s officers and directors and Pure’s Sponsor (the “original warrant agreement”) to the Company, and the Company agreed to perform all applicable obligations under such agreement. In addition, the terms of the Warrant Agreement Amendment, provide for, among other things, the holders of warrants the option to exercise such warrants on a “cashless basis,” in addition to creating an obligation of the Company to issue shares of HighPeak Energy common stock without registration provided that such issuance may be made in reliance on Section 3(a)(9) of the Securities Act. If holders of the warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering his, her or its warrants for that number of shares of common stock equal to the quotient obtained by dividing (x) the product of the number of shares of common stock underlying the warrants, multiplied by the excess of the “fair market value” (defined below) over the exercise price of the warrants by (y) the fair market value. The “fair market value” shall be the average reported last sale price of the shares of common stock for the ten (10) trading days ending on the third trading day prior to the date that notice of the exercise is received by Continental. In addition, the Warrant Agreement Amendment eliminated the ability to redeem the outstanding warrants.

 

In connection with the business combination, HighPeak Energy assumed Pure’s rights and obligations under the original warrant agreement. Each whole warrant entitles the registered holder to purchase one share of HighPeak Energy common stock at a price of $11.50 per share, subject to certain adjustments, at any time commencing on September 21, 2020. Warrants must be exercised for a whole share. The warrants will expire August 21, 2025, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.

 

HighPeak Energy has no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the shares of HighPeak Energy common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to HighPeak Energy satisfying its obligations described below with respect to registration. No warrant will be exercisable for cash or on a cashless basis and HighPeak Energy will not be obligated to issue any shares to holders seeking to exercise their warrants unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption is available. In the event the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will HighPeak Energy be required to net cash settle any warrant.

 

HighPeak Energy is re-registering the issuance of the common stock underlying the warrants issued in connection with the business combination on the registration statement of which this prospectus forms a part. HighPeak Energy will use its best efforts to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement. Notwithstanding the above, if HighPeak Energy’s common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, HighPeak Energy may, at its option, require holders of warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event HighPeak Energy so elects, HighPeak Energy will not be required to file or maintain in effect a registration statement, but will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.

 

The original warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval, by written consent or vote, of the holders of at least 50% of the then outstanding warrants (including the private placement warrants) to make any change that adversely affects the interests of the registered holders.

 

 

The exercise price and number of shares of common stock issuable on exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or HighPeak Energy’s recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of shares of HighPeak Energy common stock at a price below their respective exercise prices.

 

The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of shares of common stock and any voting rights until they exercise their warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.

 

Warrant holders may elect in writing to be subject to a restriction on the exercise of their warrants such that an electing warrant holder would not be able to exercise their warrants to the extent that, after giving effect to such exercise, such holder would beneficially own in excess of 9.8% of the shares of common stock outstanding.

 

No fractional shares of common stock will be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, HighPeak Energy will, upon exercise, round down to the nearest whole number the number of shares of common stock to be issued to the warrant holder.

 

Contingent Value Rights

 

The Contingent Value Rights are contractual rights to receive a contingent payment (in the form of additional shares of common stock, or as otherwise specified in the Contingent Value Rights Agreement) in certain circumstances. The CVR Holders are being provided with a significant valuation protection through the opportunity to obtain additional contingent consideration in the form of additional shares of common stock if the trading price of common stock is below the price that would provide the CVR Holders with a 10% preferred simple annual return (based on a $10.00 per share price at Closing), subject to a floor downside per-share price of $4.00, at the CVR Maturity Date. To be a Qualifying CVR Holder, a CVR Holder must provide certain information required under the Contingent Value Rights Agreement. Further, HighPeak Energy has applied to list the CVRs on the Nasdaq, and they are currently quoted on the OTC under the symbol “HPKER”. There is no assurance, however, that the CVRs will be listed on the Nasdaq.

 

HighPeak Energy’s Transfer Agent, Warrant Agent and Rights Agent

 

The Transfer Agent, Warrant Agent and Rights Agent for HighPeak Energy’s common stock, warrants and CVRs is Continental. HighPeak Energy has agreed to indemnify Continental in its roles as Transfer Agent, Warrant Agent and Rights Agent, its agents and each of its stockholders, directors, officers and employees against all liabilities, including judgments, costs and reasonable counsel fees that may arise out of acts performed or omitted for its activities in that capacity, except for any liability due to any gross negligence, willful misconduct or bad faith of the indemnified person or entity.

 

Certain Anti-Takeover Provisions of Delaware Law and HighPeak Energy’s A&R Charter and Bylaws

 

HighPeak Energy is subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. This statute prevents certain Delaware corporations, under certain circumstances, from engaging in a “business combination” with:

 

●

a stockholder who owns 15% or more of HighPeak Energy’s outstanding voting stock (otherwise known as an “interested stockholder”);

 

●

an affiliate of an interested stockholder; or

 

●

an associate of an interested stockholder, for three (3) years following the date that the stockholder became an interested stockholder.

 

 

A “business combination” includes a merger or sale of more than 10% of HighPeak Energy’s assets. However, the above provisions of Section 203 do not apply if:

 

●

the Board approves the transaction that made the stockholder an “interested stockholder,” prior to the date of the transaction;

 

●

after the completion of the transaction that resulted in the stockholder becoming an interested stockholder, that stockholder owned at least 85% of HighPeak Energy’s voting stock outstanding at the time the transaction commenced, other than statutorily excluded shares of voting common stock; or

 

●

on or subsequent to the date of the transaction, the business combination is approved by the Board and authorized at a meeting of HighPeak Energy’s stockholders, and not by written consent, by an affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder.

 

HighPeak Energy’s authorized but unissued voting common stock and preferred stock are available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved voting common stock and preferred stock could render more difficult or discourage an attempt to obtain control of HighPeak Energy by means of a proxy contest, tender offer, merger or otherwise.

 

Written Consent by Stockholders

 

HighPeak Energy’s A&R Charter provides that prior to the first date in which the HighPeak Group no longer collectively beneficially owns more than 50% of the outstanding HighPeak Energy voting securities, HighPeak Energy stockholders may take action by written consent of the holders of not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Before such time, any action required or permitted to be taken by HighPeak Energy’s stockholders that is approved in advance by the Board may be effected without a meeting, without prior notice and without a vote of stockholders, if a consent or consents in writing, setting forth the action so taken, is or are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. If any such action by written consent is taken then HighPeak Energy will notify its stockholders of the same.

 

Special Meeting of Stockholders

 

HighPeak Energy’s bylaws provides that special meetings of its stockholders may be called only by a majority vote of the Board, by HighPeak Energy’s President or by HighPeak Energy’s Chairman.

 

Advance Notice Requirements for Stockholder Proposals and Director Nominations

 

HighPeak Energy’s bylaws provide that stockholders seeking to bring business before HighPeak Energy’s annual meeting of stockholders, or to nominate candidates for election as directors at HighPeak Energy’s annual meeting of stockholders, must provide timely notice of their intent in writing. To be timely, a stockholder’s notice will need to be received by the Company’s secretary at HighPeak Energy’s principal executive offices not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the anniversary date of the immediately preceding annual meeting of stockholders. Pursuant to Rule 14a-8 of the Exchange Act, proposals seeking inclusion in HighPeak Energy’s annual proxy statement must comply with the notice periods contained therein. HighPeak Energy’s bylaws also specify certain requirements as to the form and content of a stockholders’ meeting. These provisions may preclude HighPeak Energy’s stockholders from bringing matters before HighPeak Energy’s annual meeting of stockholders or from making nominations for directors at HighPeak Energy’s annual meeting of stockholders.

 

 

Exclusive Forum

 

The A&R Charter provides that a stockholder bringing a claim subject to the proposed Article 8 of the A&R Charter will be required to bring that claim in the Court of Chancery, subject to the Court of Chancery having personal jurisdiction over the defendants. The forum selection provision is not intended to apply to claims arising under the Securities Act or the Exchange Act. To the extent the provision could be constructed to apply to such claims, there is uncertainty as to whether a court would enforce such provision in connection with such claims. The A&R Charter also provides that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and to have consented to, the provisions of Article 8 of the A&R Charter. Stockholders will not be deemed, by operation of Article 8 of the A&R Charter alone, to have waived claims arising under the federal securities laws and the rules and regulations promulgated thereunder. The enforceability of similar exclusive forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with one or more actions or proceedings described above, a court could rule that this provision in the A&R Charter is inapplicable or unenforceable.

 

If any action the subject matter of which is within the scope of the forum selection provision described in the preceding paragraph is filed in a court other than the Court of Chancery (or, if the Court of Chancery does not have jurisdiction, another state court or a federal court located within the State of Delaware) (a “Foreign Action”) in the name of any stockholder, such stockholder shall be deemed to have consented to (i) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce the forum selection provision (an “Foreign Enforcement Action”) and (ii) having service of process made upon such stockholder in any such Foreign Enforcement Action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder.

 

Rule 144

 

Pursuant to Rule 144, a person who has beneficially owned restricted shares of HighPeak Energy’s voting common stock or warrants for at least six (6) months would be entitled to sell their securities provided that (i) such person is not deemed to have been one of HighPeak Energy’s affiliates at the time of, or at any time during the three (3) months preceding, a sale and (ii) HighPeak Energy is subject to the Exchange Act periodic reporting requirements for at least three (3) months before the sale and have filed all required reports under Section 13 or 15(d) of the Exchange Act during the twelve (12) months (or such shorter period as HighPeak Energy were required to file reports) preceding the sale.

 

Persons who have beneficially owned restricted shares of HighPeak Energy’s voting common stock or warrants for at least six (6) months but who are HighPeak Energy’s affiliates at the time of, or at any time during the three (3) months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:

 

●

1% of the total number of shares of such securities then-outstanding; or

 

●

the average weekly reported trading volume of such securities during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.

 

●

sales by HighPeak Energy’s affiliates under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability of current public information about us.

 

Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies

 

Rule 144 is not available for the resale of securities initially issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:

 

●

the issuer of the securities that was formerly a shell company has ceased to be a shell company;

 

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the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;

 

●

the issuer of the securities has filed all Exchange Act reports and materials required to be filed, as applicable, during the preceding twelve (12) months (or such shorter period that the issuer was required to file such reports and materials), other than Current Reports on Form 8-K; and

 

 

●

at least one (1) year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.

 

Listing of Securities

 

HighPeak Energy’s common stock and warrants are listed on the Nasdaq under the symbols “HPK” and “HPKEW,” respectively. Further, the Company has applied to list the CVRs on the Nasdaq, and the CVRs are currently quoted on the OCT under the symbol “HPKER”. There is no assurance, however, that the CVRs will be listed on the Nasdaq.

 

 

SELLING SECURITYHOLDERS

 

Up to 33,592,542 shares of HighPeak Energy common stock may be offered for resale by certain selling securityholders under this prospectus, including (i) 7,776,549 shares of HighPeak Energy common stock owned by the selling securityholders named herein pursuant to the Forward Purchase Agreement Amendment, (ii) 8,089,509 shares of HighPeak Energy common stock issuable upon exercise of the warrants and (iii) up to 17,726,484 shares of HighPeak Energy common stock issuable upon settlement of the CVRs. Additionally, 8,089,509 warrants and 8,341,875 CVRs, respectively, issued pursuant to the Forward Purchase Agreement Amendment may be offered for resale by certain selling securityholders under this prospectus. This prospectus also relates to the issuance of HighPeak Energy common stock issuable upon exercise or settlement of such warrants or CVRs, respectively, that have been sold by the selling securityholders pursuant to this prospectus. Further, 81,374,134 shares of HighPeak Energy common stock may be offered for resale by certain selling securityholders under this prospectus pursuant to the Registration Rights Agreement.

 

The following table sets forth the number of shares of HighPeak Energy common stock, warrants and CVRs being offered by the selling securityholders (as applicable), including their donees, pledgees, transferees or other successors-in-interest, subject to the transfer restrictions described in this prospectus and the documents incorporated by reference herein, based on the assumptions that: (i) all shares of HighPeak Energy common stock, CVRs and warrants being registered for sale by this registration statement will be sold by or on behalf of the selling securityholders; and (ii) no other shares of HighPeak Energy common stock, CVRs or warrants will be acquired prior to completion of this offering by the selling securityholders. The following table also sets forth the number of shares, CVRs and warrants known to us, based upon written representations by the selling securityholders, to be beneficially owned by the selling securityholders (as applicable) as of March 17, 2021. The selling securityholders are not making any representation that any shares of HighPeak Energy common stock, CVRs or warrants covered by this prospectus will be offered for sale. The selling securityholders reserve the right to accept or reject, in whole or in part, any proposed sale of the shares of HighPeak Energy common stock, CVRs or warrants. For purposes of the table below, we assume that all of the shares of HighPeak Energy common stock, CVRs and warrants covered by this prospectus will be sold. As of the date of this prospectus, the selling securityholders have advised us that they do not currently have any plan of distribution with respect to their shares. Unless otherwise indicated, the address of each selling securityholder named in the table below is 421 W. 3rd Street, Suite 1000, Fort Worth, Texas 76102.

