HighPeak Energy, Inc. (HPK)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to assist you in understanding our business and results of operations together with our present financial condition. This section should be read in conjunction with our historical consolidated financial statements and related notes. This discussion contains certain “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. These forward-looking statements involve risks and uncertainties and 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 crude oil, NGL and natural gas, capital expenditures, economic and competitive conditions, regulatory changes and other uncertainties. Please read “Cautionary Statement Concerning Forward‑Looking Statements.” 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, is an independent crude oil and natural gas exploration and production company that explores for, develops and produces crude oil, NGL and natural gas in the Permian Basin in West Texas, more specifically, the Midland Basin. The Company’s assets are located primarily in Howard and Borden Counties, Texas, and to a lesser extent Scurry and Mitchell Counties, which lie within the northeastern part of the crude oil-rich Midland Basin. As of June 30, 2026, the assets consisted of two highly contiguous leasehold positions of approximately 153,627 gross (139,833 net) acres, approximately 74% of which were held by production, with an average working interest of 91%. Our acreage is composed of two core areas, Flat Top primarily in the northern portion of Howard County extending into southern Borden County, southwest Scurry County and northwest Mitchell County and Signal Peak in the southern portion of Howard County. We operate approximately 98% of the net acreage across the Company’s assets and more than 90% of the net operated acreage provides for horizontal wells with lateral lengths of 10,000 feet or greater. For the six months ended June 30, 2026, approximately 83% and 17% of sales volumes from the assets were attributable to liquids (both crude oil and NGL) and natural gas, respectively. As of June 30, 2026, HighPeak Energy was developing its properties using one (1) drilling rig and one (1) frac crew and expects to average one (1) drilling rig and less than one (1) frac crew during the remainder of 2026 under our current development plan, depending on certain market conditions.

Transactions and Recent Developments

Debt amendments and actions taken to bolster covenant compliance. In August 2025, the Company entered into the First Term Loan Amendment and the Second Facility Amendment which amended the Term Loan Credit Agreement and the Senior Credit Facility Agreement whereby, among other things, (i) the maturity date was extended two years to September 2028, (ii) the Term Loan Credit Agreement was upsized to $1.2 billion, providing additional liquidity, and (iii) the Term Loan Credit Agreement quarterly amortization payments of $30.0 million were deferred for one year such that they begin again in September 2026.

Effective as of December 30, 2025, in order to ensure continued compliance with the financial covenants under the Term Loan Credit Agreement and the Senior Credit Facility Agreement, the Company entered into the Second Term Loan Amendment and the Third Facility Amendment whereby, among other things (i) the Company has been required to maintain an asset coverage ratio of not less than 1.00 to 1.00 for the fourth quarter of 2025 and the first quarter of 2026, representing a 0.25x decrease in the required ratio levels for such quarters, (ii) the Company has been required to maintain a total net leverage ratio of not greater than 2.50 to 1.00 for the fourth quarter of 2025 and the first quarter of 2026, representing a 0.50x increase in the required ratio levels for such quarters, (iii) the Company’s hedging obligations has been increased requiring it to maintain hedging agreements with respect to 75% of its proved developed producing oil production for the period from April 1, 2026 to March 31, 2027 and 60% of its proved developed producing oil production for the period from April 1, 2027 to September 30, 2027, in each case as provided in the Company’s reserve report as of December 31, 2025 and (iv) the Company is prohibited from making quarterly dividends on its common stock until September 30, 2026.

In June 2026, in order to ensure continued compliance with the financial covenants under the Term Loan Credit Agreement and the Senior Credit Facility Agreement, the Company entered into the Third Term Loan Amendment and the Fourth Facility Amendment whereby, the Company will be required to maintain a total net leverage ratio of not greater than 2.25 to 1.00 for the second quarter of 2026, representing a 0.25x increase in the required ratio level for such quarter. For the third quarter of 2026 and quarterly periods ending thereafter, the required asset coverage ratio and total net leverage ratio levels will reset to the levels provided for such quarters in the Second Term Loan Amendment and the Third Facility Amendment. It is uncertain whether the Company will be able to comply with these covenants, in particular beginning in the third quarter of 2026 when the required asset coverage ratio and total net leverage ratio levels will reset to the prior more stringent levels. The Company has already taken steps to improve these ratios, including, but not limited to, suspending the payment of dividends and reducing capital expenditures, and in connection with any potential or anticipated covenant shortfalls, the Company may seek to take other action such as raising additional capital through debt or equity offerings, selling assets, reducing capital expenditures further, obtaining additional amendments or waivers from its lenders, or pursuing other strategic alternatives. There can be no assurance that any such measures will be available on acceptable terms, or at all, or that they will be sufficient to address any covenant compliance issues. Any failure of the Company to comply with its financial covenants would result in an event of default under the Term Loan Credit Agreement and Senior Credit Facility Agreement, entitling the lenders to accelerate amounts outstanding thereunder.

