Prairie Operating(PROP) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) The company's financial statements reflect a significant transformation driven by acquisitions, resulting in substantial revenue and asset growth Condensed Consolidated Balance Sheets The balance sheet expanded dramatically due to acquisitions, with total assets increasing nearly 5.5-fold, funded by significant debt and equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $858,540 | $156,554 | +448.4% | | Cash and cash equivalents | $10,653 | $5,192 | +105.2% | | Total property and equipment, net | $738,313 | $134,620 | +448.4% | | Total Liabilities | $599,777 | $103,786 | +477.9% | | Credit facility | $387,000 | $28,000 | +1282.1% | | Mezzanine Equity | $164,590 | $0 | N/A | | Total Stockholders' Equity | $94,173 | $52,768 | +78.5% | Condensed Consolidated Statements of Operations The company generated significant revenue for the first time, shifting from a net loss to a net income from continuing operations in Q2 2025 Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $68,100 | $0 | $80,915 | $0 | | Income (loss) from operations | $18,936 | $(8,569) | $20,687 | $(16,613) | | Unrealized gain on derivatives | $23,206 | $0 | $23,090 | $0 | | Net income (loss) from continuing operations | $35,683 | $(8,514) | $33,066 | $(16,506) | | Net income (loss) attributable to common stockholders | $48,503 | $(8,514) | $(44,971) | $(17,551) | | Diluted EPS | $0.18 | $(3.49) | $(1.27) | $(1.60) | Condensed Consolidated Statements of Cash Flows Operating cash flow turned positive while investing activities were dominated by acquisitions, funded by substantial financing inflows Six Months Ended June 30, Cash Flow Summary (in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $9,722 | $(8,448) | | Net cash used in investing activities | $(522,289) | $(11,841) | | Net cash provided by financing activities | $518,028 | $9,478 | | Net increase (decrease) in cash | $5,461 | $(10,811) | - The primary use of cash in investing activities was $467.5 million paid for the Bayswater asset purchase[32] - Financing activities were driven by $359.0 million in borrowings on the Credit Facility, $148.3 million from Series F Preferred Stock issuance, and $43.8 million from Common Stock issuance[32] Note 1 – Organization, Description of Business, and Basis of Presentation The company is an independent oil and gas producer focused on the DJ Basin, having recently exited the cryptocurrency mining business - The company's strategic focus is on the acquisition and development of crude oil, natural gas, and NGLs in the DJ Basin[35] - The company exited the cryptocurrency mining business in January 2024; these activities are now classified as discontinued operations[39] - As of June 30, 2025, the company had a working capital deficit of $64.2 million and an accumulated deficit of $86.7 million, but management does not believe there is substantial doubt about its ability to continue as a going concern due to available liquidity[43][48] Note 3 – Acquisitions The company completed two major asset acquisitions, Bayswater and NRO, for a combined consideration of over $545 million Bayswater Acquisition Preliminary Purchase Price Allocation (in thousands) | Component | Amount | | :--- | :--- | | Cash consideration | $466,402 | | Common stock issued to sellers | $16,000 | | Direct transaction costs | $7,094 | | Total consideration | $489,496 | | Allocation to Oil and natural gas properties | $526,163 | - The Bayswater Acquisition closed on March 26, 2025, and was funded with cash on hand, proceeds from stock issuances, and borrowings under the Credit Facility[67] - The NRO Acquisition closed on October 1, 2024, with a final purchase price of $55.5 million[74] Note 5 – Derivative Instruments The company utilizes commodity swap contracts to hedge production, recognizing significant realized and unrealized gains in the first half of 2025 - As of June 30, 2025, the company had outstanding commodity swap contracts for crude oil, natural gas, and NGLs extending through 2028[83] Gains on Derivatives for Six Months Ended June 30, 2025 (in thousands) | Type | Amount | | :--- | :--- | | Realized gain on derivatives (cash settlements) | $4,162 | | Unrealized gain on derivatives (non-cash) | $23,090 | | Total gain on derivatives, net | $27,252 | Note 10 – Debt The company's debt structure was significantly altered, with a new $1.0 billion credit facility and the full conversion of its senior convertible note - The Credit Facility was amended and restated with a maximum commitment of $1.0 billion and a borrowing base of $475.0 million, maturing in March 2029[118] - As of June 30, 2025, the company had $387.0 million of borrowings outstanding under the Credit Facility, with $88.0 million of availability[119] - The Senior Convertible Note was fully converted into 2.1 million shares of common stock during