Prairie Operating Co. (PROP) Earnings Call Transcript & Summary

Thanks, operator, and good morning to all of you. We appreciate you being on Prairie Operating Company's First Quarter 2026 Earnings Call. Before we get to our prepared remarks, I want to remind everyone participating that today's comments will contain forward-looking statements, and those come with certain risks, uncertainties and assumptions. Results that actually occur could differ materially from what any forward-looking statements indicate. We may also mention non-GAAP measures. For a fuller discussion of the risks and uncertainties that might cause actual results to differ materially from any forward-looking statements, and for reconciliations of any non-GAAP financial measures, please refer to the company's public filings, including the Form 10-K filed Thursday, May 14, 2026. An updated investor presentation has also been posted on our website. With me today are Rich Frommer, Interim CEO and President; and Greg Patton, Executive Vice President and Chief Financial Officer; with that, I'll hand the call over to our Interim CEO and President, Rich Frommer.

Appreciate that, Wobbe, and hello everybody on the line this morning. For Prairie, the opening three months of 2026 mark a robust beginning to the year, distinguished by steady operational delivery, considerable output expansion, and substantial headway in bolstering our capital structure. Across that quarter, our total output came in at roughly 2.1 million BOE, which works out to about 23,200 BOE each day, and Liquids accounted for around 72% of that output, with 48% of it being Oil. Such figures mirror ongoing development work throughout our DJ Basin acreage, along with continuous optimization of the asset base we already hold. On the operational side, we kept executing with efficiency, adding new wells to production and pushing development forward across our core acreage. Initial well results have come in at or above what we anticipated, which underscores both the quality and the depth of our inventory. Notably, over that quarter we achieved considerable headway in tackling our capital structure, which brought about the partial refinancing of the Series F Preferred right after the quarter closed. That deal shrank the outstanding balance, cut the warrant coverage tied to it, and substantially lowered possible dilution for holders of our common stock; in our view, this marks a meaningful move in the right direction. We stay focused on carrying out a path toward additional refinancing of what remains of the Series F Preferred, along with simplifying how our capital structure is set up. Strategically speaking, our priorities haven't shifted: allocating capital with discipline, executing operationally, and fortifying the balance sheet, all while setting the company up to create value over the long term. With that said, I'll hand things over to Greg.

Thanks, Rich, and hello everyone. I'll walk you through how Prairie performed in the first quarter of 2026, along with important updates on liquidity, hedging, and the balance sheet. During Q1, Prairie generated total revenue of approximately $83.4 million, which was supported by realized prices—excluding hedges—of $67.91 for each barrel of oil, $13.33 for each barrel of NGLs, and $2.53 for each Mcf of natural gas. The net loss attributable to common stockholders was about $174.4 million, equal to $2.16 per share, largely due to noncash effects related to derivative mark-to-market adjustments and fair value adjustments on the Series F Preferred stock warrants. We generated adjusted EBITDA of $37.2 million this quarter, which demonstrates both the ongoing earning capacity of our asset base and the advantages that come with greater scale. Turning to capital, we put roughly $34.1 million to work over the quarter, and as of March 31, 2026, another $47.3 million in capital expenditures sat within accounts payable and accrued expenses, all aimed at high-return development projects on acreage we operate. Operating activities delivered net cash of approximately $42.3 million, which speaks to the strength of our underlying cash flow generation. Measured per BOE, lease operating expense reached $7.11, while transportation and processing totaled $1.20. Production and ad valorem taxes amounted to $3.26, and G&A stood at $8.09, which includes cash G&A of about $5.31 — a reflection of our ongoing cost discipline and operational efficiency. By the end of Q1 — March 31, 2026 — Prairie's total liquidity stood at approximately $113.5 million, backed by our credit facility, which carries a borrowing base of $475 million. Turning now to the balance sheet: April's partial refinancing of the Series F Preferred represents an important milestone. We brought down the outstanding balance and cut the related warrant exposure considerably, which strengthens our capital structure overall. Beyond that, we're actively pursuing further initiatives aimed at the remaining balance, with the goal of refinancing more of the Series F Preferred. Management and the Board continue to treat this as a leading priority. Our hedging strategy keeps giving us solid protection on the downside and good visibility into cash flow, since a large share of the production we expect is locked in at favorable pricing all the way through Q2 2029. Now I'll turn to how things are running operationally. Looking at operations, Q1 showed us still executing well throughout our DJ Basin acreage, staying sharply focused on being efficient, keeping costs in check, and delivering steady well results. Over the quarter, we finished and turned to sales wells on several pads, and the early numbers came in at or above what we'd anticipated, which confirms the strength of our inventory. Starting from January 1, we've spud 17 wells in total, spread across 2 of our main development pads. Over at the Elder pad, nine wells were drilled, and the typical time from spudding to rig release came in at 6.2 days, with measured depth averaging roughly 18,435 feet. Moving to the Opal Coalbank pad, eight wells were drilled there, averaging 5.5 days between spud and rig release, at an average measured depth of about 18,373 feet. A key point: a single run was enough to drill 13 out of those 17 wells, and every well came in under AFE, with cost savings per well averaging more than $100,000. This tells us something about the quality of our drilling execution, the consistency of our operations, and our continued focus on making efficient use of capital. Geologically speaking, the plan took in 13 wells in the Niobrara and 4 wells in the Codell, which adds more depth and variety to what we have available to develop. Beyond fresh development work, our attention stays on optimization efforts such as workovers and improvements to artificial lift, and those helped lift base production performance along with efficiency across the asset; safety and operational discipline also stayed a major priority for us, and we posted a 0.0 safety record, a sign of the ongoing dedication and professionalism shown by our field teams. Taken together, the team keeps performing at a high level, turning in solid operational results while staying disciplined about costs, how capital is allocated, and creating value over the long term. Management and the Board stay tightly aligned when it comes to putting operational excellence first, along with a strong balance sheet and returns to shareholders that can be sustained; having said that, I'll hand things back to Rich for the closing remarks.

