# Prairie Operating Co.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Prairie Operating Co.](/companies/prop.md) (CIK 1162896)
- Form: 10-Q
- Filed: 2024-05-13
- Accepted by EDGAR: May 13, 2024, 16:32 ET
- Period: 2024-03-31
- Accession: 0001493152-24-018911
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1162896/000149315224018911/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1162896/000149315224018911/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$8.0m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | −$9.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.90 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.90 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$3.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2024-03-31 | $4.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $6.2m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $46.5m | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $8.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $8.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $37.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 19,065 characters.

### Cautionary Notice Regarding Forward-Looking Statements

*The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2024 and 2023 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report, as well as our audited consolidated financial statements and related notes in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023 and the related “Management’s Discussion and Analysis of Financial Condition and Results or Operations” in our Annual Report. Except as otherwise indicated or required by the context, references to the “Company,” “we,” “us,” “our” or similar terms refer to Prairie Operating Co.*

*Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under “Risk Factors” in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023 as updated in our Form 8-K’s filed on April 9, 2024 and April 12, 2024.*

*We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date hereof and, except as required by law, we assume no obligation to update any such forward-looking statements.*

### Overview

We are an independent oil and gas company focused on the acquisition and development of crude oil, natural gas and natural gas liquids (“NGLs”). We currently hold attractive acreage in the Denver-Julesburg Basin in Colorado (the “DJ Basin”) that our experienced management team intends to develop, deploying next-generation technology and techniques in an environmentally efficient manner. In addition to growing production through our drilling operations, we also seek to grow our business through accretive acquisitions, focusing on assets with the following criteria: (i) producing reserves, with opportunities to add accretive, undeveloped bolt-on acreage; (ii) ample, high rate-of-return inventory of drilling locations that can be developed with cash flow reinvestment; (iii) strong well-level economics; (iv) liquids-rich assets; and (v) accretive valuation.

As of March 31, 2024, all of the Company’s E&P assets, which we refer to as the “Genesis Assets,” were acquired in the Exok Transaction, the Exok Option Purchase and the acquisition of the Genesis Bolt-on Assets. The Genesis Assets consist of certain oil and gas leasehold interests with no existing oil and gas production or revenue. In all, the total Genesis Assets include 24,351 net mineral acres in, on and under 37,985 gross acres. We have no current drilling or completion operations. As such, our current activities are focused on obtaining requisite permits to begin drilling wells on our Genesis Assets, as well as funding and closing the NRO Acquisition. Additionally, in January 2024, we divested all of our cryptocurrency mining assets.

### Key Recent Developments

#### NRO Acquisition

On January 11, 2024, we entered into the NRO Agreement to acquire the Central Weld Assets for total consideration of $94.5 million, subject to certain closing price adjustments and other customary closing conditions. The Central Weld Assets include certain of NRO’s assets and operations located in the DJ Basin in Weld County, Colorado, including Oil and Gas Leases, Mineral Fee Interests, producing and disposal Wells, and Units, (as such terms are defined in the NRO Agreement), as well as appurtenant records and equipment and other properties.

The $94.5 million purchase price consists of $83.0 million in cash and $11.5 million in deferred cash payments. Pursuant to the NRO Agreement, the Company deposited $9 million of the Purchase Price into an escrow account on January 11, 2024, which will be released to NRO upon the earlier of the closing date and August 15, 2024. Portions of the Deposit are subject to earlier release under certain circumstances if the closing has not occurred on or prior to June 17, 2024.

#### Crypto Sale

Our cryptocurrency mining operations commenced on May 3, 2023 concurrent with the Merger. In the three months ended March 31, 2024, we generated all of our revenue through our cryptocurrency mining activities from assets we acquired in the Merger.

On January 23, 2024, pursuant to an asset purchase agreement (the “Crypto Divestiture Agreement”) between the Company and a private purchaser, the Company sold all of its cryptocurrency miners, which we refer to as the “Mining Equipment,” for consideration consisting of (i) $1.0 million in cash and (ii) $1.0 million in deferred cash payments (the “Deferred Purchase Price”), to be paid out of (A) 20% of the monthly net revenues received by the buyer associated with or otherwise attributable to the Mining Equipment until the aggregate amount of such payments equals $250,000 and (B) thereafter, 50% of the monthly net revenues received by the buyer associated with or otherwise attributable to the Mining Equipment until the aggregate amount of such payments equals the Deferred Purchase Price, plus accrued interest.

In addition to the sale of the Mining Equipment, the Company assigned, and the buyer assumed, all of the Company’s rights and obligations under the Master Services Agreement, dated February 16, 2023, by and between Atlas Power Hosting, LLC (“Atlas”) and the Company (the “Atlas MSA”), pursuant to which Atlas hosts, operates, and manages the Mining Equipment. As collateral security for the payment of the Deferred Purchase Price, the Company obtained a security interest in, among other things, the Mining Equipment and the Atlas MSA.