Commodity Prices. Prices for crude oil, NGL and natural gas are determined primarily by market conditions. Geopolitical global conflicts, tariffs or other trade barriers and any resulting trade tensions, regional and worldwide economic activity, changes in trade or other government policies or regulations, including with respect to U.S. energy and monetary policies, extreme weather conditions and other substantially variable factors influence market conditions for these products. For example, in the last quarter, the conflict in Iran caused the global crude oil market to shift from a supply-demand surplus to a deficit, materially decreasing crude oil and refined products available to the markets, and significantly increasing benchmark crude oil prices. These factors are beyond our control and are difficult to predict. OPEC and its non-OPEC allies, known collectively as OPEC+, continue to meet regularly to evaluate the state of global crude oil supply, demand and inventory levels and can heavily influence volatility in crude oil prices. During the three months ended June 30, 2026 and 2025, weighted average WTI prices averaged $93.29 and $63.75 per Bbl, respectively, and weighted average Henry Hub prices averaged $2.90 and $3.44 per MMBtu, respectively.

Acquisitions. During the six months ended June 30, 2026, the Company incurred a total of $2.6 million in acquisition costs related to lease extensions and to acquire additional crude oil and natural gas leases covering additional contiguous bolt-on undeveloped acreage to its Flat Top and Signal Peak operating areas.

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Outlook

In response to the growing global crude oil supply constraints and the improved commodity pricing environment that began in March of 2026 that we consider temporary, the Company is maintaining flexibility in its capital plan as indicated by its plan to maintain a one (1) drilling rig program for 2026 depending on certain market conditions.  The Company will continue to evaluate drilling and completion activity on an economic basis, with future activity levels assessed monthly. If the Company is unable to maintain compliance with its financial covenants or obtain further amendments or waivers from its lenders, it may be required to reduce its capital expenditures, which could adversely impact its ability to develop its acreage, maintain its leasehold positions and grow its production.   Despite continuing impacts of the factors listed above and future uncertainty, we are focused on maintaining our ability to sustain strong operational performance and financial stability while maximizing returns, improving leverage metrics, and increasing the value of our Midland Basin assets.

Strategic Alternatives

On January 23, 2023, the Company announced the intention of its Board to initiate a process to evaluate certain strategic alternatives to maximize shareholder value, including a potential sale of the Company. Evercore Group L.L.C. has been retained as a financial advisor with respect to this ongoing strategic alternatives process. The Company has not set a timetable for the conclusion of this review, nor has it made any decisions related to any further actions or potential strategic alternatives at this time. There can be no assurance that the review will progress beyond this exploratory phase or result in any transaction or other strategic change or outcome. The Company does not intend to comment further regarding the strategic alternatives process unless and until our Board has approved a specific course of action or we have otherwise determined that further disclosure is appropriate or required by law.

Financial and Operating Performance

The Company's financial and operating performance for the three months ended June 30, 2026 included the highlights described below and comparative discussion of related drivers for the three months ended June 30, 2025:

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the other sections of this Annual Report, including but not limited to “Items 1 and 2. Business and Properties—Regulation of the Crude Oil and Natural Gas Industry.” Historical financial statements and related notes included elsewhere in this Annual Report. 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 crude 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 Annual Report. Please read Cautionary Statement Concerning Forward-Looking Statements. Also, please read the risk factors and other cautionary statements described under “Part I, Item 1A. Risk Factors.” We assume no obligation to update any of these forward-looking statements, except as required by applicable law. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 10, 2025 for a discussion of the Company’s 2024 results of operations compared with the Company’s 2023 results of operations.