Thanks, Greg. Looking forward, our emphasis stays on extending the momentum from a solid beginning to 2026. We know what matters most: keep posting steady operating results, stay strict about capital, and carry out the strategy we have for dealing with the rest of the Series F Preferred. Getting this done will leave our balance sheet stronger and put Prairie in a better spot for its next growth chapter; we think that having top-tier assets, a financial picture that keeps getting better, and a strategy that's plainly defined means we can create lasting value for shareholders. Along those lines, we're also restating our guidance for the whole of 2026: average daily output between 25,500 and 27,500 BOE per day, capital spending from $200 million to $220 million, and adjusted EBITDA between $240 million and $260 million; speaking for the Board, I'd like to express thanks to our team for the commitment and execution they keep showing, and to our shareholders for sticking with us. With that, I'll hand things back to the operator so we can move into Q&A.

I realize you folks experienced quite a few wells being shut in while Q1 was underway. What I wanted to ask was whether you could give us some color on roughly what the output level stands at right now? A number of those curtailments, I'd imagine, are now in the rearview mirror for you; on top of that, your oil cut declined somewhat during 1Q, and my guess is that much of that stemmed from the shut-ins. I'm just attempting to gauge what oil cut we ought to be modeling, more or less, across the remaining portion of the year?

Yes. Leo, we appreciate you being with us this morning. When we consider the guidance we issued and when we consider where we stand at present, roughly 23,200 barrels per day, right now, we are hovering near that identical figure as we bring those wells back into service and as we produce back a substantial portion of our very own volumes that had been curtailed. And once more, that amounted to 10 blend wells plus 10 Elder wells taken offline from our own output while we proceeded to drill 10 more blend wells on that very same pad; and once more, those aren't infills; they're extra DSUs where we made use of the identical surface, which meant that, for safety reasons, we had to curtail them, and the Elder site was handled the same way. So based on today's actual figure, it sits extremely near the average we laid out for the first quarter, and it's going to keep climbing from here as those wells are brought on and as we return to running at full production capacity. That will also be joined by more pads that are scheduled to come on stream during the second quarter.

All right. Perhaps you can give us some additional operational detail. You mentioned the numerous wells that were drilled by your team during Q1. So maybe beginning with the Elder wells, which I believe have been drilled and completed by you folks. Has that most recent group of nine wells started producing yet? Or is it still in the process of coming online during Q2? As for the Opal Coalbank wells, have they undergone fracking? At what point do you expect those to begin producing? And then presumably, you're drilling additional wells in the second quarter. So could you tell us how Q2 drilling activity is shaping up?

Yes, of course. So that information is available publicly. Right now, we're drilling the Burnett pad. On our first well bore there, we've reached TD within our typical sort of time frame. So at present, we're ahead of AFE on the drill rig at the Burnett. We just moved over to a new precision rig. We're very pleased with that rig. It's a sophisticated rig that includes an extra mud motor and some added top drive power, which matters as we consider longer reach laterals in this year's drill program. Going back to your questions, the blend pad has fully returned to operation. All of the new production is now online. On the Elder pad, we're in the flowback stage and have tubed up the newly completed wells there. Flowback hasn't begun on those yet; it should get underway this coming weekend. And finally, regarding the Opal Coalbank, to address your question about it, we're currently in the middle of frac operations there; we're about eight days into the frac process at the Opal Coalbank pad; therefore, a considerable amount of time remains before getting through that production, which is presently shut in, and progressing toward the new completions at that pad, which should be finished near the close of the second quarter.