 

Name and Address of Selling Securityholder		CVRs Beneficially Owned Prior to Offering (1)				Number of CVRs Available Pursuant to this Prospectus (2)				Number of CVRs Beneficially Owned After Offering				Percentage of CVRs Beneficially Owned After Offering				Warrants Beneficially Owned Prior to Offering (1)				Number of Warrants Available Pursuant to this Prospectus (2)				Number of Warrants Beneficially Owned After Offering				Percentage of Warrants Beneficially Owned After Offering				Shares of Common Stock Beneficially Owned Prior to Offering				Number of Shares of Common Stock Available Pursuant to this Prospectus				Number of Shares of Common Stock Beneficially Owned After the Offering				Percentage of Shares of Common Stock Beneficially Owned After the Offering
John Paul DeJoria Family Trust (3)			5,500,000				5,500,000				—				—				5,500,000				5,500,000				—				—				22,687,500	(1)			22,687,500	(2)			—				—
HighPeak Energy III, LP (4)			500,000				500,000				—				—				500,000				500,000				—				—				2,062,500	(1)			2,062,500	(2)			—				—
FPA Employee Stockholders (5)			178,000				178,000				—				—				178,000				178,000				—				—				734,250	(1)			734,250	(2)			—				—
FPA Other Stockholders Group 1 (6)			566,372				566,372				—				—				564,006				564,006				—				—				2,227,752	(1)			2,227,752	(2)			—				—
FPA Other Stockholders Group 2 (7)			176,000				176,000				—				—				176,000				176,000				—				—				726,000	(1)			726,000	(2)
FPA Vendor Group 1 (8)			750,000				750,000				—				—				500,000				500,000				—				—				2,593,750	(1)			2,593,750	(2)			—				—
FPA Vendor Group 2 (9)			671,503				671,503				—				—				671,503				671,503				—				—				2,560,789	(1)			2,560,789	(2)			—				—
HighPeak Pure Acquisition, LLC (10)			—				—				—				—				—				—				—				—				4,856,000	(11)			4,856,000	(12)			—				—
HighPeak Energy, LP (13)			—				—				—				—				—				—				—				—				39,642,461	(11)			39,642,461	(12)			—				—
HighPeak Energy II, LP (14)			—				—				—				—				—				—				—				—				36,740,593	(11)			36,740,593	(12)			—				—
RRA Other Stockholders Group (15)			—				—				—				—				—				—				—				—				135,080	(11)			135,080	(12)			—				—

 

*         Less than one percent.

 

 

(1)         The number includes shares of HighPeak Energy common stock, CVRs and warrants, in each case, issued pursuant to the Forward Purchase Agreement Amendment. Such amount also includes (i) the shares of HighPeak Energy common stock issuable upon settlement of the CVRs at the CVR Maturity Date, which such shares are not currently beneficially owned by the selling securityholders, as applicable, provided, however, such shares of HighPeak Energy common stock underlying the CVRs will be beneficially owned by such selling securityholder, as applicable, prior to any offering pursuant to this registration statement, and (ii) the shares of HighPeak Energy common stock issuable upon exercise of the warrants with such shares able to be sold hereunder upon their issuance, if any.

 

(2)         Represents the number of shares of HighPeak Energy common stock, CVRs and warrants being registered on behalf of the selling securityholders pursuant to this registration statement.

 

(3)         Represents 5,500,000 shares of HighPeak Energy common stock, 5,500,000 CVRs and 5,500,000 warrants issued pursuant to the Forward Purchase Agreement Amendment, owned by the John Paul DeJoria Family Trust at the Closing, which are being registered pursuant to this registration statement. The address of the John Paul DeJoria Family Trust is 8911 N Capital of TX Hwy #3210, Austin, TX 78759. Such amount also includes 11,687,500 shares of HighPeak Energy common stock issuable upon settlement of the CVRs, which such shares are not currently beneficially owned by the selling securityholder, and 5,500,000 shares of HighPeak Energy common stock issuable upon exercise of the warrants with such shares able to be sold hereunder upon their issuance, if any.

 

(4)         Represents the 500,000 shares of HighPeak Energy common stock, 500,000 CVRs and 500,000 warrants, in each case issuable pursuant to the Forward Purchase Agreement Amendment, owned by HighPeak III at the Closing, which are being registered pursuant to this registration statement. The address of HighPeak III is 421 W. 3rd St., Suite 1000, Fort Worth, TX 76102. Such amount also includes 1,062,500 shares of HighPeak Energy common stock issuable upon the settlement of the CVRs, which are not currently beneficially owned by the selling securityholder, and 500,000 shares of HighPeak Energy common stock issuable upon exercise of the warrants with such shares able to be sold hereunder upon their issuance, if any. The general partner of HighPeak III is HP GP III. Mr. Hightower has the number of votes necessary to constitute a majority of the total number of votes held by all of the managers of HP GP III at any given time, which will act by majority vote. As a result, Mr. Hightower may be deemed to have or share beneficial ownership of the securities held directly by HighPeak III. Mr. Hightower disclaims any such beneficial ownership of such securities to the extent of this pecuniary interest therein.

 

(5)         Represents 178,000 shares of HighPeak Energy common stock, 178,000 CVRs and 178,000 warrants issued pursuant to the Forward Purchase Agreement Amendment at the Closing, which are being registered pursuant to this registration statement. Such amount also includes 378,250 shares of HighPeak Energy common stock issuable upon settlement of the CVRs, which such shares are not currently beneficially owned by the selling securityholders in the aggregate, and 178,000 shares of HighPeak Energy common stock issuable upon exercise of the warrants with such shares able to be sold hereunder upon their issuance, if any. This group includes seven (7) selling securityholders that may be affiliated with HighPeak Energy as a result of their employment, including executive officers and certain directors, and business relationships with the HighPeak Group and its affiliates. Collectively, this group of selling securityholders is registering approximately 0.2% of the HighPeak Energy common stock outstanding as of the date hereof.

 

(6)         Represents 460,206 shares of HighPeak Energy common stock, 566,372 CVRs and 564,006 warrants issued pursuant to the Forward Purchase Agreement Amendment at the Closing, which are being registered pursuant to this registration statement. Such amount also includes 1,203,540 shares of HighPeak Energy common stock issuable upon settlement of the CVRs, which such shares are not currently beneficially owned by the selling securityholders in the aggregate, and 564,006 shares of HighPeak Energy common stock issuable upon exercise of the warrants with such shares able to be sold hereunder upon their issuance, if any. Includes approximately twenty-four (24) other selling securityholders not otherwise listed above. Collectively, this group of selling securityholders is registering approximately 0.6% of the HighPeak Energy common stock outstanding as of the date hereof.

 

(7)         Represents 176,000 shares of HighPeak Energy common stock, 176,000 CVRs and 176,000 warrants issued pursuant to the Forward Purchase Agreement Amendment at the Closing, which are being registered pursuant to this registration statement and were previously registered on the Company’s Combined Registration Statement on Form S-4 and Form S-1, declared effective by the SEC on August 7, 2020 (File No. 333-235313). Such amount also includes 374,000 shares of HighPeak Energy common stock issuable upon settlement of the CVRs, which such shares are not currently beneficially owned by the selling securityholders in the aggregate, and 176,000 shares of HighPeak Energy common stock issuable upon exercise of the warrants with such shares able to be sold hereunder upon their issuance, if any. Includes approximately twelve (12) other selling securityholders not otherwise listed above. Collectively, this group of selling securityholders is registering approximately 0.8% of the HighPeak Energy common stock outstanding as of the date hereof.

 

(8)         Represents 500,000 shares of HighPeak Energy common stock, 750,000 CVRs and 500,000 warrants issued pursuant to the Forward Purchase Agreement Amendment at the Closing, which are being registered pursuant to this registration statement. Such amount also includes 1,593,750 shares of HighPeak Energy common stock issuable upon settlement of the CVRs, which such shares are not currently beneficially owned by the selling securityholders in the aggregate, and 500,000 shares of HighPeak Energy common stock issuable upon exercise of the warrants with such shares able to be sold hereunder upon their issuance, if any. Includes approximately two (2) vendors of the Company who received the registered securities pursuant to the Forward Purchase Agreement Amendment at the Closing. Collectively, this group of selling securityholders is registering approximately 0.8% of the HighPeak Energy common stock outstanding as of the date hereof.

 

 

(9)         Represents 462,343 shares of HighPeak Energy common stock, 671,503 CVRs and 671,503 warrants issued pursuant to the Forward Purchase Agreement Amendment at the Closing, which are being registered pursuant to this registration statement. Such amount also includes 1,426,943 shares of HighPeak Energy common stock issuable upon settlement of the CVRs, which such shares are not currently beneficially owned by the selling securityholders in the aggregate, and 671,503 shares of HighPeak Energy common stock issuable upon exercise of the warrants with such shares able to be sold hereunder upon their issuance, if any. Includes approximately two (2) vendors of the Company who received the registered securities pursuant to the Forward Purchase Agreement Amendment at the Closing. Collectively, this group of selling securityholders is registering approximately 0.7% of the HighPeak Energy common stock outstanding as of the date hereof.

 

(10)         Represents 4,856,000 shares of HighPeak Energy common stock issued to Sponsor in exchange for its shares of Pure Class B Common Stock as merger consideration pursuant to the Business Combination Agreement.

 

(11)         The number includes the number of shares of HighPeak Energy common stock issued (i) to the HPK Contributors as merger consideration pursuant to the Business Combination Agreement and (ii) to the former holders of Pure Class B Common Stock as merger consideration pursuant to the Business Combination Agreement.

 

(12)         Represents the number of shares of HighPeak Energy common stock being registered on behalf of the selling securityholders pursuant to their rights under the Registration Rights Agreement pursuant to this registration statement.

 

(13)         Represents 39,642,461 shares of HighPeak Energy common stock issued to HighPeak I as merger consideration pursuant to the Business Combination Agreement. The general partner of HighPeak I is HighPeak Energy GP, LLC, which is a wholly owned subsidiary of HPEP I. The general partner of HPEP I is HighPeak Energy Partners GP, LP, whose general partner is HP GP I. Jack Hightower has the right to appoint all of the managers to the board of managers of HP GP I and is one of three managers of HP GP I. Mr. Hightower has the number of votes necessary to constitute a majority of the total number of votes held by all of the managers of HP GP I at any given time, which acts by majority vote. As a result, Mr. Hightower may be deemed to have or share beneficial ownership of the securities held directly by HPEP I. Mr. Hightower disclaims any such beneficial ownership of such securities to the extent of his pecuniary interest therein.

 

(14)         Represents 36,740,593 shares of HighPeak Energy common stock issued to HighPeak II as merger consideration pursuant to the Business Combination Agreement. The general partner of HighPeak II is HighPeak Energy GP II, LLC, which is a wholly owned subsidiary of HPEP II. The general partner of HPEP II is HighPeak Energy Partners GP II, LP, whose general partner is HighPeak GP II, LLC (“HP GP II”). Mr. Hightower has the right to appoint all of the managers of HP GP II. Mr. Hightower has the number of votes necessary to constitute a majority of the total number of votes held by all of the managers of HP GP II at any given time, which acts by majority vote. As a result, Mr. Hightower may be deemed to have or share beneficial ownership of the securities held directly by HPEP II. Mr. Hightower disclaims any such beneficial ownership of such securities to the extent of his pecuniary interest therein.

 

(15)         Represents 135,080 shares of HighPeak Energy common stock issued to the former directors of Pure as merger consideration in exchange for their shares of Pure Class B Common Stock pursuant to the Business Combination Agreement. Includes three (3) selling securityholders not otherwise listed above, none of which own more than 0.25% of HighPeak Energy’s common stock. Collectively, these selling securityholders own approximately 0.2% of the HighPeak Energy common stock outstanding as of the date hereof.

 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information known to the Company regarding ownership of shares of voting securities of the Company, which consists of HighPeak Energy common stock and warrants, as of March 17, 2021, after giving effect to the Closing, by:

 

●

each person who is known by the Company to own beneficially more than 5% of the outstanding shares of the Company’s common stock;

 

●

each of the Company’s current executive officers and directors; and

 

●

all current executive officers and directors of the Company, as a group.

 

Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security or has the right to acquire such securities within sixty (60) days, including options and warrants that are currently exercisable or exercisable within sixty (60) days.

 

The beneficial ownership of voting securities of the Company is based on 92,675,898 shares of HighPeak Energy common stock, issued and outstanding as of March 17, 2021.

 

The expected beneficial ownership percentages set forth in the table below do not take into account the issuance of any shares under the Contingent Value Rights Agreement.

 

Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all shares of common stock beneficially owned by them. Unless otherwise indicated, the address of each person named in the table below is 421 W. 3rd Street, Suite 1000, Fort Worth, Texas 76102.

 

Name and Address of Beneficial Owners	Number of Shares	%
Jack Hightower (1)(2)(3)(4)	88,397,221	89.8
Rodney L. Woodard (5)(6)(7)	244,667	*
Steven W. Tholen (8)(9)	96,667	*
Larry C. Oldham	13,000	*
Keith A. Covington (10)	42,500	*
Michael L. Hollis (11)(12)(13)	460,970	*
Michael H. Gustin	12,500	*
Jay M. Chernosky	12,500	*
Sharon Fulgham	12,500	*
HighPeak Pure Acquisition, LLC	4,856,000	5.3
HighPeak Energy Partners, LP (14)	39,642,461	43.1
HighPeak Energy Partners II, LP (15)	36,740,593	40.0
HighPeak Energy III, LP (16)(17)	1,000,000	1.1
John Paul DeJoria Family Trust (18)(19)	11,000,000	11.3
All directors and executive officers of the Company as a group (nine individuals)	89,292,525	90.0

 

---

*         Less than one percent.

 

(1)         Represents shares beneficially owned by (i) Sponsor, of which this individual is a manager, (ii) HPEP I, of which this individual has the number of votes necessary to constitute a majority of the total number of votes held by all of the managers of the general partner of HPEP I’s general partner, (iii) HPEP II, of which this individual has the number of votes necessary to constitute a majority of the total number of votes held by all of the managers of the general partner of HPEP II’s general partner and (iv) HighPeak III, of which this individual has the number of votes necessary to constitute a majority of the total number of votes held by all of the managers of the general partner of HighPeak III’s general partner, and, therefore, may be deemed to have voting and dispositive power over shares held by such entities. Mr. Hightower disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

 

 

(2)         Includes (i) 2,336 shares of HighPeak Energy common stock and (ii) 2,336 warrants to purchase shares of HighPeak Energy common stock, exercisable within sixty (60) days of the date hereof, beneficially owned by Mr. Hightower’s family member. Mr. Hightower disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

 

(3)         Includes 5,953,495 shares of HighPeak Energy common stock issuable upon the exercise of stock options that have been vested as of the date hereof.

 

(4)         Includes (i) 100,000 shares of HighPeak Energy common stock and (ii)100,000 warrants to purchase shares of HighPeak Energy common stock, issuable upon the exercise of the warrants exercisable within sixty (60) days of the date hereof.

 

(5)         Includes 1,000 shares of HighPeak Energy common stock issuable upon the exercise of the warrants exercisable within sixty (60) days of the date hereof.

