Prairie Operating Co. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The company is transitioning from cryptocurrency mining to oil and gas exploration and production (E&P), focused on the DJ Basin in Colorado. It sold its mining equipment in January 2024. Its Genesis E&P acreage had no production or revenue at quarter-end, and the company reported no current drilling or completion operations.
Financial performance and position
- Revenue: Continuing-operations revenue was $0, versus $0 in Q1 2023. The company separately reported $192,625 of cryptocurrency mining revenue in discontinued operations before the sale.
- Loss: Continuing-operations net loss was $7.99 million, compared with $64,392 in Q1 2023. A $1.04 million discontinued-operations loss, including a $1.08 million loss on the mining-equipment sale, brought total net loss to $9.04 million. Basic and diluted loss per share was $0.90.
- Costs and margins: Operating costs were $8.04 million, including $7.60 million of general and administrative expense and $442,000 of exploration expense. G&A included $2.1 million of stock-based compensation. Operating margins are not meaningful while continuing revenue is zero.
- Cash flow: Operating activities used $3.32 million; investing activities used $10.13 million, principally for the NRO acquisition deposit and E&P properties; financing activities provided $4.46 million from warrant exercises. Cash declined $8.99 million to $4.05 million.
- Liquidity: Current assets were $6.19 million and current liabilities were $8.65 million, resulting in a $2.5 million working-capital deficit, compared with $8.1 million of working capital at year-end 2023. Accumulated deficit was $87.9 million.
- Debt and leases: No debt was outstanding. Operating lease liabilities totaled $381,000.
Material changes and transactions
- G&A expense rose from $64,392 in Q1 2023 to $7.60 million, driven by stock compensation, employment and benefits, investor relations, legal and accounting, and professional services. Exploration expense increased by $442,000, primarily from lease delay rentals.
- On January 23, the company sold its mining equipment for $1.0 million cash plus up to $1.0 million in deferred payments tied to the buyer’s revenues, plus interest. The deferred consideration is not guaranteed irrespective of buyer performance.
- In February, the company acquired Genesis bolt-on assets for $900,000, adding a 1,280-acre spacing unit and eight proved undeveloped drilling locations.
- The proposed NRO acquisition has a stated purchase price of $94.5 million: $83.0 million cash and $11.5 million deferred. The company deposited $9.0 million in escrow. The transaction remained pending at quarter-end.
- Series D warrant exercises generated $4.46 million in Q1. From April 1 through May 10, the company reported a further $3.9 million from warrant exercises and $1.1 million from exercises of warrants expiring in 2028.
Outlook, risks, and other disclosures
- The company says it needs to raise approximately $74 million in cash, subject to adjustments, to close the NRO acquisition and did not have sufficient cash or committed capital for this at the filing date. It warned that failure to raise funds or close could require alternative financing and, in some circumstances, could result in loss of the $9 million deposit.
- Its conditional 2024 development program contemplates approximately $134 million of capital costs, dependent on closing the NRO acquisition and obtaining financing. The company expects to use equity proceeds, warrant exercises, cash, and post-acquisition operating-well revenue; there is no assurance the financing or acquisition will occur.
- Management expects cash to decline until additional financing or warrant proceeds are received. It stated that it believes liquidity will be adequate for at least 12 months from issuance of the financial statements, based on its cash position and spending assumptions. That assessment is subject to financing and execution risks.
- Management cited permitting, commodity prices, capital availability, acquisition closing conditions, drilling and acquisition costs, and equipment and infrastructure availability as factors affecting the development plan. The company cautioned that it may continue to incur losses and may not achieve profitability.
- The company reported no debt defaults, no off-balance-sheet arrangements, and no litigation expected to have a material adverse effect. Management concluded disclosure controls were effective at a reasonable-assurance level; no material changes in internal control were reported.
Important facts for investors to verify
- Whether the NRO acquisition closed by the expected deadline, how it was funded, and whether any escrow deposit was at risk or forfeited.
- Actual warrant exercise proceeds after May 10, remaining warrant balances and expirations, and the resulting dilution alongside convertible preferred stock and other potential share issuances.
- Progress on permits, drilling plans, and the timing and economics of bringing E&P assets into production.
- Collection and timing of the mining-sale deferred payments, which depend on revenue generated by the buyer’s equipment.
- Whether cash needs and the proposed $134 million development program changed after quarter-end, including any financing, liquidity, or guidance updates.