#### Genesis Bolt-on Assets

On February 5, 2024, the Company acquired the Genesis Bolt-on Assets, consisting of a 1,280-acre drillable spacing unit and eight proved undeveloped drilling locations in the DJ Basin from a private seller for $900,000. These offset the other oil and gas assets held by the Company in northern Weld County, Colorado.

### Results of Operations

|  | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
| --- | ---: | ---: |
| Revenue | $— | $— |
| Operating costs and expenses | 8,044,640 | 64,392 |
| Loss from operations | $8,044,640 | $64,392 |

#### Loss from operations

The loss from operations increased $8.0 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023 and was entirely related to the increase in operating costs and expenses. The cryptocurrency mining revenue earned and cryptocurrency mining operating costs and expenses incurred during the three months ended March 31, 2024 and prior to the Crypto Sale have been classified as discontinued operations.

### Operating Costs and Expenses

|  | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
| --- | ---: | ---: |
| General and administrative | $7,602,860 | $64,392 |
| Exploration | 441,780 | — |
| Total operating costs and expenses | $8,044,640 | $64,392 |

Operating costs and expenses increased $8.0 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The operating costs and expenses incurred and related to the cryptocurrency mining assets during the three months ended March 31, 2024 and prior to the Crypto Sale have been classified as discontinued operations.

*General and administrative.* General and administrative expenses for the three months ended March 31, 2024 increased $7.5 million over the three months ended March 31, 2023. This was primarily due to stock-based compensation of $2.1 million, employment and benefit costs of $1.8 million, investor relations costs of $1.7 million, legal and accounting costs of $0.6 million, other professional services of $0.7 million, and other costs of $0.6 million.

*Exploration*. The increase in exploration expenses of $0.4 million for the three months ended March 31, 2024 over the three months ended March 31, 2023 is due to delay rentals incurred on oil and gas leases. There were no such costs in 2022.

#### Other income and expenses

|  | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
| --- | ---: | ---: |
| Interest income | $52,101 | $— |
| Total other income (expense) | $52,101 | $— |

*Interest income.* Interest income for the three months ended March 31, 2024 increased $52,101 compared to the three months ended March 31, 2023. This increase was entirely due to our ability to earn interest on our cash balance in the current period and not in the prior year period.

#### Discontinued operations

|  | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
| --- | ---: | ---: |
| Cryptocurrency mining revenue | $192,625 | $— |
| Cryptocurrency mining costs | (55,063) | — |
| Depreciation and amortization | (102,210) | — |
| Loss from sale of cryptocurrency mining equipment | (1,080,097) | — |
| Loss from discontinued operations before income taxes | (1,044,745) | — |
| Provision for income taxes | — | — |
| Net loss from discontinued operations | $(1,044,745) | $— |

The net loss from discontinued operations for the three months ended March 31, 2024 increased $1.0 million compared to the three months ended March 31, 2023. This increase was substantially all due to the $1.1 loss on the sale of cryptocurrency mining equipment for the three months ended March 31, 2024. The Company had no discontinued operations for the three months ended March 31, 2023.

### Liquidity and Capital Resources

### Overview

Our E&P activities will require us to make significant operating and capital expenditures. In 2023, our primary sources of liquidity were the Series D PIPE and the Series E PIPE, which funded the purchase of the Initial Genesis Assets and working capital, as well as proceeds from the exercise of warrants, which funded, among other things, working capital and the Deposit for the NRO Acquisition in 2024. Since we sold our only revenue-generating assets in January 2024 and do not yet have any operating E&P assets, we will require additional capital to fund our development program and operations. Our primary uses of cash have been for the acquisition and development of oil and natural gas properties and payments of general, administrative and operating costs.

In addition, in order to close the NRO Acquisition, we will need to raise $74 million in cash, subject to customary closing adjustments. We do not currently have sufficient cash or committed capital to close the NRO Acquisition. While we are seeking to raise the necessary capital through an offering of common stock, there is no assurance that we will be successful in raising sufficient funds from the proposed offering or through other sources. If we are unable to raise sufficient funds to close the NRO Acquisition, or if we are unable to close the acquisition for other reasons, we will need to seek other sources of capital to fund our development activity and operations until our other E&P assets are generating revenues. Under certain circumstances, if we are unable to close the NRO Acquisition, we would lose the Deposit.

We do not currently have significant capital commitments outside of the NRO Acquisition. However, even if we are able to close the NRO Acquisition, we expect that we will need to access additional capital through public and/or private markets in order to fund our E&P development and strategy. Our 2024 development program, which is dependent upon the closing of the NRO Acquisition and related financing, contemplates estimated capital costs of $134 million, which we anticipate being funded through net proceeds from an offering of our common stock and warrant exercises and revenues from our operating wells following consummation of the NRO Acquisition. As a supplement to these sources of capital, the Company expects to receive additional proceeds from warrant exercises prior to their expiration and anticipates that it may access public and private equity markets to accelerate drilling activities or to fund development program changes or other changes to its forecast. The availability of such 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 and are largely outside of the control of the Company. There can be no assurance that the Company can obtain such additional capital. The amount and allocation of future capital expenditures will depend upon a number of factors, including the amount and timing of cash flows from operations, investing and financing activities, and timing and cost of additional capital sources.