 

(6)         Includes (i) 13,000 shares of HighPeak Energy common stock and (ii) 13,000 warrants to purchase shares of HighPeak Energy common stock, exercisable within sixty (60) days of the date hereof, held through a personal investment vehicle. Mr. Woodard disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

 

(7)         Includes 216,667 shares of HighPeak Energy common stock issuable upon the exercise of stock options that have been vested as of the date hereof.

 

(8)         Includes (i) 15,000 shares of HighPeak Energy common stock and (ii) 15,000 warrants to purchase shares of HighPeak Energy common stock, issuable upon the exercise of the warrants exercisable within sixty (60) days of the date hereof.

 

(9)         Includes 66,667 shares of HighPeak Energy common stock issuable upon the exercise of stock options that have been vested as of the date hereof.

 

(10)         Includes (i) 15,000 shares of HighPeak Energy common stock and (ii) 15,000 warrants to purchase shares of HighPeak Energy common stock, exercisable within sixty (60) days of the date hereof, beneficially owned through a family trust. Mr. Covington disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

 

(11)         Includes (i) 21,802 shares of HighPeak Energy common stock and (ii) 33,768 warrants to purchase shares of HighPeak Energy common stock, issuable upon the exercise of the warrants exercisable within sixty (60) days of the date hereof.

 

(12)         Includes (i) 200 shares of HighPeak Energy common stock and (ii) 200 warrants to purchase shares of HighPeak Energy common stock, exercisable within sixty (60) days of the date hereof, beneficially owned by family members of Mr. Hollis. Mr. Hollis disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

 

(13)         Includes 405,000 shares of HighPeak Energy common stock issuable upon the exercise of stock options that have been vested as of the date hereof.

 

(14)         The general partner of HighPeak I is HighPeak Energy GP, LLC, which is a wholly owned subsidiary of HPEP I. The general partner of HPEP I is HighPeak Energy Partners GP, LP, whose general partner is HP GP I. Jack Hightower has the right to appoint all of the managers to the board of managers of HP GP I and is one of three managers of HP GP I. Mr. Hightower has the number of votes necessary to constitute a majority of the total number of votes held by all of the managers of HP GP I at any given time, which acts by majority vote. As a result, Mr. Hightower may be deemed to have or share beneficial ownership of the securities held directly by HPEP I. Mr. Hightower disclaims any such beneficial ownership of such securities to the extent of his pecuniary interest therein.

 

(15)         The general partner of HighPeak II is HighPeak Energy GP II, LLC, which is a wholly owned subsidiary of HPEP II. The general partner of HPEP II is HighPeak Energy Partners GP II, LP, whose general partner is HP GP II. Mr. Hightower has the right to appoint all of the managers of HP GP II. Mr. Hightower has the number of votes necessary to constitute a majority of the total number of votes held by all of the managers of HP GP II at any given time, which acts by majority vote. As a result, Mr. Hightower may be deemed to have or share beneficial ownership of the securities held directly by HPEP II. Mr. Hightower disclaims any such beneficial ownership of such securities to the extent of his pecuniary interest therein.

 

(16)         The general partner of HighPeak III is HP GP III. Mr. Hightower has the number of votes necessary to constitute a majority of the total number of votes held by all of the managers of HP GP III at any given time, which will act by majority vote. As a result, Mr. Hightower may be deemed to have or share beneficial ownership of the securities held directly by HighPeak III. Mr. Hightower disclaims any such beneficial ownership of such securities to the extent of this pecuniary interest therein.

 

(17)         Includes 500,000 shares of HighPeak Energy common stock issuable upon the exercise of the warrants exercisable within sixty (60) days of the date hereof.

 

(18)         Represents 5,500,000 shares of HighPeak Energy common stock and 5,500,000 warrants owned by the John Paul DeJoria Family Trust at the Closing of the business combination. The address of the John Paul DeJoria Family Trust is 8911 N Capital of TX Hwy #3210, Austin, TX 78759.

 

(19)         Includes 5,500,000 shares of HighPeak Energy common stock issuable upon the exercise of the warrants exercisable within sixty (60) days of the date hereof.

 

 

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

Compensation arrangements with our named executive officers and directors are described elsewhere in this prospectus.

 

See “Security Ownership of Certain Beneficial Owners and Management” for information regarding the ownership of our securities by our control persons.

 

Business Combination Agreement

 

Pursuant to the Business Combination Agreement, among other things, (a) MergerSub merged with and into Pure, with Pure surviving as a wholly owned subsidiary of the Company, (b) each outstanding share of Pure Class A Common Stock and Pure Class B Common Stock (other than certain shares of Class B Common Stock that were surrendered for cancellation by Sponsor) were converted into the right to receive (A) one share of common stock (and cash in lieu of fractional shares), and (B) solely with respect to each outstanding share of Pure Class A Common Stock, (i) a cash amount, without interest, equal to $0.62, which represented the amount by which the per-share redemption value of Pure Class A Common Stock that exceeded $10.00 per share at the Closing, without interest, in each case, totaling approximately $767,902, (ii) one CVR for each one whole share of common stock (excluding fractional shares) issued to holders of Pure Class A Common Stock pursuant to clause (A), representing the right to receive additional shares of common stock (or such other specified consideration as is specified with respect to certain events) under certain circumstances, if necessary, to satisfy a 10% preferred simple annual return on HighPeak Energy’s common stock], subject to a floor downside per-share price of $4.00, as measured at the applicable maturity, which will occur on a date to be specified and which may be any date occurring during the period beginning on (and including) August 21, 2022 and ending on (and including) February 21, 2023, or in certain circumstances after the occurrence of certain change of control events with respect to the Company’s business, including certain mergers, consolidations and asset sales (with an equivalent number of shares of common stock held by HighPeak I and HighPeak II being collectively forfeited) and (iii) one warrant to purchase common stock for each one whole share of common stock (excluding fractional shares) issued to holders of Pure Class A Common Stock pursuant to clause (A), (c) the HPK Contributors (A) contributed their limited partner interests in HPK LP to the Company in exchange for HighPeak Energy common stock and the general partner interests in HPK LP to a wholly owned subsidiary of the Company in exchange for no consideration, and (B) contributed the outstanding Sponsor Loans (as defined in the Business Combination Agreement) in exchange for common stock and such Sponsor Loans were cancelled in connection with the closing of the HighPeak business combination and (d) following the consummation of the foregoing transactions, the Company caused HPK LP to merge with and into HighPeak Energy Acquisition Corp. (as successor to Pure) and all interests in HPK LP were cancelled in exchange for no consideration.

 

HighPeak I and HighPeak II collectively received 76,383,054 shares of HighPeak Energy common stock pursuant to the Business Combination Agreement. Further, certain of the Company’s executive officers and directors received the consideration provided by the HighPeak business combination through their ownership of Pure Class A Common Stock. Steven W. Tholen, the Company’s Chief Financial Officer received 5,000 shares of common stock, 5,000 CVRs and 5,000 warrants in exchange for shares of Pure Class A Common Stock owned by him prior to the HighPeak business combination. Michael L. Hollis, the Company’s President and member of the Company’s board of directors, received 16,802 shares of common stock, 16,802 CVRs and 20,382 warrants in exchange for shares of Pure Class A Common Stock and Pure’s warrants, respectively, owned by him prior to the HighPeak business combination. Further, Rodney L. Woodard, the Chief Operating Officer of the Company, received 14,000 shares of common stock, 14,000 CVRs and 14,000 warrants in exchange for shares of Pure Class A Common Stock and Pure’s warrants, respectively, owned by him prior to the HighPeak business combination.

 

 

Contingent Value Rights Agreement

 

At Closing, the Company entered into the Contingent Value Rights Agreement by and among, the Company, Sponsor, HighPeak I, HighPeak II and Continental Stock Transfer & Trust Company, in its capacity as Rights Agent. The CVR Agreement provides for, among other things, the CVRs, which represent contractual rights to receive a contingent payment (in the form of additional shares of common stock, or as otherwise specified in the CVR Agreement) in certain circumstances that were issued to the holders of shares of Class A Common Stock that participated in the HighPeak business combination and certain qualified institutional buyers and accredited investors, including certain affiliates and officers of the Company, that purchased forward purchase units of the Company pursuant to the Forward Purchase Agreement Amendment. Pursuant to the CVR Agreement, holders of CVRs in whose name a CVR is registered in the CVR registrar maintained by the Rights Agent at any date of determination are provided with a significant valuation protection through the opportunity to obtain additional contingent consideration in the form of additional shares of common stock if the trading price of HighPeak Energy’s common stock is below the price that would provide the holders of CVRs with a 10% preferred simple annual return (based on a $10.00 per share price at the closing of the HighPeak business combination), subject to a floor downside per-share price of $4.00, either at (i) the date to be specified by the CVR Sponsors, which may be any date occurring during the period beginning on (and including) August 21, 2022 and ending on (and including) February 21, 2023, or (ii) in certain circumstances, the occurrence of certain change of control events with respect to the Company’s business, including certain mergers, consolidation and asset sales. If any additional shares of common stock are issued to Qualifying CVR Holders pursuant to the CVR Agreement, the CVR Sponsors will collectively forfeit an equivalent number of shares they own that are currently in escrow to the Company for cancellation. The Preferred Returns could entitle a Qualifying CVR Holder to receive up to 2.125 shares of HighPeak Energy common stock per CVR.  Following the Closing, the CVR Sponsors collectively placed the shares in escrow, which equaled the maximum number of additional shares of common stock issuable pursuant to the CVR Agreement, which such shares will be released either to the Company for cancellation in connection with the satisfaction of any Preferred Returns or back to the CVR Sponsors, collectively, as applicable, following the maturity date under the CVR Agreement. 

 

Stockholders’ Agreement

 

At Closing, Pure’s Sponsor, HighPeak I, HighPeak II, HighPeak III and Jack Hightower (collectively, with each of their respective affiliates and permitted transferees, the “Principal Stockholder Group”), on the one hand, and the Company, on the other hand, entered into the Stockholders’ Agreement, which governs certain rights and obligations following the Closing.

 

Under the Stockholders’ Agreement, the Principal Stockholder Group are entitled, based on its percentage ownership of the total amount of common stock issued and outstanding immediately following the Closing (the “Original Shares”) and provided that the Original Shares constitute not less than the percentage of the then outstanding total voting securities of the Company set forth below, to nominate a number of directors for appointment to the Board as follows:

 

●

for so long as (i) the Principal Stockholder Group beneficially owns at least 35% of the Original Shares and (ii) the Original Shares constitute at least 30% of the Company’s then-outstanding voting securities, the Principal Stockholder Group can designate up to four (4) nominees, and if the Principal Stockholder Group owns less than 50% of the total outstanding voting securities, at least one nominee shall be independent as defined by applicable listing standards;

 

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for so long as (i) the Principal Stockholder Group beneficially owns less than 35% but at least 25% of the Original Shares and (ii) the Original Shares constitute at least 25% of the Company’s then-outstanding voting securities, the Principal Stockholder Group can designate up to three (3) nominees;

 

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for so long as (i) the Principal Stockholder Group beneficially owns less than 25% but at least 15% of the Original Shares and (ii) the Original Shares constitute at least 15% of the Company’s then-outstanding voting securities, the Principal Stockholder Group can designate up to two (2) nominees; and

 

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if (i) the Principal Stockholder Group beneficially owns less than 15% but at least 5% of the Original Shares and (ii) the Original Shares constitute at least 7.5% of the Company’s then-outstanding voting securities, the Principal Stockholder Group can designate one (1) nominee.

 

If at any time the Principal Stockholder Group owns less than 5% of the Original Shares or the Original Shares constitute less than 7.5% of the Company’s then-outstanding voting securities, it will cease to have any rights to designate individuals for nomination to the Board.

 

 

For so long as the Principal Stockholder Group has the right to designate at least one director for nomination under the Stockholders’ Agreement, the Company will take all Necessary Action (as defined therein) to ensure that the number of directors serving on the Board shall not exceed seven (7). For so long as the Principal Stockholder Group owns a number of shares of HighPeak Energy common stock equal to at least (i) 20% of the Original Shares and (ii) 7.5% of the then-outstanding voting securities of the Company, the Company and the Principal Stockholder Group shall have the right to have a representative appointed to serve on each committee of the Board (other than the audit committee) for which any such representative is eligible pursuant to applicable laws and the Nasdaq. For so long as the Principal Stockholder Group has the right to designate one or more individuals for nomination to the Board, the Principal Stockholder Group shall have the right to appoint one (1) non-voting observer to the Board.

 

The Stockholders’ Agreement also includes customary restrictions on the transfer of equity securities to certain persons acquiring beneficial ownership. Pursuant to the Stockholders’ Agreement, the Principal Stockholder Group will agree not to transfer, directly or indirectly, any equity securities of the Company for a period of 180 days after the Closing, subject to certain customary exceptions. The Stockholders’ Agreement will terminate as to each stockholder upon the time at which the Principal Stockholder Group no longer has the right to designate an individual for nomination to the Board under the Stockholders’ Agreement and (ii) as to a member of the Principal Stockholder Group that no longer owns any of the Original Shares.

 

Registration Rights Agreement

 

At Closing, the Company entered into the Registration Rights Agreement, by and among the Principal Stockholder Group and certain other security holders named therein, pursuant to which the Company will be obligated, subject to the terms thereof and in the manner contemplated thereby, to register for resale under the Securities Act all or any portion of the shares of common stock that the holders named thereto hold as of the date of such agreement and that they may acquire thereafter, including upon the conversion, exchange or redemption of any other security therefor (the “Registrable Securities”). The Company has agreed to file and cause to become effective a registration statement covering the Registrable Securities held by such holder making a demand for registration, provided that no fewer than the amount of Registrable Securities representing the lesser of (i) $25 million or (ii) all Registrable Securities owned by such holder, as applicable, are covered under the holder’s demand for registration. The holders can submit a request beginning immediately after the HighPeak business combination. Under the Registration Rights Agreement, the holders also have “piggyback” registration rights exercisable at any time that allow them to include the shares of HighPeak Energy common stock that they own in certain registrations initiated by the Company, provided that such holder elects to include its Registrable Securities in an amount not less than $5 million. Subject to customary exceptions, holders will also have the right to request one or more underwritten offerings of Registrable Securities, provided, that, they hold at least $5 million in Registrable Securities and each such offering include a number of Registrable Securities equal to the lesser of (i) $25 million and (ii) all of the Registrable Securities owned by such holders as of the date of the request. In the event that the sale of registered securities under a registration statement would require disclosure of certain material non-public information not otherwise required to be disclosed, the Company may postpone the effectiveness of the applicable registration statement or require the suspension of sales thereunder. The Company may not delay or suspend a registration statement on more than two (2) occasions for more than sixty (60) consecutive calendar days or more than ninety (90) total calendar days, in each case, during any twelve (12) month period.

