8-K: Prairie Operating Co. Eyes DJ Basin Expansion with $602.75 Million Acquisition of Bayswater Assets

Prairie Operating Co. announces a definitive agreement to acquire oil and gas assets from Bayswater Exploration and Production for $602.75 million, significantly expanding its footprint in the DJ Basin.

Summary

• Prairie Operating Co. (PROP) has agreed to acquire certain oil and gas assets from Bayswater Exploration and Production for a purchase price of $602.75 million.
• The acquisition includes approximately 24,000 net acres in Weld County and approximately 26,000 barrels of oil equivalent per day (BOEPD) of oil-weighted (69% liquids) net production.
• The deal also adds 77.9 million barrels of oil equivalent (MMboe) and an estimated $1.1 billion in Proved PV-10 value.
• The transaction consideration consists of cash and up to approximately 5.2 million shares of Prairie common stock.
• Prairie intends to fund the cash portion through a combination of cash on hand, borrowings under its credit facility (expanding to $475 million), and proceeds from a public offering of Prairie Common Stock.
• The acquisition is expected to close in February 2025, with an economic effective date of December 1, 2024.
• Pro forma for the acquisition, Prairie's 2025 outlook includes average daily production of 29,000-31,000 BOEPD, capital expenditures of $300-320 million, and adjusted EBITDA between $350-370 million.
• As of November 30, 2024, Prairie's pro forma net reserves are estimated to be 104.1 MMboe, with 70% liquids.

Sentiment

Score: 8

Explanation: The document presents a positive outlook due to the accretive nature of the acquisition, increased production and reserves, and a strong balance sheet. However, risks related to financing, integration, and commodity prices temper the overall sentiment.

Positives

• The acquisition is expected to be immediately accretive to per-share cash flow metrics.
• The transaction will accelerate Prairie's development plans and enhance operational efficiencies.
• The acquisition will drive sustainable, long-term value creation for shareholders.
• Prairie will be well-positioned to deliver significant organic production growth in 2025 and beyond.
• The company maintains a strong balance sheet with an expected leverage ratio of ~1.0x at closing.
• The company will leverage existing infrastructure to drive operational efficiencies and reduce development costs.

Risks

• The company's ability to satisfy the conditions to closing the Bayswater Acquisition in a timely manner or at all is not guaranteed.
• The company's ability to successfully finance the Bayswater Acquisition is not guaranteed.
• The company's ability to recognize the anticipated benefits of the Bayswater Acquisition is not guaranteed.
• The company may be unable to achieve expected free cash flow accretion, production levels, drilling, operational efficiencies and other anticipated benefits of the Acquired Properties within the expected time-frames or at all.
• The company's ability to successfully integrate the Acquired Properties is not guaranteed.
• The reserve information presented is based solely on the company's internal evaluation and interpretation of reserves, production and other information provided to it by its counterparties in the course of its due diligence with respect to the Bayswater Acquisition and has not been independently verified or estimated.
• The forecasted amounts are based on various assumptions, including, among others, the level of the company's (and its other operators) capital spending, commodity prices, rig availability, services availability, proppant availability, takeaway capacity as well as other factors.
• To the extent any of these factors change adversely, these estimates may not be achieved.
• The company's actual operating results and financial condition may differ materially from these estimates.

Future Outlook

The company anticipates significant organic production growth in 2025 and beyond, driven by the acquired assets and development plans.

Management Comments

• Edward Kovalik, Chairman and CEO of Prairie Operating Co., stated that the acquisition delivers compelling strategic and financial advantages and reflects a disciplined, but opportunistic approach to rapidly expand the company's footprint in the DJ Basin.
• Gary Hanna, President of the Company, added that the acquisition represents a transformative milestone for Prairie Operating Co. by significantly expanding the company's footprint and production of oil rich assets in the DJ Basin.

Industry Context

This announcement reflects a trend of consolidation in the oil and gas industry, particularly in prolific basins like the DJ Basin, as companies seek to increase scale, production, and reserves.

Comparison to Industry Standards

• The acquisition metrics, such as PV-10 value per flowing barrel of oil equivalent, can be compared to recent transactions in the DJ Basin to assess the valuation.
• Companies like PDC Energy (acquired by Chevron) and Civitas Resources are major players in the DJ Basin, and their operational and financial performance can serve as benchmarks.
• The stated leverage ratio of ~1.0x is relatively conservative compared to some other oil and gas companies, suggesting a focus on financial stability.

Stakeholder Impact

• Shareholders: Expected to benefit from increased production, cash flow, and long-term value creation.
• Employees: Potential integration and operational changes may affect employees.
• Customers: No immediate impact expected.
• Suppliers: Potential for increased business opportunities.
• Creditors: The company's credit facility will be expanded.

Next Steps

• Complete the public offering of Prairie Common Stock.
• Enter into the New Credit Agreement.
• Satisfy customary closing conditions.
• Close the Bayswater Acquisition in February 2025.
• Integrate the acquired assets and execute development plans.

Key Dates

Keywords

acquisition, DJ Basin, Bayswater, Prairie Operating Co, oil and gas, production, reserves, acreage, EBITDA, PV-10