Overview

HighPeak Energy, Inc., a Delaware corporation, was formed in October 2019, is an independent crude oil and natural gas exploration and production company that explores for, develops and produces crude oil, NGL and natural gas in the Permian Basin in West Texas, more specifically, the Midland Basin. The Company’s assets are located primarily in Howard and Borden Counties, Texas, and to a lesser extent Scurry and Mitchell Counties, which lie within the northeastern part of the crude oil-rich Midland Basin. As of December 31, 2025, the assets consisted of two highly contiguous leasehold positions of approximately 154,472 gross (142,560 net) acres, approximately 72% of which were held by production, with an average working interest of 92%. Our acreage is composed of two core areas, Flat Top primarily in the northern portion of Howard County extending into southern Borden County, southwest Scurry County and northwest Mitchell County and Signal Peak in the southern portion of Howard County. We operate approximately 98% of the net acreage across the Company’s assets and more than 90% of the net operated acreage provides for horizontal wells with lateral lengths of 10,000 feet or greater. For the year ended December 31, 2025, approximately 85% and 15% of sales volumes from the assets were attributable to liquids (both crude oil and NGL) and natural gas, respectively. As of December 31, 2025, HighPeak Energy was developing its properties using two (2) drilling rigs and one (1) frac crew and expects to average one (1) drilling rig and one (1) frac crew during 2026 under our current development plan, depending on certain market conditions.

Recent Events

Recent management changes. In September 2025, Mr. Jack Hightower, the Company’s Chief Executive Officer and Chairman of the Board retired and resigned from our Board of Directors, and on November 4, 2025, our President, Mr. Michael Hollis, was named President and Chief Executive Officer.

Concurrent with these changes, Mr. Jack Hightower also retired from managing HighPeak Energy Partners, LP and HighPeak Energy Partners II, LP (collectively, the “HighPeak Funds”), which collectively own approximately 64% of the shares of common stock of the Company. In connection with Mr. Jack Hightower’s retirement, HighPeak Pure Acquisition, LLC (“Pure”), a wholly owned subsidiary of HighPeak Energy Partners, LP distributed 1,532,478 shares of common stock in full and complete redemption of Mr. Jack Hightower’s interest in Pure. Following Mr. Jack Hightower’s retirement, the HighPeak Funds are managed by a committee comprised of Mr. Hollis, Daniel Silver and William R. Hightower, each of whom also serve as President and Chief Executive Officer, Executive Vice President and Executive Vice President of the Company, respectively. In addition, pursuant to the Stockholder’s Agreement, dated August 21, 2020, the HighPeak Funds have designated Mr. Silver to serve as their board appointee under the Stockholder’s Agreement, and Mr. Silver was appointed to serve as a director of the Board effective immediately.

Debt amendments and actions taken to bolster covenant compliance. In August 2025, the Company entered into the First Term Loan Amendment and the Second Facility Amendment which amended the Term Loan Credit Agreement and the Senior Credit Facility Agreement whereby, among other things, (i) the maturity date was extended two years to September 2028, (ii) Term Loan Credit Agreement was upsized to $1.2 billion, providing additional liquidity, and (iii) the Term Loan Credit Agreement quarterly amortization payments of $30.0 million were deferred for one year such that they begin again in September 2026.

