10-Q: Prairie Operating Co. Reports Increased Losses in Q1 2024 Amidst Strategic Shift to Oil and Gas

Prairie Operating Co. reported a significant increase in net loss for Q1 2024 as it transitions from cryptocurrency mining to oil and gas exploration and production.

Summary

• Prairie Operating Co. reported a net loss of $9.0 million for the three months ended March 31, 2024, a significant increase from a $64,392 loss in the same period in 2023.
• The company's cryptocurrency mining operations, which commenced on May 3, 2023, were discontinued in January 2024 with the sale of all mining equipment.
• The loss from discontinued operations for Q1 2024 was $1.0 million, primarily due to the loss on the sale of the cryptocurrency mining equipment.
• The company is now solely focused on the exploration and production (E&P) segment, holding acreage in the Denver-Julesburg Basin in Colorado.
• Prairie Operating Co. is actively seeking to close the acquisition of assets from Nickel Road Operating, LLC (NRO Acquisition) for $94.5 million, expected to be completed by August 15, 2024.
• The company's current activities are focused on obtaining permits to begin drilling on its Genesis Assets and securing funding for the NRO Acquisition.
• As of March 31, 2024, Prairie Operating Co. had cash and cash equivalents of $4.0 million, a working capital deficit of $2.5 million, and an accumulated deficit of $87.9 million.

Sentiment

Score: 3

Explanation: The document reflects a negative sentiment due to the company's significant losses, working capital deficit, and the uncertainty surrounding its ability to close the NRO Acquisition and fund its development program. However, the company's strategic shift to oil and gas and its recent acquisitions provide some potential for future growth.

Positives

• The company has a clear strategy to focus on oil and gas exploration and production.
• The acquisition of the Genesis Bolt-on Assets expands the company's presence in the DJ Basin.
• The company has secured $3.9 million in cash proceeds from warrant exercises between April 1, 2024 and May 10, 2024.
• The company expects to receive additional proceeds from warrant exercises prior to their expiration.

Negatives

• The company reported a significant increase in net loss in Q1 2024 compared to Q1 2023.
• The company has a working capital deficit of $2.5 million.
• The company does not currently have sufficient cash or committed capital to close the NRO Acquisition.
• The company may continue to incur losses for an indeterminate period and may be unable to achieve profitability.

Risks

• The company may be unable to secure the necessary financing to close the NRO Acquisition or fund its development program.
• The company may lose the $9 million deposit if it is unable to close the NRO Acquisition.
• The company's future success depends on the successful development of its oil and gas assets and the price of oil and natural gas.
• The company may face challenges in obtaining necessary permits and approvals for its drilling operations.
• The availability of additional capital is subject to numerous factors including prices of oil and natural gas and the overall health of the U.S. and global economic environment.

Future Outlook

The company expects its cash balance to decline until it can obtain financing through public or private capital markets and/or upon the exercise of common stock warrants. The company's 2024 development program, which is dependent upon the closing of the NRO Acquisition and related financing, contemplates estimated capital costs of $134 million. The company expects to continue funding its business and strategic plans with cash on hand and proceeds from exercises of warrants, if any. The company expects to enter into a revolving credit facility primarily to support its hedging program.

Management Comments

• Based on an assessment of these factors, management believes that the Company will have adequate liquidity for its operations for at least the next 12 months.

Industry Context

Prairie Operating Co.'s shift to oil and gas exploration and production aligns with a broader trend of companies seeking opportunities in the U.S. energy sector, particularly in established basins like the DJ Basin. The company's focus on accretive acquisitions and efficient development reflects a common strategy among independent E&P companies.

Comparison to Industry Standards

• Prairie Operating Co.'s strategy of focusing on acquisitions and development in the DJ Basin is similar to that of other independent E&P companies operating in the region, such as PDC Energy (now Chevron) and Civitas Resources.
• PDC Energy, prior to its acquisition by Chevron, had a strong track record of production growth and profitability in the DJ Basin, with a focus on operational efficiency and technological innovation.
• Civitas Resources, formed through a series of mergers, has also focused on consolidating assets in the DJ Basin and achieving economies of scale.
• Prairie Operating Co.'s financial performance, particularly its net loss and working capital deficit, is not yet comparable to these established players, but its future success will depend on its ability to execute its development plan and achieve profitability.

Legal Proceedings

• The Company is not involved in any disputes and does not have any litigation matters pending which the Company believes could have a materially adverse effect on the Companys financial condition or results of operations.

Related Party Transactions

• In connection with the Merger, the Company entered into debentures due December 31, 2023 with each of Bristol Investment Fund, Ltd. (Bristol) and Barlock 2019 Fund, LP (Barlock), in the principal amount of $1,000,000 (AR Debentures).
• Bristol is controlled by Paul L. Kessler who was the Executive Chairman of the Company at the time of the Merger and is a current member of our Board of Directors.
• Barlock is controlled by Scott D. Kaufman who is a former President, Chief Executive Officer, and Director of the Company.
• On April 8, 2024, the Company entered into an Amendment and Waiver of Exercise Limitations Letter Agreement with Bristol Investment Fund, Ltd., an entity affiliated with Paul L. Kessler, a director of the Company, to amend certain terms of the Series D A Warrants and Series D B Warrants held by Bristol.

Stakeholder Impact

• Shareholders: Potential dilution from the issuance of common stock to fund the NRO Acquisition and development program. Potential for increased value if the company successfully executes its strategy.
• Employees: Potential for job creation as the company expands its operations in the oil and gas sector.
• Creditors: The company's ability to meet its financial obligations depends on its ability to generate revenue and secure financing.
• Suppliers: Potential for increased business as the company develops its oil and gas assets.

Next Steps

• The company will focus on obtaining requisite permits to begin drilling wells on its Genesis Assets.
• The company will seek to secure funding to close the NRO Acquisition.
• The company will continue to evaluate potential acquisitions in the oil and gas sector.

Key Dates

Keywords

oil and gas, exploration and production, E&P, Denver-Julesburg Basin, DJ Basin, Colorado, acquisition, Nickel Road Operating, NRO Acquisition, Genesis Assets, cryptocurrency mining, divestiture, warrants, capital raise, drilling, development