Prairie Operating Co

Previous wording

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.

Current wording

The following discussion and analysis of our financial condition and results of operations for the three and six months ended June 30, 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 and the related “Management’s Discussion and Analysis of Financial Condition and Results or Operations” in our most recent Annual Report on Form 10-K/A for the fiscal year ended December 31, 2023. Except as otherwise indicated or required by the context, references to the “Company,” “we,” “us,” “our” or similar terms refer to Prairie Operating Co.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

We may 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.

Previous wording

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.

Current wording

As of June 30, 2024, all of our 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. To date, we have not had any drilling or completion operations and have been focused on obtaining requisite permits to begin drilling wells on our Genesis Assets, as well as funding and closing the NRO Acquisition, described further below. Additionally, in January 2024, we divested all of our cryptocurrency mining assets.

Previous wording

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.

Current wording

On January 11, 2024, we entered into the NRO Agreement to acquire the Central Weld Assets, located in the DJ Basin in Weld County, Colorado. for total consideration of $94.5 million, subject to certain closing price adjustments and other customary closing conditions. The Purchase Price consists of $83.0 million in cash and $11.5 million in deferred cash payments. Pursuant to the NRO Agreement, we deposited $9.0 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.

Previous wording

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.

Current wording

As discussed inNote 4 – Acquisitions and Merger, we acquired our cryptocurrency mining operations in May 2023, concurrent with the Merger. On January 23, 2024, we sold all of our Mining Equipment for consideration consisting of (i) $1.0 million in cash and (ii) $1.0 million in deferred cash payments, to be paid out of (i) 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 (ii) 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. As of June 30, 2024, we have received $0.2 million of the Deferred Purchase Price.

Previous wording

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.

Current wording

The cryptocurrency mining revenue earned and cryptocurrency mining operating costs and expenses incurred during the six months ended June 30, 2024 and prior to the Crypto Sale have been classified as discontinued operations.

Previous wording

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.

Current wording

The operating costs and expenses incurred and related to the cryptocurrency mining assets during the six months ended June 30, 2024 and prior to the Crypto Sale have been classified as discontinued operations.

Previous wording

*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.

Current wording

*General and administrative expenses.*For the three months ended June 30, 2024, general and administrative expenses increased $5.7 million compared to the three months ended June 30, 2023. The increase was primarily driven by incremental employee and benefit expenses of $2.6 million, stock–based compensation of $1.5 million, investor relations costs of $1.2 million, legal and accounting costs of $0.3 million, and other professional services of $0.1 million.

Previous wording

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.

Current wording

In addition, in order to close the NRO Acquisition, we will need to raise approximately $74.0 million in cash, subject to customary purchase price 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 equity offering, 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. If we are unable to close the NRO Acquisition by August 15, 2024, or to extend the outside date, NRO could terminate the NRO Agreement.

Previous wording

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.

Current wording

Our 2024 development program is dependent upon the closing of the NRO Acquisition and the related financing. If we are able to close the NRO Acquisition, we anticipate funding these capital costs through the remaining net proceeds from an equity offering after funding the NRO Acquisition and revenues from the operating wells acquired in the NRO Acquisition. As a supplement to these sources of capital, we expect to receive additional proceeds from warrant exercises, and anticipate that we may access public and private equity markets to accelerate drilling activities, fund development program changes, or other changes to our forecast and capital needs. The availability of such additional capital is subject to numerous factors outside of our control including prices of oil and natural gas and the overall health of the U.S. and global economic environments. There can be no assurance that we will be able to 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 the timing and cost of additional capital sources.

Previous wording

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.

Current wording

We currently plan to be the operator of all of our acreage. As a result, we anticipate that the timing and level of our capital spending will largely be discretionary and within our control. We could choose to defer a portion of our 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.

Previous wording

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.

Current wording

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. However, we expect to enter into a revolving credit facility, primarily to support our future hedging program, but we may also utilize it from time to time to fund short–term working capital fluctuations and other needs. We may also issue debt securities or enter into short-term debt facilities from time to time to fund our operations or to fund acquisitions, including the NRO Acquisition.

Previous wording

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.

Current wording

We define working capital as current assets less current liabilities. As of June 30, 2024, we had a working capital deficit of $7.9 million and as of December 31, 2023, we had working capital of $8.1 million. Our current working capital deficit is expected to increase in the future as we continue to incur expenses in connection with our business until we recognize revenue from our E&P business and/or we raise additional capital through the exercise of existing warrants or through public and/or private markets. As of June 30, 2024 and December 31, 2023, cash and cash equivalents totaled $2.2 million and $13.0 million, respectively.

Previous wording

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.

Current wording

*Financing activities.*Net cash provided by financing activities totaled $9.5 million for the six months ended June 30, 2024, fully driven by proceeds from the exercise of Series D B warrants, compared to $17.0 million of net cash provided by financing activities for the six months ended June 30, 2023, which was comprised of proceeds from the issuance of the Series D PIPE of $17.4 million, partially offset by the related financing costs of $0.4 million.

Previous wording

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.

Current wording

For the six months ended June 30, 2024, we had a net loss of $17.6 million. We cannot predict if or when we will be profitable, and we may continue to incur losses for an indeterminate period of time. Additionally, we may be unable to achieve or sustain profitability on a quarterly or annual basis and extended periods of losses and negative cash flow may prevent us from successfully operating and expanding our business. As of June 30, 2024, we had cash and cash equivalents of $2.2 million, a working capital deficit of $7.9 million, and an accumulated deficit of $96.4 million.

Previous wording

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.

Current wording

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 June 30, 2024, we have common stock warrants with exercise prices of $6.00 per share of common stock which expire in August 2024 (refer toNote 13 – Common Stock Options and Warrants). Based on recent and current prices of our common stock, we expect these warrants to be exercised, which would represent cash proceeds of $24.0 million. However, there is no assurance that such common stock warrants will be exercised. During the six months ended June 30, 2024, we received $9.5 million of cash proceeds from warrant exercises.

Previous wording

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.

Current wording

The assessment of liquidity requires management to make estimates of future activity and judgments about whether we can meet our obligations and have adequate liquidity to operate. Significant assumptions used in our 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 we will have adequate liquidity for our operations for at least the next 12 months.