HighPeak Energy, Inc. Fair Value Disclosure

NOTE 4. Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgement and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy. The Company uses appropriate valuation techniques based on available techniques based on available inputs to measure the fair value of its assets and liabilities.

 

	●	Level 1 – Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date.
	●	Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
	●	Level 3 – Unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value.   Financial Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.

 

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2025 and 2024 are as follows (in thousands):

 

		As of December 31, 2025
		(Level 1)				(Level 2)				(Level 3)				Total Gross Fair Value
Assets:
Commodity price derivatives – current		$	—			$	29,574			$	—			$	29,574
Commodity price derivatives – noncurrent			—				4,197				—				4,197
Total assets			—				33,771				—				33,771
Liabilities:
Commodity price derivatives – current			—				380				—				380
Commodity price derivatives – noncurrent			—				360				—				360
Total liabilities			—				740				—				740
Total recurring fair value measurements		$	—			$	33,031			$	—			$	33,031

 

		As of December 31, 2024
		(Level 1)				(Level 2)				(Level 3)				Total Gross Fair Value
Assets:
Commodity price derivatives – current		$	—			$	7,582			$	—			$	7,582
Liabilities:
Commodity price derivatives – current			—				5,380				—				5,380
Total recurring fair value measurements		$	—			$	2,202			$	—			$	2,202

 

Commodity price derivatives. The Company’s commodity price derivatives are currently made up of crude oil costless collars, swap contracts and basis swaps and natural gas swap contracts. The Company measures derivatives using an industry-standard pricing model that is provided by the counterparties. The inputs utilized in the third-party discounted cash flow and option-pricing models for valuing commodity price derivatives include forward prices for crude oil, contracted volumes, volatility factors and time to maturity, which are considered Level 2 inputs.

 

Assets and liabilities measured at fair value on a nonrecurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Specifically, (i) stock-based compensation is measured at fair value on the date of grant based on Level 1 inputs for restricted stock awards or Level 2 inputs for stock option awards based upon market data, (ii) the estimates and fair value measurements used for the evaluation of proved property for potential impairment using Level 3 inputs based upon market conditions in the area, and (iii) asset retirement obligations are measured at estimated fair value on the date the liabilities are incurred using Level 3 inputs based on expected future costs to retire the assets, market conditions and estimated lives of the assets. The Company assesses the recoverability of the carrying amount of certain assets and liabilities whenever events or changes in circumstances indicate the carrying amount of an asset or liability may not be recoverable. These assets and liabilities can include inventories, proved and unproved crude oil and natural gas properties and other long-lived assets that are written down to fair value when they are impaired or held for sale. The Company did not record any impairments to proved or unproved crude oil and natural gas properties for the periods presented in the accompanying consolidated financial statements.

 

Financial instruments not carried at fair value. As of December 31, 2025 and 2024, the Company has financial instruments consisting primarily of cash and cash equivalents, accounts receivable, accounts payable, long-term debt (specifically the Term Loan Credit Agreement and Senior Credit Facility Agreement), and other current assets and liabilities that approximate fair value due to the nature of the instrument and their relatively short maturities.