Fantastic, I’m grateful for that. And regarding what wells cost, you mentioned that a number of these wells are landing under AFE. Might you share the specific figures? For instance, what are you truly spending on wells of this sort, with roughly 2-mile laterals?

Those 2-mile laterals carry an average AFE between $5.2 million and $5.6 million. That’s driven by how much step-out is needed from the pad being used for drilling. In the end, when we consider most of these blend wells here, < > along with the Elders, they had somewhat bigger step-outs. As a result, they came in closer to $5.4 million to $5.5 million in real incurred cost, while their AFE targets were $5.6 million.

All right, thanks for that. Now, regarding your capital, the figure seemed somewhat on the low side for Q1 when you look at the run rate. You mentioned some accrued capital as of March 31. So can we safely say that maybe the first quarter is sort of your weakest CapEx quarter, and it rises from here over the next couple of quarters? And I believe you folks have some holidays as we move further into the year.

Yeah. It comes in increments. Thinking about the bell curve, it's more akin to a roller coaster ride. Throughout the year, it's almost like a triple bell curve, beginning somewhat lower in early January, reaching a peak in March, remaining elevated through June, then falling off again, rising back up across August, September, October, then declining once more a bit in November. So when you consider the cap curve, you're going to see part of that accrued aspect roll over because, clearly, those windows I just listed, and so yes, a bit under a straight-line CapEx during the first quarter; but in the end, that range of $200 million to $220 million remains exactly right and on track for the year since obviously, that won't shift much when we're discussing 20 wellbores and outperforming by roughly $100,000 per wellbore. We're all aware that only shifts the needle $1 million or $2.

Rich, Greg, and the rest of your crew there. You folks had some — in both of your prepared remarks, you guys brought up the Series F Preferred. And I get it, Greg, I believe what you said was that you're actively engaged in discussions. So you — I'm just curious whether you might share a bit more detail about that. It seems like you've got through, I believe, is it the end of June to get a deal struck, roughly what the timeline appears to be. And could you just describe how hopeful you are, how optimistic you feel about closing that deal? Alternatively, suppose it appears to you that things will just be difficult going forward?

Charles, snow genuinely fell here during May, so some flooding lingered. Preferred instruments come with distinct difficulties, yet we have achieved movement so far. My view is that oil markets have aided ongoing talks and possible paths; there are several such paths. In the end, we are reviewing how those choices appear alongside the Board. Possibilities exist across every area, including equity, structured finance equity, and debt channels. We're still working through which of those options makes the most sense — it might end up being just one, or perhaps some combination. While we keep assessing what will serve our stockholders and shareholders best, we've been doing that alongside our Board on a near-daily, ongoing basis, looking at what lies ahead. I expect we'll have more to share on that subject once we're somewhat further along into the second quarter.

All right. And clearly, we'll keep an eye on that. I'm interested — and maybe this looks ahead to the second half of the year — if you do manage to simplify your capital structure somewhat, my guess is that would turn you into a stronger contender in the acquisition market. So I'm wondering whether you could discuss how — what you're seeing out there. You folks may not truly be active in that arena at the moment, but I'm certain you're keeping watch. Could you describe for us what the acquisition opportunity set looks like from your perspective?

Charles, it's Richard here. I'll take a crack at that. What we're really focused on is mainly continuing to build through our organic growth at present. We hold more than 63,000 net acres across the basin; so the situation is something like a chess match of assembling drilling and spacing units while actively and successfully expanding that footprint every day. We monitor whatever activity is happening in the M&A market. Obviously, quite a few operators would love to capitalize on today's commodity price; but as things stand right now, I'd say that unless and until we arrive at a wholesome solution for the Pref F, we're remaining more on the sidelines.

I was hoping to get your perspective on where the capital markets stand right now, given that we appear to be in a period of elevated prices that could last a while. My understanding is that your borrowing base redetermination took place in January. Did I get that right?

You did, and before long we'll be starting up another one for the RBL documentation.

Alright; so the earlier situation you walked us through was sort of the environment before the Iran war and before the price spike. Would that be accurate?

That's right.

All right. Have you come across any sort of rough price deck forecasts that you might be able to pass along to them? Or if that's not the case, I get it...