the first quarter of 2025[132] Note 13 – Mezzanine Equity The company issued $148.3 million of Series F Convertible Preferred Stock, classified as mezzanine equity, to fund the Bayswater Acquisition - Issued 148,250 shares of Series F Preferred Stock for $148.3 million in March 2025 to partially fund the Bayswater Acquisition[145] - The Series F Preferred Stock is classified as mezzanine equity and carries a 12% cumulative dividend, with the first dividend paid via common stock issuance[146] Note 19 – Subsequent Events Post-quarter, the company continued its acquisition strategy and saw a partial conversion of its Series F Preferred Stock into common stock - On July 2, 2025, the company agreed to acquire assets from Edge Energy II LLC for $12.5 million[218] - On August 8, 2025, the company acquired approximately 5,500 net acres from Exok for $1.3 million[219] - In July 2025, 13,000 shares of Series F Preferred Stock were converted into 4,612,000 shares of Common Stock[221] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's transformation into a DJ Basin producer, recent developments, and significantly improved operational results Recent Developments The company launched a new well development program, established an ATM offering, and entered into another asset acquisition agreement - Launched an 11-well development program at the Rusch pad in April 2025, with initial production expected in Q3 2025[228] - Entered into an agreement on July 2, 2025, to acquire assets from Edge Energy for $12.5 million[231] - Established a $75.0 million at-the-market (ATM) common stock offering program in June 2025[233] Results of Operations The company's new oil and gas business generated $68.1 million in revenue in Q2 2025 on production of 21,052 Boe/d Production and Revenue Summary | Metric | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Total Revenues (in thousands) | $68,100 | $80,915 | | Total Production (MBoe) | 1,916 | 2,211 | | Average Sales Volumes (Boe/d) | 21,052 | 12,213 | | Average Price (per MBoe) | $35.55 | $36.60 | Operating Expenses per Boe | Expense Category | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Lease operating expenses | $5.92 | $6.04 | | Gathering, transportation, and processing | $1.17 | $1.07 | | Ad valorem and production taxes | $3.35 | $3.34 | | Depreciation, depletion, and amortization | $6.37 | $6.48 | | Total operating expenses per Boe | $25.66 | $27.25 | Non-GAAP Financial Measures Adjusted EBITDA for the first six months of 2025 was $43.0 million, a significant turnaround driven by new oil and gas operations Reconciliation of Net Income (Loss) to Adjusted EBITDA (in thousands) | Line Item | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Net income (loss) from continuing operations | $35,683 | $33,066 | | Adjustments: | | | | Depreciation, depletion, and amortization | $12,199 | $14,315 | | Non-cash stock-based compensation | $2,419 | $3,786 | | Interest expense (income), net | $9,030 | $10,336 | | Non-cash loss on adjustment to fair value | $2,373 | $4,537 | | Unrealized gain on derivatives | $(23,206) | $(23,090) | | Adjusted EBITDA | $38,564 | $43,021 | Liquidity and Capital Resources The company's liquidity is supported by its credit facility and access to capital markets, which management deems sufficient for the next year - As of June 30, 2025, the company had a working capital deficit of $64.2 million and cash of $10.7 million[271] - Key sources of liquidity include the amended credit facility (with $88.0 million available as of June 30, 2025), a new $75.0 million ATM offering, and an effective S-3 registration statement[265][266][278] - Management expects cash balance, revenues, and available liquidity to be sufficient to meet obligations over the next 12 months[297] Item 3. Quantitative and Qualitative Disclosures About Market Risk This disclosure is not required as the company is a smaller reporting company - Disclosure is not required[301] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level[303] - No changes in internal control over financial reporting occurred during the six months ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, internal controls[306] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - The Company is not involved in any material legal proceedings[307] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - There have been no material changes in the risk factors from those disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[308] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company had no unregistered sales of equity securities during the quarter that were not previously reported - There were no unregistered sales of the Company's equity securities during the quarter that were not otherwise disclosed in a Current Report on Form 8–K[309] Item 6. Exhibits This section provides an index of all exhibits filed with the Form 10-Q report