 

Forward Purchases

 

In connection with the Closing, the Company also issued shares of common stock, warrants and CVRs to certain qualified institutional buyers and accredited investors pursuant to that certain Forward Purchase Agreement Amendment.

 

Prior to the Closing, and subsequent to the Company’s entry into the Forward Purchase Agreement Amendment, an aggregate of 8,976,875 forward purchase units (with each forward purchase unit consisting of one share of common stock, one warrant and one CVR), for aggregate consideration of approximately $89.8 million in a private placement pursuant to the Assignment and Joinder agreements under and pursuant to the Forward Purchase Agreement Amendment, between such private purchasers and HPEP I. The proceeds from the Forward Purchases were used to fund a portion of the minimum equity consideration condition to Closing required to effect the business combination pursuant to the Business Combination Agreement.

 

 

Parties making Forward Purchases include the John Paul DeJoria Family Trust, who acquired 5,500,000 forward purchase units, consisting of 5,500,000 shares of common stock (and a corresponding number of warrants and CVRs), and certain officers and directors of the Company who acquired shares of common stock, warrants and CVRs through the Forward Purchase Agreement Amendment. HighPeak III, which is an entity controlled by Jack Hightower, purchased 500,000 forward purchase units, consisting of 500,000 shares of common stock (and a corresponding number of warrants and CVRs), and Mr. Hightower directly purchased an additional 100,000 forward purchase units, consisting of 100,000 shares of common stock (and a corresponding number of warrants and CVRs) in his name. Steven W. Tholen and Michael L. Hollis each acquired 10,000 forward purchase units, consisting of 10,000 shares of common stock (and a corresponding number of warrants and CVRs), respectively, through the Forward Purchase Agreement Amendment.

 

Director Consulting Services

 

Michael Gustin, who is currently a director of HighPeak Energy, provided certain water-reclamation consulting services to members of the HighPeak Group from the years 2017 to 2019 through entities he owns and controls. During such time, these entities received approximately $5 million from members of the HighPeak Group in exchange for these services.

 

Indemnification Agreements

 

At Closing, the Company entered into indemnity agreements (the “Indemnity Agreements”) with each of Messrs. Jack Hightower, Jay M. Chernosky, Keith A. Covington, Michael H. Gustin, Michael L. Hollis and Larry C. Oldham and Mme. Sharon Fulgham, each of whom is a director of the Company, and Messrs. Steven W. Tholen and Rodney L. Woodard, and in November 2020 an indemnity agreement with Keith Forbes, each of whom is an executive officer of the Company. Each Indemnity Agreement provides that, subject to limited exceptions, and among other things, we will indemnify the director or executive officer to the fullest extent permitted by law for claims arising in his or her capacity as our director or officer.

 

 

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

 

The following is a discussion of the material U.S. federal income tax considerations related to the acquisition, ownership and disposition of our shares of common stock, CVRs and warrants, which we refer to collectively as our “securities”, and applies only to securities that are held as a capital asset for U.S. federal income tax purposes (generally property held for investment). This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations, administrative rulings and judicial decisions, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. We cannot assure you that a change in law will not significantly alter the tax considerations that we describe in this summary. We have not sought any ruling from the Internal Revenue Service (“IRS”) with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS or a court will agree with such statements and conclusions.

 

This summary does not address all aspects of U.S. federal income taxation that may be relevant to holders in light of their personal circumstances. In addition, this summary does not address the Medicare tax on certain investment income, U.S. federal estate or gift tax laws, any state, local or non-U.S. tax laws or any tax treaties. In addition, this discussion does not address all tax considerations that may be important to a particular holder in light of the holder’s circumstances, or to certain categories of investors that may be subject to special rules, such as:

 

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banks, insurance companies or other financial institutions;

 

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tax-exempt or governmental organizations;

 

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qualified foreign pension funds (or any entities all of the interests of which are held by a qualified foreign pension fund);

 

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dealers in securities or foreign currencies;

 

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“controlled foreign corporations,” “passive foreign investment companies” and corporations that accumulate earnings to avoid U.S. federal income tax;

 

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traders in securities that use the mark-to-market method of accounting for U.S. federal income tax purposes;

 

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persons subject to the alternative minimum tax;

 

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partnerships or other pass-through entities for U.S. federal income tax purposes or holders of interests therein;

 

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persons deemed to sell our securities under the constructive sale provisions of the Code;

 

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persons that acquired our securities through the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan;

 

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U.S. holders (as defined below) whose functional currency is not the U.S. dollar;

 

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real estate investment trusts;

 

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regulated investment companies;

 

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certain former citizens or long-term residents of the United States; and

 

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persons that hold our securities as part of a straddle, appreciated financial position, synthetic security, hedge, conversion transaction or other integrated investment or risk reduction transaction.

 

 

PROSPECTIVE INVESTORS ARE ENCOURAGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS (INCLUDING ANY POTENTIAL FUTURE CHANGES THERETO) TO THEIR PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR SECURITIES ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL, NON U.S. OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.

 

U.S. Holder and Non-U.S. Holder Defined

 

A “U.S. holder” is a beneficial owner of shares of our common stock, CVRs, or warrants that, for U.S. federal income tax purposes, is:

 

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an individual who is a citizen or resident of the United States;

 

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a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

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an estate the income of which is subject to U.S. federal income tax regardless of its source; or

 

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a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (B) that has made a valid election under applicable U.S. Treasury regulations to be treated as a United States person.

 

A “Non-U.S. holder” is a beneficial owner of shares of our common stock, CVRs, or warrants that is, for U.S. federal income tax purposes, an individual, corporation, estate or trust that is not a U.S. holder.

 

If a partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of our common stock, CVRs, or warrants, the tax treatment of a partner in such partnership generally will depend upon the status of the partner, upon the activities of the partnership and upon certain determinations made at the partner level. Accordingly, we urge partners in partnerships (including entities or arrangements treated as partnerships for U.S. federal income tax purposes) considering the purchase of our securities to consult their tax advisors regarding the U.S. federal income tax considerations of the purchase, ownership and disposition of our securities by such partnership.

 

Considerations For U.S. Holders

 

This section applies to you if you are a “U.S. holder.”

 

Distributions on HighPeak Energy Common Stock.

 

If we pay distributions of cash or other property to U.S. holders of shares of our common stock, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of current and accumulated earnings and profits will constitute a non-taxable return of capital that will be applied against and reduce (but not below zero) a U.S. holder’s adjusted tax basis in our common stock. Any remaining excess will be treated as gain realized on the sale or other disposition of common stock and will be treated as described under “—Considerations For U.S. Holders—Disposition of HighPeak Energy Common Stock” below.

 

Distributions treated as dividends that we pay to a U.S. holder that is treated as a corporation for U.S. federal income tax purposes generally will qualify for the dividends received deduction if the requisite holding period is satisfied. With certain exceptions (including, but not limited to, dividends treated as investment income for purposes of investment interest deduction limitations), and provided certain holding period requirements are met, dividends we pay to a non-corporate U.S. holder generally will constitute “qualified dividends” that will be subject to U.S. federal income tax at the maximum tax rate accorded to long-term capital gains.

 

 

Disposition of HighPeak Energy Common Stock.

 

Except as discussed below with respect to the straddle rules, upon a sale or other taxable disposition of our common stock, a U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between (i) the sum of the amount of cash and the fair market value of any property received in such disposition and (ii) the U.S. holder’s adjusted tax basis in its common stock so disposed of. A U.S. holder’s adjusted tax basis in its common stock will equal the U.S. holder’s acquisition cost, less any prior distributions treated as a return of capital. Any such capital gain or loss generally will be long-term capital gain or loss if the U.S. holder’s holding period for the common stock so disposed of exceeds one year. Long-term capital gains recognized by non-corporate U.S. holders will be eligible to be taxed at reduced rates. The deductibility of capital losses is subject to limitations.

 

The Code provides special rules concerning the recognition of losses and the determination of holding periods with respect to positions that are part of a “straddle,” which consists of offsetting positions with respect to property where there is a diminished risk of loss by holding one or more other positions with respect to substantially similar or related property. The term “position” means an interest (including an option) in property. For this purpose, property would not include common stock unless common stock were part of a straddle where one of the offsetting positions was an option with respect to common stock or a position with respect to substantially similar or related property (other than stock). Positions are treated as offsetting where the risk of loss from holding one position is substantially diminished by reason of holding another position. The term diminished risk of loss is defined to include situations where the fair value of the stock and the fair value of the offsetting position are reasonably expected to vary inversely. U.S. holders should consult their tax advisors regarding the tax consequences of owning common stock as part of a straddle.

 

Specifically, it is likely that the ownership of common stock and the CVRs will constitute a straddle. In such case, any losses realized from the disposition of either the common stock, CVRs or both are deductible in any taxable year only to the extent that the amount of such realized loss exceeds the “unrealized” gain (if any) with respect to the common stock, CVRs or both which were offsetting with respect to the interests sold (i.e., the unrealized appreciation inherent in the portion of the straddle still held at year end). Any excess realized loss is disallowed for tax purposes and carried to the next year with a deduction allowed upon the disposition of such offsetting positions that made up the initial straddle (i.e., the appreciated position in the straddle).

 

As a result of treatment of common stock and the CVRs as part of a straddle, for U.S. holders who have a holding period in their common stock of one year or less when they acquire CVRs, some or all of the capital gain or loss otherwise recognizable upon sale, or exchange of the CVRs (including lapse) may be short term capital gain or loss instead of long term capital gain or loss and some or all of such loss may be deferred. For U.S. holders who have a holding period in their common stock of more than one year when they acquire CVRs, any capital gain or loss recognized on the disposition of the common stock should be long-term capital gain or loss, though some or all of such loss may be deferred. For U.S. holders who are corporations, their holding period for common stock will not include any day on which they also own CVRs. Therefore, the dividends received deduction may not be available for dividend income on common stock. U.S. Holders are urged to consult with their tax advisors regarding the treatment of the common stock and CVRs that are held as part of a straddle position.

 

Ownership and Disposition of Warrants.

 

Except as discussed below with respect to the straddle rules, upon a sale or other taxable disposition of our warrants, a U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between (i) the sum of the amount of cash and the fair market value of any property received in such disposition and (ii) the U.S. holder’s adjusted tax basis in its warrants so disposed of. A U.S. holder’s adjusted tax basis in its warrants will equal the U.S. holder’s acquisition cost. Any such capital gain or loss generally will be long-term capital gain or loss if the U.S. holder’s holding period for the warrants so disposed of exceeds one year. Long-term capital gains recognized by non-corporate U.S. holders will be eligible to be taxed at reduced rates. The deductibility of capital losses is subject to limitations.

 

As discussed in further detail above in “—Considerations For U.S. Holders—Disposition of HighPeak Energy Common Stock,” the Code provides special rules concerning the recognition of losses and the determination of holding periods with respect to positions that are part of a “straddle.” It is likely that the ownership of warrants and CVRs will also constitute a straddle with the tax consequences as generally described above in “—Considerations For U.S. Holders—Disposition of HighPeak Energy Common Stock” on disposition of the warrants, CVRs or both.

 

 

Except as discussed below with respect to the cashless exercise of a warrant, a U.S. holder generally will not recognize gain or loss on the acquisition of a share of common stock upon exercise of a warrant for cash. The U.S. holder’s tax basis in the share of our common stock received upon exercise of the warrant generally will be an amount equal to the sum of the U.S. holder’s initial investment in the warrant and the exercise price of such warrant. It is unclear whether a U.S. holder’s holding period for the common stock received upon exercise of the warrant will commence on the date of exercise of the warrant or the day following the date of exercise of the warrant; in either case, the holding period will not include the period during which the U.S. holder held the warrant. If a warrant is allowed to lapse unexercised, a U.S. holder generally will recognize a capital loss equal to such holder’s tax basis in the warrant. Such loss will be long-term if the warrant has been held for more than one year.

 

The tax consequences of a cashless exercise of a warrant are not clear under current tax law. A cashless exercise may be tax-free, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either tax-free situation, a U.S. holder’s basis in the common stock received would generally equal the holder’s basis in the warrant. If the cashless exercise were treated as not being a realization event, a U.S. holder’s holding period in the common stock would be treated as commencing on the date following the date of exercise (or possibly the date of exercise) of the warrant. If the cashless exercise were treated as a recapitalization, the holding period of the common stock would include the holding period of the warrant.

 

It is also possible that a cashless exercise could be treated in part as a taxable exchange in which gain or loss would be recognized. In such event, a U.S. holder would be deemed to have surrendered a number of warrants having a value equal to the exercise price of the exercised warrants (the “surrendered warrants”). The U.S. holder would recognize capital gain or loss with respect to the surrendered warrants in an amount generally equal to the difference between (i) the fair market value of the common stock that would have been received with respect to the surrendered warrants in a regular exercise of warrants and (ii) the sum of the U.S. holder’s tax basis in the surrendered warrants and the aggregate cash exercise price of such warrants (if they had been exercised in a regular exercise). In this case, a U.S. holder’s tax basis in the common stock received would equal the U.S. holder’s tax basis in the warrants exercised plus (or minus) the gain (or loss) recognized with respect to the surrendered warrants. A U.S. holder’s holding period for the common stock would commence on the date following the date of exercise (or possibly the date of exercise) of the warrant.

 

Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise, there can be no assurance which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. holders should consult their tax advisors regarding the tax consequences of a cashless exercise.

 

Possible Constructive Distributions to Holders of Warrants.