Effective as of December 30, 2025, in order to ensure continued compliance with the financial covenants under the Term Loan Credit Agreement and the Senior Credit Facility Agreement, the Company has entered into the Second Term Loan Amendment and the Third Facility Amendment whereby, among other things (i) the Company will be required to maintain an asset coverage ratio of not less than 1.00 to 1.00 for the Fourth Quarter of 2025 and the First Quarter of 2026, representing a 0.25x decrease in the required ratio levels for such quarters, (ii) the Company will be required to maintain a total net leverage ratio of not greater than 2.50 to 1.00 for the Fourth Quarter of 2025 and the First Quarter of 2026, representing a 0.50x increase in the required ratio levels for such quarters, (iii) the Company’s hedging obligations will be increased requiring it to maintain hedging agreements with respect to 75% of its proved developed producing oil production for the period from April 1, 2026 to March 31, 2027 and 60% of its proved developed producing oil production for the period from April 1, 2027 to September 30, 2027, in each case as provided in the January 1, 2026 reserve report and (iv) the Company will be prohibited from making quarterly dividends on its common stock until September 30, 2026. For the Second Quarter of 2026 and quarterly periods ending thereafter, the required asset coverage ratio and total net leverage ratio levels will reset to the levels currently in effect for such quarters prior to these amendments. It is uncertain whether the Company will be able to comply with these covenants, in particular beginning in the Second Quarter of 2026 when the required asset coverage ratio and total net leverage ratio levels will reset to the prior more stringent levels. The Company has already taken steps to improve these ratios, including, but not limited to, suspending the payment of dividends and reducing capital expenditures, and in connection with any potential or anticipated covenant shortfalls, the Company may seek to take other action such as raising additional capital through debt or equity offerings, selling assets, reducing capital expenditures further, obtaining additional amendments or waivers from its lenders, or pursuing other strategic alternatives. There can be no assurance that any such measures will be available on acceptable terms, or at all, or that they will be sufficient to address any covenant compliance issues. Any failure of the Company to comply with its financial covenants would result in an event of default under the Term Loan Credit Agreement and Senior Credit Facility Agreement, entitling the lenders to accelerate amounts outstanding thereunder.

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Dividends and dividend equivalents. In February, May, August and November 2025, the Board declared a quarterly dividend of $0.04 per share of common stock outstanding which resulted in a total of $5.0 million, $5.0 million, $5.0 million and $5.0 million, respectively, in dividends being paid on March 25, 2025, June 25, 2025, September 25, 2025 and December 23, 2025, respectively. In addition, under the terms of the LTIP, the Company paid a dividend equivalent per share to all vested stock option holders of $531,000 in March 2025, $531,000 in June 2025, $531,000 in September 2025 and $502,000 in December 2025. In addition, the Company accrued an additional combined $86,000 in March 2025, $84,000 in June 2025, $31,000 in September 2025 and $3,000 in December 2025 in dividends on the restricted stock issued to directors, management directors and certain employees that was paid or will be payable upon vesting, assuming no forfeitures.

Acquisitions. During the year ended December 31, 2025, the Company incurred a total of $6.7 million in acquisition costs related to lease extensions and to acquire additional crude oil and natural gas leases covering additional contiguous bolt-on undeveloped acreage to its Flat Top and Signal Peak operating areas.

Crude Oil and Natural Gas Industry Considerations. Our operating results, and those of the crude oil and natural gas industry as a whole, are heavily influenced by commodity prices. Crude oil, NGL and natural gas prices and basis differentials may fluctuate significantly as a result of numerous market-related variables. These and other factors make it impossible to predict realized prices reliably. We may respond to economic conditions by adjusting the amount and allocation of our capital program while continuing to identify efficiencies and cost savings. Volatility in crude oil prices may materially affect the quantities of crude oil, NGL and natural gas reserves we can economically produce over the longer term.

In early 2025, OPEC and its non-OPEC allies, known collectively as OPEC+, began unwinding prior voluntary production cuts and subsequent to quarter end announced that they agreed to increase oil production by another 548,000 bopd starting in September 2025, completing the reversal of its prior 2.2 million bopd cutback from 2023, but paused production increases in early 2026. This substantial supply boost contributed to a decline in global crude oil prices during the year ended December 31, 2025. OPEC+ also emphasized that the production increases could continue or be reversed depending on how market conditions evolve, maintaining flexibility to support price stability. Concurrently, the U.S. imposed tariffs on energy imports from Canada and Mexico, set at 10% and 25%, respectively, and expanded tariffs to include all steel and aluminum imports, aiming to bolster domestic production. In addition, the current U.S. presidential administration began announcing a substantial number of trade tariffs, including a new universal baseline reciprocal tariff, plus an additional country-specific reciprocal tariff for select trading partners, on all U.S. imports, although imports of crude oil, natural gas and refined products received exemptions from the tariffs. Furthermore, the administration announced additional sector-specific tariffs, including on copper imports. Although the Supreme Court recently invalidated the reciprocal tariffs, the administration has indicated that it will continue seeking to implement tariffs through other means, and concerns that the measures could cause inflation, slow economic growth and intensify trade disputes have also placed further downward pressure on oil prices. The situation remains fluid, with certain tariff rates and obligations established through trade agreements that were negotiated while the reciprocal tariffs were in effect, and we expect price volatility to continu

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