8-K: Prairie Operating Co. to Acquire Nickel Road Operating Assets for $94.5 Million

Prairie Operating Co. has agreed to purchase assets from Nickel Road Operating LLC for $94.5 million, a deal expected to boost production, reserves, and cash flow.

Summary

• Prairie Operating Co. is set to acquire assets from Nickel Road Operating LLC for a total of $94.5 million, consisting of $83 million in cash and $11.5 million in deferred cash payments.
• The acquisition, with an effective date of February 1, 2024, is anticipated to be immediately accretive to Prairie's key financial metrics.
• The deal includes over 5,500 net leasehold acres and 62 fully permitted proven undeveloped (PUD) drilling locations in the DJ Basin.
• The assets currently produce approximately 3,370 net barrels of oil equivalent per day (Boepd), with 84% being liquids.
• Third-party estimates indicate proven reserves of 22.2 million barrels of oil equivalent (MMboe) with a PV10 value of $254 million.
• The permitted PUDs are expected to achieve payout in about one year, with operational break-evens below $30 per barrel WTI.
• Prairie expects to fund the transaction through a combination of public and/or private stock issuance, existing cash, and warrant exercises.

Sentiment

Score: 8

Explanation: The document conveys a strong positive sentiment due to the accretive nature of the acquisition, the strategic fit of the assets, and the expected financial benefits. The management's comments are also optimistic, further reinforcing the positive outlook.

Positives

• The acquisition is expected to be immediately accretive to key financial metrics, including production, reserves, and cash flow.
• The assets are located near Prairie's existing operations in the DJ Basin, allowing for operational efficiencies.
• The permitted PUDs are expected to have a quick payout and are economic even in a low commodity price environment.
• Existing infrastructure provides takeaway capacity and opportunities to improve efficiencies.
• The acquisition increases and strengthens Prairie's overall position within a top-tier U.S. shale basin.
• The transaction positions Prairie to accelerate its development program within free cash flow.

Risks

• There is no assurance that the acquisition will be completed or on the expected timeline.
• There is no guarantee that sufficient financing will be available on acceptable terms.
• The integration of NRO's operations may be more difficult, time-consuming, or costly than expected.
• Operating costs, customer loss, and business disruption may be greater than expected following the transaction.
• There are uncertainties inherent in estimating quantities of oil, natural gas, and NGL reserves and projecting future rates of production.
• Commodity price and cost volatility and inflation could impact the profitability of the assets.

Future Outlook

The company expects the transaction to be immediately accretive to key financial metrics and positions them to accelerate their development program within free cash flow. The transaction is expected to close in the first half of 2024.

Management Comments

• Ed Kovalik, Chairman and CEO, stated that the acquisition increases and strengthens their position within a top-tier U.S. shale basin and aligns with their strategy of creating value through accretive acquisitions.
• Gary Hanna, President, added that the announcement underscores their commitment and ability to create value for shareholders through accretive acquisitions and that the assets strategically enhance their existing operations.

Industry Context

This acquisition is in line with the trend of consolidation in the oil and gas industry, particularly in shale basins. Prairie is leveraging the current market environment to acquire producing assets and expand its footprint in the DJ Basin, a well-established and prolific oil and gas region.

Comparison to Industry Standards

• The transaction metrics, such as the implied multiple of 2.3x NTM cash flow and $28,000 per net flowing Boe, are within the range of recent acquisitions in the upstream oil and gas sector.
• The expected payout of PUDs in approximately 1 year is competitive, indicating a high rate of return on investment.
• The operational break-evens below $30/bbl WTI suggest that the assets are resilient to commodity price fluctuations.
• The addition of 62 permitted PUDs provides a significant inventory of future drilling locations, which is a key factor for growth in the industry.
• The PV10 of $254 million for 22.2 MMboe of proven reserves is a standard metric used in the industry to evaluate the economic value of oil and gas assets.

Stakeholder Impact

• Shareholders are expected to benefit from the accretive nature of the acquisition and the potential for increased free cash flow.
• Employees may see opportunities for growth and development as the company expands its operations.
• Customers may benefit from the increased production and reliability of supply.
• Suppliers may see increased business opportunities as the company expands its operations.
• Creditors may see improved creditworthiness of the company due to the increased asset base and cash flow.

Next Steps

• The transaction is expected to close in the first half of 2024.
• Prairie will integrate the acquired assets into its existing operations.
• Prairie will execute its development plan for the 62 permitted PUDs.

Key Dates

Keywords

Acquisition, DJ Basin, Oil and Gas, Production, Reserves, Prairie Operating Co., Nickel Road Operating, PUDs, PV10, Shale