 

The terms of the warrants provide for an adjustment to the number of shares of common stock for which warrants may be exercised or to the exercise price of the warrants in certain events. An adjustment which has the effect of preventing dilution generally is not taxable. The U.S. holders of the warrants would, however, be treated as receiving a constructive distribution from us if, for example, the adjustment increases the warrant holders’ proportionate interest in our assets or earnings and profits (e.g., through an increase in the number of shares of common stock that would be obtained upon exercise or through a decrease in the exercise price of the warrant) as a result of a distribution of cash or other property, such as other securities, to the holders of shares of our common stock, or as a result of the issuance of a stock dividend to holders of shares of our common stock, in each case which is taxable to the holders of such shares as a distribution. Any such constructive distribution would be subject to tax in the same manner as if the U.S. holders of the warrants received a cash distribution from us equal to the fair market value of such increased interest. For certain information reporting purposes, we are required to determine the date and amount of any such constructive distributions. Proposed Treasury regulations, which we may rely on prior to the issuance of final regulations, specify how the date and amount of constructive distributions are determined.

 

 

Ownership and Disposition of CVRs.

 

Upon a sale or other taxable disposition of our CVRs, a U.S. holder generally will recognize capital gain or loss in an amount equal to the difference between (i) the sum of the amount of cash and the fair market value of any property received in such disposition and (ii) the U.S. holder’s adjusted tax basis in its CVRs so disposed of. A U.S. holder’s adjusted tax basis in its CVRs will equal the U.S. holder’s acquisition cost. Any such capital gain or loss generally will be long-term capital gain or loss if the U.S. holder’s holding period for the warrants so disposed of exceeds one year. Long-term capital gains recognized by non-corporate U.S. holders will be eligible to be taxed at reduced rates. The deductibility of capital losses is subject to limitations.

 

As discussed in further detail above in “—Considerations For U.S. Holders—Disposition of HighPeak Energy Common Stock,” the Code provides special rules concerning the recognition of losses and the determination of holding periods with respect to positions that are part of a “straddle”. It is likely that the ownership of common stock or warrants, on the one hand, and CVRs, on the other, will constitute a straddle with the tax consequences as generally described above in “—Considerations For U.S. Holders—Disposition of HighPeak Energy Common Stock” on disposition of common stock, warrants, or CVRs.

 

Although the tax consequences of the satisfaction or lapse of a CVR are not clear under current tax law, a U.S. holder generally should not recognize gain or loss on the acquisition of shares of common stock upon satisfaction of a CVR. The U.S. holder’s tax basis in the shares of our common stock received upon satisfaction of a CVR generally will be an amount equal to the sum of the U.S. holder’s initial investment in the CVR. A U.S. holder’s holding period for the common stock received upon satisfaction of a CVR will generally commence on the day following the date of satisfaction of the CVR and will not include the period during which the U.S. holder held a CVR. If a CVR lapses, a U.S. holder generally will recognize a capital loss equal to such holder’s tax basis in the CVR. Such loss will be long-term if the CVR has been held for more than one year.

 

Information Reporting and Backup Withholding.

 

Information reporting requirements generally will apply to dividends paid to a U.S. holder and to the proceeds of the sale or other disposition of our shares of common stock, CVRs, and warrants, unless the U.S. holder is an exempt recipient and certifies to such exempt status. Backup withholding may apply to such payments if the U.S. holder fails to provide a taxpayer identification number or a certification of exempt status or has been notified by the IRS that it is subject to backup withholding (and such notification has not been withdrawn).

 

Backup withholding is not an additional tax. Rather, the U.S. federal income tax liability (if any) of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is timely furnished to the IRS.

 

Considerations For Non-U.S. Holders

 

This section applies to you if you are a “Non-U.S. holder.”

 

Distributions on HighPeak Energy Common Stock.

 

In general, any distributions (including constructive distributions) we make to a Non-U.S. holder of shares of our common stock will constitute dividends for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). Any such dividends generally will be subject to withholding tax at the rate of 30% of the gross amount of the dividend unless such Non-U.S. holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides proper certification of its eligibility for such reduced rate (usually on an IRS Form W-8BEN or IRS Form W-8BEN-E). In the case of any constructive dividend, it is possible that this tax would be withheld from any amount owed to a Non-U.S. holder by the applicable withholding agent, including cash distributions on other property or sale proceeds from warrants or other property subsequently paid or credited to such holder. Any distribution not constituting a dividend will be treated first as reducing (but not below zero) the Non-U.S. holder’s adjusted tax basis in its shares of our common stock and, to the extent such distribution exceeds the Non-U.S. holder’s adjusted tax basis, as gain realized from the sale or other disposition of common stock, which will be treated as described under “—Considerations For Non-U.S. Holders—Disposition of HighPeak Energy Common Stock” below.

 

 

Dividends we pay to a Non-U.S. holder that are effectively connected with such Non-U.S. holder’s conduct of a trade or business within the United States generally will not be subject to United States withholding tax, provided such Non-U.S. holder complies with certain certification and disclosure requirements including by providing the applicable withholding agent with a properly executed IRS Form W-8ECI certifying eligibility for exemption. Instead, such dividends generally will be subject to United States federal income tax, net of certain deductions, at the same graduated individual or corporate rates applicable to U.S. holders (subject to an exemption or reduction in such tax as may be provided by an applicable income tax treaty). If the Non-U.S. holder is a corporation for U.S. federal income tax purposes, dividends that are effectively connected income may also be subject to a “branch profits tax” at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty).

 

Disposition of HighPeak Energy Common Stock.

 

Subject to the discussion below under “—Information Reporting and Backup Withholding,” a Non-U.S. holder generally will not be subject to U.S. federal income or withholding tax in respect of gain recognized on a sale, taxable exchange or other taxable disposition of our common stock, unless:

 

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the Non-U.S. holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met;

 

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the gain is effectively connected with the conduct of a trade or business by the Non-U.S. holder within the United States (and is attributable to a U.S. permanent establishment if an applicable treaty so provides); or

 

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our common stock constitutes a United States real property interest due to our status as a “United States real property holding corporation” (a “USRPHC”) for U.S. federal income tax purposes and as a result such gain is treated as effectively connected with a trade or business conducted by the Non-U.S. holder in the United States.

 

A Non-U.S. holder described in the first bullet point above will generally be subject to U.S. federal income tax at a rate of 30% (or such lower rate as specified by an applicable income tax treaty) on the amount of such gain, which generally may be offset by U.S. source capital losses.

 

A Non-U.S. holder whose gain is described in the second bullet point above or, subject to the exceptions described in the next paragraph, the third bullet point above, generally will be taxed on a net income basis at the rates and in the manner generally applicable to United States persons (as defined under the Code) unless an applicable income tax treaty provides otherwise. If the Non-U.S. holder is a corporation for U.S. federal income tax purposes whose gain is described in the second bullet point above, then such gain would also be included in its effectively connected earnings and profits (as adjusted for certain items), which may be subject to a branch profits tax (at a 30% rate or such lower rate as specified by an applicable income tax treaty).

 

Generally, a corporation is a USRPHC if the fair market value of its “United States real property interests” equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business. We believe that we currently are, and expect to remain for the foreseeable future, a USRPHC for U.S. federal income tax purposes. However, as long as shares of our common stock are “regularly traded on an established securities market” (within the meaning of the U.S. Treasury Regulations), only a Non-U.S. holder who owns, or owned, actually or constructively, at any time during the shorter of the five-year period ending on the date of the disposition or the Non-U.S. holder’s holding period for the common stock, (i) more than 5% of our common stock, (ii) more than 5% of the CVRs, provided the CVRs are considered to be regularly traded, or (iii) more than 5% of the warrants, provided the warrants are considered to be regularly traded, as applicable, will be treated as disposing of a United States real property interest and will be taxable on gain realized on the disposition thereof as a result of our status as a USRPHC. If such securities were not considered to be regularly traded on an established securities market, such Non-U.S. holder (regardless of the percentage of securities owned) would be treated as disposing of a United States real property interest and would be subject to U.S. federal income tax on the disposition of such a security (as described in the preceding paragraph), and withholding at a rate of 15% would apply to the gross proceeds received. It is unclear how a holder’s ownership of CVRs or warrants will affect the determination of whether such holder owns more than 5% of our common stock. In addition, special rules may apply in the case of a disposition of CVRs or warrants if our common stock is considered to be regularly traded, but such other securities are not considered to be regularly traded. We can provide no assurance as to our future status as a USRPHC or as to whether our common stock, CVRs, or warrants will be treated as regularly traded.

 

 

Non-U.S. holders are encouraged to consult their tax advisors regarding the tax consequences related to ownership in a USRPHC.

 

Ownership and Disposition of Warrants.

 

The U.S. federal income tax treatment of a Non-U.S. holder’s sale or other taxable disposition of our warrants will generally be subject to the rules described above in “—Considerations For Non-U.S. Holders—Disposition of HighPeak Energy Common Stock,” substituting references to common stock with warrants, as applicable.

 

The U.S. federal income tax treatment of a Non-U.S. holder’s exercise of a warrant, or the lapse of a warrant held by a Non-U.S. holder, generally will correspond to the U.S. federal income tax treatment of the exercise or lapse of a warrant by a U.S. holder, as described under “—Considerations For U.S. Holders—Ownership and Disposition of Warrants” above, although to the extent a cashless exercise results in a taxable exchange, the consequences would be similar to those described above in “—Considerations For Non-U.S. Holders—Disposition of HighPeak Energy Common Stock.” However, capital losses recognized by a Non-U.S. holder on lapse of a warrant will generally be taken into account for U.S. income tax purposes only for purposes of calculating net capital gain described in the second bullet above in “—Disposition of HighPeak Energy Common Stock.”

 

Possible Constructive Distributions to Holders of Warrants.

 

The terms of the warrants provide for an adjustment to the number of shares of our common stock for which warrants may be exercised or to the exercise price of the warrants in certain events. An adjustment which has the effect of preventing dilution generally is not taxable. The Non-U.S. holders of the warrants would, however, be treated as receiving a constructive distribution from us if, for example, the adjustment increases the warrant holders’ proportionate interest in our assets or earnings and profits (e.g., through an increase in the number of shares of common stock that would be obtained upon exercise or through a decrease in the exercise price of the warrant) as a result of a distribution of cash or other property, such as other securities, to the holders of shares of our common stock, or as a result of the issuance of a stock dividend to holders of shares of our common stock, in each case which is taxable to the holders of such shares as a distribution. A Non-U.S. holder would be subject to tax on any such constructive distribution in the same manner as if such Non-U.S. holder received a cash distribution from us equal to the fair market value of such increased interest. For certain information reporting purposes, we are required to determine the date and amount of any such constructive distributions. Proposed Treasury regulations, which we may rely on prior to the issuance of final regulations, specify how the date and amount of constructive distributions are determined.

 

In addition, Section 871(m) of the Code imposes withholding tax at a rate of 30% (or lower treaty rate) on certain “dividend equivalent” payments made or deemed made to non-U.S. persons in respect of financial instruments that reference U.S. stocks. Under final Treasury regulations issued pursuant to Section 871(m), these rules generally do not apply to a payment to the extent that the payment is already treated as a deemed dividend as described above. However, because the Section 871(m) rules are complex, it is possible that they will apply in certain circumstances in which the deemed dividend rules above do not apply, in which case the Section 871(m) rules might require withholding. You should consult your tax advisor regarding the potential application of the Section 871(m) rules to your ownership of the warrants.

 

Ownership and Disposition of CVRs.

 

The U.S. federal income tax treatment of a Non-U.S. holder’s sale or other taxable disposition of our CVRs will generally be subject to the rules described above in “—Considerations For Non-U.S. Holders—Disposition of HighPeak Energy Common Stock,” substituting references to common stock with CVRs, as applicable.

 

 

Although the tax consequences of the satisfaction or lapse of a CVR are not clear under current tax law, the U.S. federal income tax treatment generally will correspond to the U.S. federal income tax treatment of a CVR held by a U.S. holder, as described under “—Considerations For U.S. Holders—Ownership and Disposition of CVRs.” However, capital losses recognized by a Non-U.S. holder on lapse of a CVR will generally be taken into account for U.S. income tax purposes only for purposes of calculating net capital gain described in the second bullet above in “—Disposition of HighPeak Energy Common Stock.”

 

Information Reporting and Backup Withholding.

 

Any dividends paid to a Non-U.S. holder must be reported annually to the IRS and to the Non-U.S. holder. Copies of these information returns may be made available to the tax authorities in the country in which the Non-U.S. holder resides or is established. Payments of dividends to a Non-U.S. holder generally will not be subject to backup withholding if the Non-U.S. holder establishes an exemption by properly certifying its non-U.S. status on an IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable or successor form).

 

Payments of the proceeds from a sale or other disposition by a non-U.S. holder of our common stock, CVRs, and warrants effected by or through a U.S. office of a broker generally will be subject to information reporting and backup withholding (at the applicable rate) unless the Non-U.S. holder establishes an exemption by properly certifying its non-U.S. status on an IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable or successor form) and certain other conditions are met. Information reporting and backup withholding generally will not apply to any payment of the proceeds from a sale or other disposition of our common stock, CVRs, and warrants effected outside the United States by a non-U.S. office of a broker. However, unless such broker has documentary evidence in its records that the Non-U.S. holder is not a United States person and certain other conditions are met, or the Non-U.S. holder otherwise establishes an exemption, information reporting will apply to a payment of the proceeds of the disposition of our common stock, CVRs, or warrants effected outside the United States by such a broker if it has certain relationships within the United States.

 

Backup withholding is not an additional tax. Rather, the U.S. federal income tax liability (if any) of persons subject to backup withholding will be reduced by the amount of tax withheld. If backup withholding results in an overpayment of taxes, a refund generally may be obtained, provided that the required information is timely furnished to the IRS.

 

Additional Withholding Requirements

 

Sections 1471 through 1474 of the Code, and the U.S. Treasury regulations and administrative guidance issued thereunder (“FATCA”), impose a 30% withholding tax on any dividends (including constructive dividends) paid on our common stock if paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code) (including, in some cases, when such foreign financial institution or non-financial foreign entity is acting as an intermediary), unless (i) in the case of a foreign financial institution, such institution enters into an agreement with the U.S. government to withhold on certain payments, and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are non-U.S. entities with U.S. owners), (ii) in the case of a non-financial foreign entity, such entity certifies that it does not have any “substantial United States owners” (as defined in the Code) or provides the applicable withholding agent with a certification identifying the direct and indirect substantial United States owners of the entity (in either case, generally on an IRS Form W-8BEN-E), or (iii) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules and provides appropriate documentation (such as an IRS Form W-8BEN-E). Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing these rules may be subject to different rules. Under certain circumstances, a holder might be eligible for refunds or credits of such taxes. Non-U.S. holders are encouraged to consult their own tax advisors regarding the effects of FATCA on an investment in our securities.