Because we are the operator of all of our acreage, the timing and level of our capital spending is largely discretionary and within our control. We could choose to defer a portion of planned capital expenditures depending on a variety of factors, including, but not limited to, the receipt and timing of required regulatory permits and approvals, seasonal conditions, drilling and acquisition costs, the level of participation by other working interest owners, the success of our drilling activities, prevailing and anticipated prices for oil, natural gas and NGLs, the availability of necessary equipment, infrastructure and capital.

We expect to continue funding our business and strategic plans with cash on hand and proceeds from exercises of warrants, if any. Currently, we have no debt outstanding. We expect to enter into a revolving credit facility primarily to support our hedging program, but we may also utilize it from time to time to fund short-term working capital fluctuations and other needs. We believe our approach to leverage will permit us to grow production while mitigating adverse impacts of commodity price volatility. We expect that limiting our use of leverage will provide flexibility to slow our development pace when commodity prices are not supportive and to accelerate when prices rise. In the near term, we intend to primarily deploy our cash flow towards development.

### Working Capital

We define working capital as current assets less current liabilities. At March 31, 2024 we had a working capital deficit of $2.5 million and at December 31, 2023 we had a working capital of $8.1 million. Our current working capital is expected to further decrease in the future due to expenses incurred in connection with our business and until revenue is recognized from our E&P business and/or we raise additional capital through the exercise of existing warrants or through the public and/or private markets. Cash and cash equivalents totaled $4.0 million and $13.0 million at March 31, 2024 and December 31, 2023, respectively.

### Cash Flows from Operating, Investing and Financing Activities

The following table summarizes our cash flows for the periods indicated:

|  | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(3,324,274) | $(83) |
| Net cash used in investing activities | (10,126,563) | — |
| Net cash provided by financing activities | 4,461,660 | — |
| Net decrease in cash and cash equivalents | (8,989,177) | (83) |
| Cash and cash equivalents, beginning of period | 13,036,950 | 79,845 |
| Cash and cash equivalents, end of period | $4,047,773 | $79,762 |

### Analysis of Cash Flow Changes for the Three Months Ended March 31, 2024 and 2023

### Operating Activities

Net cash used in operating activities was $3.3 million for the three months ended March 31, 2024 and resulted primarily from a net loss of $9.0 million, which was partially offset by stock based compensation expense of $2.1 million, loss from discontinued operations of $1.2 million, changes in working capital of $2.1 million and cash provided by operating activities from discontinued operations of $0.3 million.

### Investing Activities

Net cash used in investing activities was $10.1 million for the three months ended March 31, 2024 and primarily resulted from the Deposit in connection with the NRO Acquisition of $9.0 million and $2.0 million for investments in oil and natural gas properties partially offset by $1.0 million from the sale of assets associated with discontinued operations.

### Financing Activities

Net cash provided by financing activities was $4.5 million for the three months ended March 31, 2024 and resulted from proceeds from the exercise of Series D B warrants.

### Liquidity Analysis

The Company had a net loss of $9.0 million for the three months ended March 31, 2024. We cannot predict if we will be profitable. We may continue to incur losses for an indeterminate period of time and may be unable to achieve profitability. An extended period of losses and negative cash flow may prevent us from successfully operating and expanding our business. We may be unable to achieve or sustain profitability on a quarterly or annual basis. At March 31, 2024, we had cash and cash equivalents of $4.0 million, a working capital deficit of approximately $2.5 million, and an accumulated deficit of approximately $87.9 million.

We expect that our cash balance will decline until we are able to obtain financing through public or private capital markets and/or upon the exercise of common stock warrants. As of March 31, 2024, the Company had common stock warrants with exercise prices of $6.00 per share of common stock and expiring through August 2024 that, if all were exercised, would represent cash proceeds to the Company of approximately $27.9 million. Based on recent and current prices of the Company’s common stock, the Company expects such warrants to be exercised. The Company received $3.9 million of cash proceeds from such warrant exercises and $1.1 million of cash proceeds from exercises of warrants expiring in 2028 during the period from April 1, 2024 through May 10, 2024. However, there is no assurance that the remainder of such common stock warrants will ultimately be exercised.

The assessment of the liquidity and going concern requires the Company to make estimates of future activity and judgments about whether the Company can meet its obligations and has adequate liquidity to operate. Significant assumptions used in the Company’s forecasted model of liquidity in the next 12 months include our current cash position and our ability to manage spending. 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.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

## Controls and procedures

As filed, 3,433 characters.

### Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. For purposes of this section, the term *disclosure controls and procedures* means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2024, the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.

### Inherent Limitations on the Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended March 31, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 443 characters.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, we refer you to Item 1A. “Risk Factors” of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023, filed with the SEC on March 20, 2024. As of the date of this Quarterly Report on Form 10-Q, there have been no material changes in the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Filed May 13, 2024.
Source: SEC EDGAR, the filing index for accession 0001493152-24-018911. Last ingested by Listed: Nov 6, 2026, 19:07 ET. No prices; not investment advice.