Highpeak Energy, Inc. current report, 12 July 2023

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HighPeak Energy, Inc. Form 8-K Summary

Business Context and Reporting Period

The filing, dated July 12, 2023 and signed July 18, 2023, reports amendments to the company’s credit agreement, preliminary operating and financial results for the three and six months ended June 30, 2023, and financing activities related to a proposed common-stock offering. HighPeak is an emerging growth company whose common stock and warrants trade on Nasdaq under HPK and HPKEW.

Key Financial and Operating Metrics

  • Production: Estimated at 41.0–43.0 thousand barrels of oil equivalent per day (MBoe/d) for the quarter ended June 30, 2023, versus 37.2 MBoe/d for the quarter ended March 31, 2023.
  • Recent production: Estimated at 45.5–47.5 MBoe/d in June 2023 and above 50.0 MBoe/d for the first ten days of July 2023.
  • Drilling and completion capital expenditures: Estimated at $260 million–$300 million for the second quarter and $645 million–$685 million for the six months ended June 30, 2023.
  • EBITDAX: Estimated at $180 million–$190 million for the second quarter. The company could not reconcile this non-GAAP range to net income or loss without unreasonable effort.
  • Cash and liquidity: Estimated cash and cash equivalents of $30.3 million at June 30, 2023; remaining credit availability of $47.6 million; and total liquidity of $77.9 million.
  • Debt: Estimated total indebtedness of $1.0024 billion, including $225.0 million of February Notes, $250.0 million of November Notes, and $527.4 million outstanding under the Credit Agreement, including $2.4 million of letters of credit.
  • Accounts payable: Approximately $216.1 million, including approximately $121.3 million currently due or past due.
  • Expected receipts: Approximately $81.7 million of crude oil sale proceeds expected on July 20, 2023.
  • Revenue, net income, operating cash flow, and margins: The filing does not provide clear preliminary values for these metrics.

Material Changes and Credit Agreement Amendments

On July 12, 2023, HighPeak entered into the Ninth Amendment to its Credit Agreement. The amendment:

  • Waives the minimum current-ratio covenant for the quarter ended June 30, 2023.
  • Waives the late submission of certain account-control agreements.
  • Postpones the April 2023 borrowing-base redetermination until September 2023.
  • Postpones until September 1, 2023 the requirement to extend, redeem, refinance, or otherwise address the February Notes due February 2024.
  • Increases certain pricing terms and minimum hedging requirements.
  • Requires weekly delivery of a 13-week cash-flow forecast through completion of the September 2023 borrowing-base redetermination.
  • Temporarily restricts additional borrowings under the Credit Agreement until the company receives at least $95 million of net proceeds from equity sales, including the proposed offering.

Financing, Outlook, and Risks

On July 18, 2023, the company commenced an underwritten public offering of common stock and stated that it was evaluating other financing arrangements to refinance the February Notes and the 10.625% Senior Notes due November 2024 and to improve liquidity.

Management provided no assurance that it will refinance, repay, or extend the Existing Notes by September 1, 2023, or obtain additional waivers or amendments. Financing may be unavailable or may be completed on unfavorable terms.

The company warned that failure to satisfy the Credit Agreement, including the February Notes obligation, could result in acceleration of its credit facilities and cross-default or cross-acceleration of the Existing Notes. It stated that it would not have sufficient liquidity to repay all outstanding indebtedness following such an event and might need to sell assets, reduce drilling activity, redirect cash flow to debt repayment, or seek bankruptcy protection. These actions could materially reduce or eliminate the value of the equity investment.

Important Facts to Verify

  • Final second-quarter and six-month financial and operating results, including actual production, EBITDAX, revenue, net income, cash flow, and capital expenditures.
  • The final size, pricing, dilution, and net proceeds of the common-stock offering and whether the $95 million equity-proceeds condition was satisfied.
  • Whether the February Notes were refinanced, repaid, extended, or otherwise addressed by the September 1, 2023 deadline.
  • The September 2023 borrowing-base redetermination and resulting credit availability.
  • Compliance with amended current-ratio, hedging, cash-flow reporting, and other Credit Agreement requirements.
  • The status and payment timing of the approximately $121.3 million of currently due or past-due accounts payable.
  • Whether any debt default, cross-default, acceleration, asset sale, drilling-program reduction, or restructuring occurred.
  • All preliminary estimates, which were unaudited, subject to incomplete reporting processes, and could change materially.