 

INVESTORS CONSIDERING THE PURCHASE OF OUR SECURITIES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE APPLICABILITY AND EFFECT OF U.S. FEDERAL ESTATE AND GIFT TAX LAWS AND ANY STATE, LOCAL OR NON-U.S. TAX LAWS AND TAX TREATIES.

 

 

PLAN OF DISTRIBUTION

 

Selling Securityholders

 

This prospectus includes the registration for resale of (i) 81,374,134 shares of common stock issued as merger consideration in connection with the business combination; (ii) 7,776,549 shares of common stock issued pursuant to the terms Forward Purchase Agreement Amendment; (iii) 8,089,509 shares of common stock issuable upon exercise of the warrants issued pursuant to the Forward Purchase Agreement Amendment and (iv) 17,726,484 shares of common stock that could be issued upon satisfaction of the conditions in the CVR Agreement with respect to the CVRs issued pursuant to the Forward Purchase Agreement Amendment. It also includes the registration of 8,089,509 warrants and 8,341,875 CVRs, respectively, that may be offered for resale by the selling securityholders. This prospectus also relates to the issuance of common stock issuable upon exercise or settlement of such warrants or CVRs, respectively, that have been sold by the selling securityholders pursuant to this prospectus. As of the date of this prospectus, the selling securityholders have advised us that they do not currently have any plan of distribution. Unless the context otherwise requires, as used in this prospectus, “selling securityholders” includes the selling securityholders named in the table included in the section above entitled “Selling Securityholders” and donees, pledgees, transferees or other successors-in-interest selling securities received from the selling securityholders as a gift, pledge, partnership distribution or other transfer after the date of this prospectus.

 

The selling securityholders may offer and sell all or a portion of the securities covered by this prospectus from time to time, in one or more or any combination of the following transactions:

 

●

on the Nasdaq, in the over-the-counter market or on any other national securities exchange on which our securities are listed or traded;

 

●

in privately negotiated transactions;

 

●

in underwritten transactions;

 

●

in a block trade in which a broker-dealer will attempt to sell the offered securities as agent but may purchase and resell a portion of the block as principal to facilitate the transaction;

 

●

through purchases by a broker-dealer as principal and resale by the broker-dealer for its account pursuant to this prospectus;

 

●

in ordinary brokerage transactions and transactions in which the broker solicits purchasers;

 

●

through the writing of options (including put or call options), whether the options are listed on an options exchange or otherwise;

 

●

through the distribution of the securities by any selling securityholder to its partners, members or stockholders;

 

●

in short sales entered into after the effective date of the registration statement of which this prospectus is a part; and

 

●

“at the market” or through market makers or into an existing market for the securities.

 

The selling securityholders may sell the securities at prices then prevailing, related to the then prevailing market price or at negotiated prices. The offering price of the securities from time to time will be determined by us and by the selling securityholders and, at the time of the determination, may be higher or lower than the market price of our securities on the Nasdaq or any other exchange or market.

 

 

The selling securityholders may also sell our securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The shares may be sold directly or through broker-dealers acting as principal or agent, or pursuant to a distribution by one or more underwriters on a firm commitment or best-efforts basis. The selling securityholders may also enter into hedging transactions with broker-dealers. In connection with such transactions, broker-dealers of other financial institutions may engage in short sales of our securities in the course of hedging the positions they assume with us and with the selling securityholders. The selling securityholders may also enter into options or other transactions with broker-dealers or other financial institutions which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction). The selling securityholders also may resell all or a portion of the securities in open market transactions in reliance upon Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule. In connection with an underwritten offering, underwriters or agents may receive compensation in the form of discounts, concessions or commissions from the selling securityholders or from purchasers of the offered securities for whom they may act as agents. In addition, underwriters may sell the securities to or through dealers, and those dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. The selling securityholders and any underwriters, dealers or agents participating in a distribution of the securities may be deemed to be “underwriters” within the meaning of the Securities Act, and any profit on the sale of the securities by the selling securityholders and any commissions received by broker-dealers may be deemed to be underwriting commissions under the Securities Act.

 

The selling securityholders may agree to indemnify an underwriter, broker-dealer or agent against certain liabilities related to the sale of the securities, including liabilities under the Securities Act. The selling securityholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their securities. Upon our notification by a selling securityholder that any material arrangement has been entered into with an underwriter or broker-dealer for the sale of securities through a block trade, special offering, exchange distribution, secondary distribution or a purchase by an underwriter or broker-dealer, we will file a supplement to this prospectus, if required, pursuant to Rule 424(b) under the Securities Act, disclosing certain material information, including:

 

●

the name of the selling securityholder;

 

●

the number of securities being offered;

 

●

the terms of the offering;

 

●

the names of the participating underwriters, broker-dealers or agents;

 

●

any discounts, commissions or other compensation paid to underwriters or broker-dealers and any discounts, commissions or concessions allowed or reallowed or paid by any underwriters to dealers;

 

●

the public offering price; and

 

●

other material terms of the offering.

 

In addition, upon being notified by a selling securityholder that a donee, pledgee, transferee or other successor-in-interest intends to sell securities, we will, to the extent required, promptly file a supplement to this prospectus to name specifically such person as a selling securityholder.

 

The selling securityholders are subject to the applicable provisions of the Exchange Act and the rules and regulations under the Exchange Act, including Regulation M. This regulation may limit the timing of purchases and sales of any of the securities offered in this prospectus by the selling securityholders. The anti-manipulation rules under the Exchange Act may apply to sales of securities in the market and to the activities of the selling securityholders and their affiliates. Furthermore, Regulation M may restrict the ability of any person engaged in the distribution of the securities to engage in market-making activities for the particular securities being distributed for a period of up to five business days before the distribution. The restrictions may affect the marketability of the securities and the ability of any person or entity to engage in market-making activities for the securities.

 

 

In compliance with guidelines of the Financial Industry Regulatory Authority (“FINRA”), the maximum compensation or discount to be received by any FINRA member or independent broker or dealer may not exceed 8% of the aggregate amount of securities offered pursuant to this prospectus.

 

To the extent required, this prospectus may be amended and/or supplemented from time to time to describe a specific plan of distribution. Instead of selling the securities under this prospectus, the selling securityholders may sell the securities in compliance with the provisions of Rule 144 under the Securities Act, if available, or pursuant to other available exemptions from the registration requirements of the Securities Act.

 

TRANSFER AGENT AND REGISTRAR

 

The Transfer Agent for our securities is Continental Stock Transfer & Trust Company.

 

LEGAL MATTERS

 

Certain legal matters relating to the validity of HighPeak Energy’s securities covered by this registration statement will be passed upon for HighPeak Energy by Vinson & Elkins L.L.P., Houston, Texas.

 

 

EXPERTS

 

The balance sheet of HighPeak Energy, Inc. as of December 31, 2020 and the related consolidated and combined statements of operations, stockholders’ equity and partners’ capital (Predecesors), and cash flows for the period from August 22, 2020 through December 31, 2020 (Successor Company) and the period from January 1, 2020 through August 21, 2020 (Predecessor Company) and the balance sheet as of December 31, 2019 (Predecessor Company) consolidated and combined financial statements for the year ended December 31, 2019 (Predecessor Company) included in this prospectus have been audited by Weaver and Tidwell, L.L.P., independent registered public accounting firm, as stated in their report appearing herein and is included upon reliance of the report of such firm given upon their authority as experts in accounting and auditing.

 

The information included herein regarding estimated quantities of proved reserves of HighPeak Energy, Inc., the future net revenues from those reserves and their present value as of December 31, 2020, are based on the proved reserves report prepared by Cawley, Gillespie & Associates, Inc. These estimates are included herein in reliance upon the authority of such firm as an expert in these matters.

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

HighPeak Energy files reports, proxy statements/prospectuses and other information with the SEC as required by the Exchange Act. You can read HighPeak Energy’s SEC filings, including this prospectus, over the Internet at the SEC’s website at www.sec.gov. We also plan to make such filings available on our website at www.highpeakenergy.com. Information on our website does not constitute part of this prospectus.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Page

 

Report of Independent Registered Public Accounting Firm	F-2
Audited Consolidated Balance Sheets as of December 31, 2020 and 2019	F-3
Audited Consolidated and Combined Statements of Operations for the years ended December 31, 2020 and 2019	F-4
Audited Consolidated and Combined Statements of Changes in Partners’ Capital (Predecessors) for the period from January 1, 2020 through August 21, 2020 and the year ended December 31, 2019	F-5
Audited Consolidated Statement of Changes in Stockholders’ Equity for the period from August 22, 2020 through December 31, 2020	F-6
Audited Consolidated and Combined Statements of Cash Flows for the years ended December 31, 2020 and 2019	F-7
Notes to Consolidated and Combined Financial Statements	F-8

 

 

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and the Board of Directors of HighPeak Energy, Inc.

 

 

Opinion on the Consolidated and Combined Financial Statements

 

We have audited the accompanying consolidated balance sheets of HighPeak Energy, Inc. and its subsidiaries (the Company) as of December 31, 2020 (Successor Company) and 2019 (Predecessor Company), and the related consolidated statements of operations, stockholders’ equity, and cash flows for the period from August 22, 2020 through December 31, 2020 (Successor Company) and the consolidated statements of operations, partners’ capital, and cash flows for the period from January 1, 2020 through August 21, 2020 and for the year ended December 31, 2019 (Predecessor Company), and the related notes (collectively, the consolidated and combined financial statements).  In our opinion, the consolidated and combined financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the period from August 22, 2020 through December 31, 2020 (Successor Company) and the period from January 1, 2020 through August 21, 2020 and for the year ended December 31, 2019 (Predecessor Company), in conformity with accounting principles generally accepted in the United States of America.

 

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provides a reasonable basis for our opinion.

 

 

/s/ WEAVER AND TIDWELL, L.L.P.

 

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

 

Fort Worth, Texas

 

March 15, 2021

 

 

HighPeak Energy, Inc.

Consolidated Balance Sheets

 

 

The accompanying notes are an integral part of these condensed consolidated and combined financial statements.

 

 

HighPeak Energy, Inc.

Consolidated and Combined Statements of Operations

 

 

The accompanying notes are an integral part of these condensed consolidated and combined financial statements.

 

 

HighPeak Energy, Inc.

Consolidated and Combined Statements of Changes in Partners' Capital (Predecessors)

(in thousands)

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated and combined financial statements.

 

 

HighPeak Energy, Inc.

Consolidated Statement of Changes in Stockholders' Equity

(in thousands)

 

 

The accompanying notes are an integral part of these condensed consolidated and combined financial statements.

 

 

HighPeak Energy, Inc.

Consolidated and Combined Statements of Cash Flows

 

 

The accompanying notes are an integral part of these condensed consolidated and combined financial statements.

 

 

HIGHPEAK ENERGY, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annex A

GLOSSARY OF OIL AND NATURAL GAS TERMS

 

The following are abbreviations and definitions of certain terms used in this proxy statement/prospectus, which are commonly used in the oil and natural gas industry:

 

“3-D seismic.” (Three-Dimensional Seismic Data) Geophysical data that depicts the subsurface strata in three dimensions. 3-D seismic data typically provides a more detailed and accurate interpretation of the subsurface strata than two-dimensional seismic data.

 

“Basin.” A large natural depression on the earth’s surface in which sediments generally brought by water accumulate.

 

“Bbl.” One stock tank barrel of 42 U.S. gallons liquid volume.

 

“Boe.” A barrel of oil equivalent, which is a standard convention used to express oil and natural gas volumes on a comparable oil equivalent basis. Natural gas equivalents are determined under the relative energy content method by using the ratio of six thousand cubic feet of gas to one Bbl of oil or natural gas liquid.

 

“Boe/d.” One Boe per day.

 

“Bopd.” One barrel of oil per day.

 

“Btu” or “British thermal unit.” The quantity of heat required to raise the temperature of one pound of water by one degree Fahrenheit.

 

“Completion.” The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or oil, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.

 

“Condensate.” A mixture of hydrocarbons that exists in the gaseous phase at original reservoir temperature and pressure, but that, when produced, is in the liquid phase at surface pressure and temperature.

 

“Development costs.” Costs incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing the oil and natural gas. For a complete definition of development costs, refer to the SEC’s Regulation S-X, Rule 4-10(a)(7).

 

“Development project.” A development project is the means by which petroleum resources are brought to the status of economically producible. As examples, the development of a single reservoir or field, an incremental development in a producing field or the integrated development of a group of several fields and associated facilities with a common ownership may constitute a development project.

 

“Development well.” A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

 

“Differential.” An adjustment to the price of oil, natural gas or natural gas liquids from an established spot market price to reflect differences in the quality and/or location of oil or natural gas.

 

“Dry hole.” A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.

 

“Economically producible.” The term economically producible, as it relates to a resource, means a resource which generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation.

 

“EUR” or “Estimated ultimate recovery.” The sum of reserves remaining as of a given date and cumulative production as of that date.

 

“Exploratory well.” An exploratory well is a well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir. Generally, an exploratory well is any well that is not a development well, an extension well, a service well or a stratigraphic test well as those items are defined by the SEC.

 

“Field.” An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.

 

“Formation.” A layer of rock which has distinct characteristics that differs from nearby rocks.

 

“Gross wells.” The total wells in which a working interest is owned.

 

 

“Held by production.” Acreage covered by a mineral lease that perpetuates a company’s right to operate a property as long as the property produces a minimum paying quantity of oil or natural gas.

 

“Horizontal drilling.” A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval.

 

“Hydraulic fracturing.” The technique of improving a well’s production or injection rates by pumping a mixture of fluids into the formation and rupturing the rock, creating an artificial channel. As part of this technique, sand or other material may also be injected into the formation to keep the channel open, so that fluids or natural gases may more easily flow through the formation.

 

“Lease operating expenses.” The expenses of lifting oil or natural gas from a producing formation to the surface, constituting part of the current operating expenses of a working interest, and also including labor, superintendence, supplies, repairs, short-lived assets, maintenance, allocated overhead costs, workover, marketing and transportation costs, ad valorem taxes, insurance and other expenses incidental to production, but excluding lease acquisition or drilling or completion expenses.

 

“MBbl.” One thousand barrels of crude oil, condensate or natural gas liquids.

 

“MBoe.” One thousand Boe.

 

“Mcf.” One thousand cubic feet of natural gas.

 

“MMBoe.” One million Boe.

 

“MMBtu.” One million Btus.

 

“MMcf.” One million cubic feet of natural gas.

 

“Net acres.” The percentage of total acres an owner has out of a particular number of acres or a specified tract. An owner who has 50% interest in 100 acres owns 50 net acres.

 

“Net production.” Production that is owned by us, less royalties and production due others.

 

“NGL” or “natural gas liquid.” Heavier hydrocarbons liquids that are separated from the gas stream, including ethane, propane, isobutane, normal butane and natural gasoline.

 

“NYMEX.” The New York Mercantile Exchange.

 

“Operator.” The individual or company responsible for the exploration and/or production of an oil or natural gas well or lease.

 

“Plug.” A downhole tool that is set inside the casing to isolate the lower part of the wellbore.

 

“Pooling.” The bringing together of small tracts or fractional mineral interests in one or more tracts to form a drilling and production unit for a well under applicable spacing rules.

 

“Production costs.” Costs incurred to operate and maintain wells and related equipment and facilities, including depreciation and applicable operating costs of support equipment and facilities and other costs of operating and maintaining those wells and related equipment and facilities. For a complete definition of production costs, refer to the SEC’s Regulation S-X, Rule 4-10(a)(20).

 

“Productive well.” A well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of the production exceed production expenses and taxes.

 

 

“Proration unit.” A unit that can be effectively and efficiently drained by one well, as allocated by a governmental agency having regulatory jurisdiction.

 

“Prospect.” A specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.

 

“Proved developed reserves.” Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods and can be expected to be recovered through extraction technology installed and operational at the time of the reserve estimate.

 

“Proved reserves.” Those quantities of oil and gas, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations – prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably certain that it will commence the project within a reasonable time.

 

“PUD” or “Proved undeveloped reserves.” Proved reserves that are expected to be recovered from new wells on undrilled acreage or from existing wells where a relatively major expenditure is required for recompletion. Undrilled locations can be classified as having PUDs only if a development plan has been adopted indicating that such locations are scheduled to be drilled within five (5) years, unless specific circumstances justify a longer time.

 

“Realized price.” The cash market price less all expected quality, transportation and demand adjustments.

 

“Recompletion.” The process of re-entering an existing wellbore that is either producing or not producing and completing new reservoirs in an attempt to establish or increase existing production.

 

“Reserves.” Reserves are estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

 

“Reservoir.” A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is separate from other reservoirs.

 

“Resources.” Quantities of oil and natural gas estimated to exist in naturally occurring accumulations. A portion of the resources may be estimated to be recoverable and another portion may be considered unrecoverable. Resources include both discovered and undiscovered accumulations.

 

“Royalty.” An interest in an oil and natural gas lease that gives the owner the right to receive a portion of the production from the leased acreage (or of the proceeds from the sale thereof) but does not require the owner to pay any portion of the production or development costs on the leased acreage. Royalties may be either landowner’s royalties, which are reserved by the owner of the leased acreage at the time the lease is granted, or overriding royalties, which are usually reserved by an owner of the leasehold in connection with a transfer to a subsequent owner.

 

“PV-10.” When used with respect to oil and natural gas reserves, PV-10 means the estimated future gross revenue to be generated from the production of proved reserves, net of estimated production and future development and abandonment costs, using prices and costs in effect at the determination date, before income taxes, and without giving effect to non-property related expenses, discounted to a present value using an annual discount rate of 10%. PV-10 is not a financial measure calculated in accordance with GAAP and generally differs from standardized measure, the most directly comparable GAAP financial measure, because it does not include the effects of income taxes on future net revenues. Neither PV-10 nor standardized measure represents an estimate of the fair market value of our oil and natural gas properties. We and others in the industry use PV-10 as a measure to compare the relative size and value of proved reserves held by companies without regard to the specific tax characteristics of such entities.

 

“Service well.” A well drilled or completed for the purpose of supporting production in an existing field. Specific purposes of service wells include gas injection, water injection, steam injection, air injection, salt-water disposal, water supply for injection, observation, or injection for in-situ combustion.

 

“Spacing.” The distance between wells producing from the same reservoir. Spacing is often expressed in terms of acres, e.g., 40-acre spacing, and is often established by regulatory agencies.

 

“Spot market price.” The cash market price without reduction for expected quality, transportation and demand adjustments.

 

“Standardized measure.” Discounted future net cash flows estimated by applying year-end prices to the estimated future production of year-end proved reserves. Future cash inflows are reduced by estimated future production and development costs based on period-end costs to determine pre-tax cash inflows. Future income taxes, if applicable, are computed by applying the statutory tax rate to the excess of pre-tax cash inflows over our tax basis in the oil and natural gas properties. Future net cash inflows after income taxes are discounted using a 10% annual discount rate.

 

 

“Stratigraphic test well.” A drilling effort, geologically directed, to obtain information pertaining to a specific geologic condition. Such wells customarily are drilled without the intent of being completed for hydrocarbon production. The classification also includes tests identified as core tests and all types of expendable holes related to hydrocarbon exploration. Stratigraphic tests are classified as “exploratory type” if not drilled in a known area or “development type” if drilled in a known area.

 

“Undeveloped acreage.” Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas regardless of whether such acreage contains proved reserves.

 

“Unit.” The joining of all or substantially all interests in a reservoir or field, rather than a single tract, to provide for development and operation without regard to separate property interests. Also, the area covered by a unitization agreement.

 

“Wellbore.” The hole drilled by the bit that is equipped for natural gas production on a completed well. Also called well or borehole.

 

“Working interest.” The right granted to the lessee of a property to explore for and to produce and own natural gas or other minerals. The working interest owners bear the exploration, development and operating costs on either a cash, penalty or carried basis.

 

“Workover.” Operations on a producing well to restore or increase production.

 

The terms “condensate,” “development costs,” “development project,” “development well,” “economically producible,” “estimated ultimate recovery (EUR),” “exploratory well,” “production costs,” “reserves,” “reservoir,” “resources,” “service wells” and “stratigraphic test well” are defined by the SEC. Except as noted, the terms defined in this section are not the same as SEC definitions.

 

 

 

PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13 . Other Expenses of Issuance and Distribution.

 

The following table sets forth costs and expenses payable by us in connection with the registration of the shares of common stock being registered hereby. With the exception of the SEC registration fee, and the Nasdaq listing fee, the amounts set forth below are estimates.

 

SEC registration fee		$	109,869
Nasdaq listing fee			*
Accounting fees and expenses			*
Legal fees and expenses			*
Printing and engraving expenses			*
Transfer agent and registrar fees			*
Miscellaneous			*
Total		$	*

_____________  

*      To be provided upon request

 

Item 14. Indemnification of Directors and Officers.

 

Section 145 of the DGCL authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act.

 

HighPeak Energy’s A&R Charter provides for indemnification of its directors, officers, employees and other agents to the maximum extent permitted by the DGCL, and HighPeak Energy’s bylaws provide for indemnification of its directors, officers, employees and other agents to the maximum extent permitted by the DGCL. Further, HighPeak Energy’s bylaws permit HighPeak Energy to secure insurance on behalf of any officer, director or employee for any liability arising out of his or her actions regardless of whether Delaware law would permit indemnification. The Company has purchased a policy of directors’ and officers’ liability insurance that insures the Company’s directors and officers against the cost of defense, settlement or payment of a judgement in some circumstances and insures the Company against the Company’s obligations to indemnify the directors and officers.

 

These provisions may discourage stockholders from bringing a lawsuit against the Company’s directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent the Company pays the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

 

In addition, HighPeak Energy has entered into indemnification agreements with each of its directors and officers. These agreements require us to indemnify these individuals to the fullest extent permitted under Delaware law and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.

 

 

Item 15. Recent Sales of Unregistered Securities.

 

The information included in the prospectus under “Certain Relationships and Related Party Transactions” is incorporated by reference herein.

 

Item 16. Exhibits and Financial Statement Schedules.

 

A list of exhibits included as part of this registration statement is set forth in the Exhibit Index which is hereby incorporated by reference.

 

Item 17. Undertakings

 

(a)     The undersigned registrant hereby undertakes:

 

(1)

To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

 

(i)

to include any prospectus required by Section 10(a)(3) of the Securities Act;

 

(ii)

to reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of a prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

 

(iii)

to include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement.

 

(2)

That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3)

To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

 

(4)

That for the purpose of determining liability under the Securities Act to any purchaser, if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in this registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of this registration statement or made in a document incorporated or deemed incorporated by reference into this registration statement or prospectus that is part of this registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in this registration statement or prospectus that was part of this registration statement or made in any such document immediately prior to such date of first use.

 

(5)

That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i)

any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii)

any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(iii)

the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(iv)

any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

(e)     Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

 

EXHIBIT INDEX

 

 

Exhibit No.		Description
1.1**		Form of Underwriting Agreement.
2.1+		Business Combination Agreement, dated as of May 4, 2020, by and among Pure Acquisition Corp., HighPeak Energy, Inc., Pure Acquisition Merger Sub, Inc., HighPeak Energy, LP, HighPeak Energy II, LP, HighPeak Energy III, LP, HPK Energy, LLC, and, solely for limited purposes specified therein, HighPeak Energy Management, LLC (incorporated by reference to Annex A to the Company’s Registration Statement on Form S-4 and Form S-1 (File No. 333-235313) filed with the SEC on August 5, 2020).
2.2		First Amendment to Business Combination Agreement, dated as of June 12, 2020, by and among, Pure Acquisition Corp., HighPeak Energy, Inc., Pure Acquisition Merger Sub, Inc., HighPeak Energy, LP, HighPeak Energy II, LP, HighPeak Energy III, LP, HPK Energy, LLC and HighPeak Energy Management, LLC (incorporated by reference to Annex A-I to the Company’s Registration Statement on Form S-4 and Form S-1 (File No. 333-235313) filed with the SEC on August 5, 2020).
2.3		Second Amendment to Business Combination Agreement, dated as of July 1, 2020, by and among, Pure Acquisition Corp., HighPeak Energy, Inc., Pure Acquisition Merger Sub, Inc., HighPeak Energy, LP, HighPeak Energy II, LP, HighPeak Energy III, LP, HPK Energy, LLC and HighPeak Energy Management, LLC (incorporated by reference to Annex A-II to the Company’s Registration Statement on Form S-4 and Form S-1 (File No. 333-235313) filed with the SEC on August 5, 2020).
2.4		Third Amendment to Business Combination Agreement, dated as of July 24, 2020, by and among, Pure Acquisition Corp., HighPeak Energy, Inc., Pure Acquisition Merger Sub, Inc., HighPeak Energy, LP, HighPeak Energy II, LP, HighPeak Energy III, LP, HPK Energy, LLC and HighPeak Energy Management, LLC (incorporated by reference to Annex A-III to the Company’s Registration Statement on Form S-4 and Form S-1 (File No. 333-235313) filed with the SEC on August 5, 2020).
3.1		Amended and Restated Certificate of Incorporation of HighPeak Energy, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-39464) filed with the SEC on August 27, 2020).
3.2		Amended and Restated Bylaws of HighPeak Energy, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-39464) filed with the SEC on November 9, 2020).
4.1		Registration Rights Agreement, dated as of August 21, 2020, by and among HighPeak Energy, Inc., HighPeak Pure Acquisition, LLC, HighPeak Energy, LP, HighPeak Energy II, LP, HighPeak Energy III, LP and certain other security holders named therein (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K (File No. 001-39464) filed with the SEC on August 27, 2020).
4.2		Stockholders’ Agreement, dated as of August 21, 2020, by and among HighPeak Energy, Inc., HighPeak Pure Acquisition, LLC, HighPeak Energy, LP, HighPeak Energy II, LP, HighPeak Energy III, LP, Jack Hightower and certain directors of Pure Acquisition Corp. (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K (File No. 001-39464) filed with the SEC on August 27, 2020).
4.3		Warrant Agreement, dated April 12, 2018, by and among Pure Acquisition Corp., its officers and directors and HighPeak Pure Acquisition, LLC (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-4 and Form S-1 (File No. 333-235313) filed with the SEC on August 5, 2020).
4.4		Amendment and Assignment to Warrant Agreement, dated as of August 21, 2020, by and among Pure Acquisition Corp., Continental Stock Transfer & Trust Company and HighPeak Energy, Inc. (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-4 and Form S-1 (File No. 333-235313) filed with the SEC on August 5, 2020).
5.1*		Opinion of Vinson & Elkins L.L.P. as to the validity of the securities being registered.
10.1		Contingent Value Rights Agreement, dated as of August 21, 2020, by and among HighPeak Energy, Inc., HighPeak Pure Acquisition, LLC, HighPeak Energy, LP, HighPeak Energy II, LP and Continental Stock Transfer & Trust Company, as rights agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-39464) filed with the SEC on August 27, 2020).
10.2		Amended and Restated Forward Purchase Agreement, dated as July 24, 2020, by and among HighPeak Energy, Inc., the Purchasers therein, HighPeak Energy Partners, LP and, solely for the purposes specified therein, Pure Acquisition Corp (incorporated by reference to Annex F to the Company’s Registration Statement on Form S-4 and Form S-1 (File No. 333-235313) filed with the SEC on August 5, 2020).
10.3		HighPeak Energy, Inc. Amended and Restated Long Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 001-39464) filed with the SEC on August 27, 2020).
10.4		Form of Stock Option Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No. 001-39464) filed with the SEC on August 27, 2020).
10.5		Form of Indemnification Agreement between the Company and its directors and executive officers (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-39464) filed with the SEC on November 9, 2020).
10.6+		Credit Agreement, dated as of December 17, 2020, by and among HighPeak Energy, Inc., as Borrower, Fifth Third Bank, National Association, as administrative agent and the Lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-39464) filed with the SEC on December 18, 2020).
16.1		Letter from WithumSmith+Brown, PC to the Securities and Exchange Commission, dated October 1, 2020 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-39464) filed with the SEC on October 1, 2020).
21.1		List of Subsidiaries of HighPeak Energy, Inc. (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K (File No. 001-39464) filed with the SEC on March 15, 2021).
23.1*		Consent of Weaver and Tidwell, independent registered public accounting firm for HighPeak Energy, Inc.
23.2*		Consent of Vinson & Elkins L.L.P. (included as part of its opinion filed as Exhibit 5.1).
23.3*		Consent of Cawley, Gillespie & Associates, Inc.
24.1***		Power of Attorney (included on the signature page to the initial filing of this Registration Statement on Form S-1).
99.1		Reserve Report of HighPeak Energy as of December 31, 2020 (incorporated by reference to Exhibit 99.1 to the Company’s Annual Report on Form 10-K (File No. 001-39464) filed with the SEC on March 15, 2021).

101.INS	XBRL Instance Document.
101.SCH	XBRLTaxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.

 

 

---

+	Certain schedules and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. HighPeak Energy agrees to furnish a supplemental copy of any omitted schedule or attachment to the SEC upon request.
*	Filed herewith.
**	To be filed by amendment.
***	Previously filed.

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Fort Worth, State of Texas, on March 17, 2021.

 

	HIGHPEAK ENERGY, INC.
	By:	/s/ Jack Hightower
		Jack Hightower
		Chairman and Chief Executive Officer

 

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities indicated below on March 17, 2021.

 

Signatures				Title
/s/ Jack Hightower				Chief Executive Officer and Chairman
Jack Hightower				(Principal Executive Officer)
*				Chief Financial Officer
Steven W. Tholen				(Principal Financial Officer)
/s/ Keith Forbes				Vice President and Controller
Keith Forbes				(Principal Accounting Officer)
*				President and Director
Michael L. Hollis
*				Director
Jay M. Chernosky
*				Director
Keith A. Covington
*				Director
Sharon Fulgham
*				Director
Michael H. Gustin
*				Director
Larry C. Oldham
*By:	/s/ Jack Hightower
	Jack Hightower
	Attorney-in-fact

 

Exhibit 5.1

 

 

 

 

March 17, 2021

 

HighPeak Energy, Inc. 421 W. 3rd Street, Suite 1000 Fort Worth, Texas 76102

 

Re: HighPeak Energy, Inc. Registration Statement on Form S-1

 

Ladies and Gentlemen:

 

We have acted as counsel to HighPeak Energy, Inc., a Delaware corporation (the “Company”), with respect to certain legal matters in connection with the preparation and filing of a registration statement on Form S-1 (File No. 333-248898) (as amended from time to time, the “Registration Statement”), filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”) relating to:

 

a)

the issuance of (i) up to 9,500,174 shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), that may be issued upon exercise of the Company’s outstanding warrants to purchase one share of Common Stock at an exercise price of $11.50 per share, including (A) 8,089,509 warrants (the “FPA Warrants”) issued pursuant to an Amended and Restated Forward Purchase Agreement (as amended, the “A&R Forward Purchase Agreement”), dated July 24, 2020, by and among the Company, each party designated as a Purchaser on the signature page thereto, HighPeak Energy Partners, LP, a Delaware limited partnership, and solely for the limited purposes specified therein, Pure Acquisition Corp., a Delaware corporation (“Pure”) and governed by the Warrant Agreement and Warrant Amendment and Assignment (each as defined herein) once such FPA Warrants have been sold pursuant to the Registration Statement, and (B) 1,561,308 warrants (together with the FPA Warrants, the “Existing Warrants,” and the shares of Common Stock issuable upon exercise thereof, the “Warrant Exercise Shares”) issued at the closing of the Company’s business combination (the “business combination”) to the previous holders of Class A common stock, par value $0.0001 per share (“Pure Class A Common Stock”), of Pure and the previous holders of Pure’s public warrants, and governed by the Warrant Agreement and Warrant Amendment and Assignment, and (ii) up to 21,694,762 shares of Common Stock issuable upon settlement of (A) 8,341,875 contingent value rights (the “FPA CVRs”) of the Company issued pursuant to the A&R Forward Purchase Agreement and governed by the Contingent Value Rights Agreement (as defined herein) once such FPA CVRs have been sold pursuant to the Registration Statement, and (B) 1,232,425 contingent value rights (together with the FPA CVRs, the “Existing CVRs” and the shares of Common Stock issuable upon settlement thereof, the “CVR Settlement Shares”) issued at the closing of the Company’s business combination to holders of Pure Class A Common Stock and governed by the Contingent Value Rights Agreement; and

 

 

Vinson & Elkins LLP  Attorneys at Law Austin  Dallas  Dubai  Houston  London  Los Angeles New York Richmond  Riyadh  San Francisco  Tokyo  Washington

1001 Fannin Street, Suite 2500 Houston, TX 77002-6760 Tel  +1.713.758.2222  Fax +1.713.758.2346  velaw.com

March 17, 2021   Page 2

 

 

b)

the offer and sale, from time to time, by the selling securityholders identified in the Registration Statement of an aggregate of (i) 114,966,676 shares of Common Stock, including (A) 7,776,549 shares of Common Stock issued pursuant to the A&R Forward Purchase Agreement (the “FPA Shares”), (B) 8,089,509 shares of Common Stock underlying the FPA Warrants, (C) 17,726,484 shares of Common Stock issuable upon settlement of the FPA CVRs, (D) 76,383,054 shares of Common Stock issued as merger consideration in connection with the closing of the business combination (the “HighPeak Shares”) and (e) 4,991,080 shares of Common Stock issued as merger consideration to the previous holders of shares of Class B common stock, par value $                0.0001 per share, of Pure, in connection with the closing of the business combination (together with the FPA Shares and the HighPeak Shares, the “Outstanding Secondary Shares”), (ii) 8,089,509 FPA Warrants and (iii) 8,341,875 FPA CVRs.

 

The securities described in the foregoing clauses (a) and (b) are collectively referred to herein as the “Securities.”

 

In rendering the opinions set forth herein, we have read and examined and relied on originals or copies, certified or otherwise identified to our satisfaction, of (a) the amended and restated certificate of incorporation and the amended and restated bylaws of the Company, (b) the Business Combination Agreement, dated May 4, 2020 (as subsequently amended, the “Business Combination Agreement”), by and among (i) Pure, (ii) the Company, (iii) Pure Acquisition Merger Sub, Inc., a Delaware corporation and then a wholly owned subsidiary of the Company, (iv) HighPeak Energy, LP, a Delaware limited partnership (“HighPeak I”), (v) HighPeak Energy II, LP, a Delaware limited partnership (“HighPeak II”), (vi) HighPeak Energy III, LP, a Delaware limited partnership (“HighPeak III” and, together with HighPeak I and HighPeak II, the “HighPeak Funds”), (vii) HPK Energy, LLC, a Delaware limited liability company and the general partner of HPK Energy, LP, a Delaware limited partnership, and an affiliate of HighPeak Pure Acquisition, LLC, a Delaware limited liability company (“HighPeak Acquisition”) and (viii) solely for the limited purposes specified therein, HighPeak Energy Management, LLC, a Delaware limited liability company, (c) the Contingent Value Rights Agreement, dated August 21, 2020, by and among the Company, HighPeak Acquisition, HighPeak I, HighPeak II and Continental Stock Transfer & Trust Company, as rights agent (the “Contingent Value Rights Agreement”), (d) the Amendment and Assignment to Warrant Agreement, dated August 21, 2020, by and between the Company, Pure and Continental Stock Transfer & Trust Company, as warrant agent (the “Warrant Amendment and Assignment”), related to the amendment and assignment of that certain Warrant Agreement, dated April 12, 2018, by and between Pure and Continental Stock Transfer & Trust Company, as warrant agent (the “Warrant Agreement”), (e) the A&R Forward Purchase Agreement, (f) the Escrow Agreement, dated August 21, 2020, by and among the Company, HighPeak Acquisition, HighPeak I, HighPeak II and Continental Stock Transfer & Trust Company, as escrow agent (the “Escrow Agreement”), (g) the Registration Statement and (h) such other certificates, statutes and other instruments and documents that we considered necessary or appropriate for the purpose of rendering the opinions set forth below.

 

March 17, 2021   Page 3

 

In our examination, we have assumed, without independent investigation (a) the genuineness of the signatures on all documents that we have examined, (b) the legal capacity of all natural persons, (c) the authenticity of all documents supplied to us as originals, (d) the conformity to the authentic originals of all documents supplied to us as certified, photostatic, facsimile, electronic or otherwise reproduced copies, (e) the authenticity of the originals of such latter documents, (f) that the Registration Statement, and any amendments thereto (including post-effective amendments), will have become effective and such effectiveness shall not have been terminated or rescinded and (g) all Securities will be issued and sold, as applicable, in compliance with applicable federal and state securities laws and in the manner stated in the Registration Statement and the applicable prospectus supplement, if any.

 

We have also assumed that (a) the Warrant Exercise Shares and CVR Settlement Shares will be issued in the manner described in the prospectus included in the Registration Statement and in accordance with the terms of the Contingent Value Rights Agreement, the Escrow Agreement, the Warrant Amendment and Assignment and the Warrant Agreement, (b) all Securities will be duly registered, as applicable, by the registrar for the Securities in the stock register maintained by such registrar and (c) at the time of issuance of any Warrant Exercise Shares or CVR Settlement Shares, (i) the Company will validly exist and be duly qualified and in good standing under the laws of its jurisdiction of formation, (ii) the Company will have the necessary organizational power and authority to issue the Warrant Exercise Shares or CVR Settlement Shares, as applicable and (iii) the Company will have made available for issuance such number of Warrant Exercise Shares or CVR Settlement Shares, as applicable.

 

Based upon the foregoing and subject to the limitations, qualifications, exceptions and assumptions set forth herein, we are of the opinion that the Securities have been duly authorized and:

 

1.

the Warrant Exercise Shares, when issued against payment therefor and delivered upon exercise of the Existing Warrants in accordance with the Warrant Agreement and Warrant Amendment and Assignment will be validly issued, fully paid and non-assessable.

 

2.

the CVR Settlement Shares subject to issuance in settlement of the Existing CVRs upon their maturity will, when issued and delivered in accordance with the Contingent Value Rights Agreement, be validly issued, fully paid and nonassessable.

 

3.

the Outstanding Secondary Shares are validly issued, fully paid and non-assessable.

 

4.

the FPA Warrants are validly issued and constitute valid and binding obligations of the Company, enforceable against the Company in accordance with the terms of the Warrant Agreement and the Warrant Amendment and Assignment.

 

March 17, 2021   Page 4

 

 

5.

the FPA CVRs are validly issued, fully paid and nonassessable and constitute valid and binding obligations of the Company, enforceable against the Company in accordance with the Contingent Value Rights Agreement.

 

Our opinions expressed herein are limited in all respects to the General Corporation Law of the State of Delaware, which includes all applicable provisions of the Delaware Constitution and the reported judicial decisions interpreting such laws, and the federal laws of the United States of America, and, as to the Warrants constituting legally binding obligations of the Company, solely with respect to the laws of the State of New York. We do not express any opinion as to the applicability of, or the effect thereon, of the laws of any other jurisdiction, domestic or foreign.

 

We express no opinion as to any matter other than as set forth herein, and no opinion may be inferred or implied herefrom. Our opinion is given as of the date hereof, and we undertake no, and hereby disclaim any, obligation to advise you of any change in any matter set forth herein.

 

Our opinion that any document or Security is a valid and legally binding obligation of the Company is subject to (i) applicable bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium or other similar laws relating to or affecting the rights of creditors generally, (ii) general principles of equity, including without limitation concepts of materiality, reasonableness, good faith and fair dealing, and the possible unavailability of specific performance or injunctive relief and limitation of rights of acceleration, regardless of whether such enforceability is considered in a proceeding in equity or at law and (iii) limitations of rights to indemnification, exculpation and contribution which may be limited by applicable law or equitable principles. We also express no opinion regarding the effectiveness of any waiver of stay, extension or usury laws or of unknown future rights, and we express no opinion regarding severability provisions.

 

We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to Vinson & Elkins L.L.P. in the prospectus forming a part of the Registration Statement under the caption “Legal Matters.” In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act.

 

Very truly yours,       /s/ Vinson & Elkins L.L.P.     Vinson & Elkins L.L.P.

 

 

 

Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

 

 

We hereby consent to the incorporation by reference in this Registration Statement on Form S-1, Post-Effective Amendment No. 1 (No. 333-248898) of our report dated March 15, 2021, relating to the consolidated and combined financial statements of HighPeak Energy, Inc. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

 

 

WEAVER AND TIDWELL, L.L.P.

 

Fort Worth, Texas

March 17, 2021

 

Exhibit 23.3

Cawley, Gillespie & Associates, Inc.

petroleum consultants

 

13640 BRIARWICK DRIVE, SUITE 100 AUSTIN, TEXAS 78729-1106 512-249-7000

306 WEST SEVENTH STREET, SUITE 302 FORT WORTH, TEXAS 76102-4987 817- 336-2461 www.cgaus.com

1000 LOUISIANA STREET, SUITE 1900 HOUSTON, TEXAS 77002-5008 713-651-9944

 

 

As independent petroleum engineers, we hereby consent to the inclusion of our reserves reports of Highpeak Energy, Inc. proved oil and natural gas reserves estimates and associated estimates of future net revenues and their present value as of December 31, 2020, included in or made a part of the Post-Effective Amendment No. 1 to HighPeak Energy, Inc.’s Registration Statement on Form S-1 (No. 333-248898). We also consent to the references to our firm contained in the Registration Statement, including in the related prospectus under the caption “Experts.”

 

		CAWLEY, GILLESPIE & ASSOCIATES, INC. Texas Registered Engineering Firm
		/s/ W. Todd Brooker, P.E.
		W. Todd Brooker, P.E. President

Austin, Texas

March 17, 2021