Prairie Operating Co. ($PROP)

Good morning, and welcome to the Prairie Operating Company First Quarter 2026 Earnings Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Wobbe Ploegsma, Vice President of Investor Relations and Capital Markets. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining Prairie Operating Company's First Quarter 2026 Earnings Call. Before we provide our prepared remarks, I would like to remind all participants that our comments today will include forward-looking statements, which are subject to certain risks, uncertainties and assumptions. Actual results could differ materially from those in any forward-looking statements. Additionally, we may refer to non-GAAP measures. For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements as well as the reconciliations of any non-GAAP financial measures, please see the company's public filings, including the Form 10-K filed Thursday, May 14, 2026. We have also posted an updated investor presentation on our website. Joining me today are Rich Frommer, Interim CEO and President; and Greg Patton, Executive Vice President and Chief Financial Officer. With that, I'll turn the call over to our Interim CEO and President, Rich Frommer.

Thanks, Wobbe, and good morning, everyone. The first quarter of 2026 represents a strong start to the year for Prairie, highlighted by continued operational execution, significant production growth and meaningful progress on strengthening our capital structure. During the quarter, we generated total production of approximately 2.1 million BOE or approximately 23,200 BOE per day, with Liquids representing approximately 72% of the production, including 48% Oil. These results reflect continued development activity across our DJ Basin position as well as ongoing optimization of our existing asset base. Operationally, we continued to execute efficiently, bringing new wells online and advancing development across our core acreage. Early well performance has met or exceeded expectations and reinforces the quality and depth of our inventory. Importantly, during the quarter, we made significant progress in addressing our capital structure, which effectuate the partial refinancing of the Series F Preferred immediately following the end of the quarter. This transaction reduced the outstanding balance, lowered the associated warrant coverage and meaningfully decreased potential dilution to our common shareholders. We believe this represents an important step forward. Our focus remains on continuing to execute on a path to further refinancing of the remaining Series F Preferred and simplifying our capital structure. From a strategic standpoint, our priorities remain consistent: disciplined capital allocation, operational execution and strengthening the balance sheet while positioning the company for long-term value creation. With that, I'll turn the call over to Greg.

Thanks, Rich, and good morning, everyone. I'll walk through Prairie's first quarter 2026 financial results, along with key updates on liquidity, hedging and our balance sheet. For the first quarter, Prairie generated total revenue of approximately $83.4 million, driven by realized prices, excluding hedges, of $67.91 per barrel of oil, $13.33 per barrel of NGLs and $2.53 per Mcf of natural gas. Net loss attributable to common stockholders was approximately $174.4 million or $2.16 per share, primarily reflecting noncash impacts related to derivative mark-to-market adjustments and fair value adjustments of the Series F Preferred stock warrants. Adjusted EBITDA for the quarter totaled $37.2 million, demonstrating the continued earnings power of our asset base and the benefits of increased scale. From a capital standpoint, we invested approximately $34.1 million during the quarter, with an additional $47.3 million of capital expenditures included in accounts payable and accrued expenses as of March 31, 2026, focused on high-return development activity across our operated acreage. Net cash provided by operating activities totaled approximately $42.3 million, reflecting strong underlying cash flow generation. On a per BOE basis, lease operating expense was $7.11, Transportation and processing was $1.20. Production and Ad valorem taxes were $3.26 and G&A was $8.09, including cash G&A of approximately $5.31, reflecting continued cost discipline and operational efficiency. As of March 31, 2026, Prairie had approximately $113.5 million of total liquidity supported by our credit facility with a borrowing base of $475 million. Turning to the balance sheet. The partial refinancing of the Series F Preferred in April represents a key milestone. We reduced the outstanding balance and significantly lowered the associated warrant exposure, improving our overall capital structure. We remain actively engaged in additional initiatives to address the remaining balance with the objective of further refinancing the Series F Preferred. This remains a top priority for management and the Board. Our hedging program continues to provide strong downside protection and cash flow visibility with a substantial portion of expected production hedged at attractive prices through the second quarter of 2029. I'll now turn to an operational update. Operationally, the first quarter reflected continued strong execution across our DJ Basin position with a clear focus on efficiency, cost control and consistent well performance. During the quarter, we completed and brought online wells across multiple pads with early results meeting or exceeding expectations and reinforcing the quality of our inventory. Since January 1, we have drilled a total of 17 wells across 2 of our key development pads. At the Elder pad, we drilled 9 wells with an average spud-to-rig release time of 6.2 days and an average measured depth of approximately 18,435 feet. At the Opal Coalbank pad, we drilled 8 wells with an average spud-to-rig release time of 5.5 days and an average measured depth of approximately 18,373 feet. Importantly, 13 of the 17 wells were drilled in a single run, and all wells were delivered below AFE with average cost savings exceeding $100,000 per well. These results highlight the strength of our drilling execution, operational consistency and continued focus on capital efficiency. From a geological standpoint, the program included 13 Niobrara wells and 4 Codell wells, further enhancing the depth and diversity of our development inventory. In addition to new development, we remain focused on optimization initiatives, including workovers and artificial lift enhancements, which contributed to improved base production performance and overall asset efficiency. We also maintained a strong emphasis on safety and operational discipline, achieving a 0.0 safety record, reflecting the continued commitment and professionalism of our field teams. Overall, the team continues to execute at a high level, delivering strong operational results while maintaining discipline on costs, capital allocation and long-term value creation. Management and the Board remain closely aligned in prioritizing operational excellence, balance sheet strength and sustainable shareholder returns. With that, I'll turn it back to Rich for closing remarks.

Thanks, Greg. As we look ahead, we remain focused on building on our strong start for 2026. Our priorities are clear: continue delivering consistent operational performance, maintain capital discipline and execute on our plan to address the remaining Series F Preferred. Successfully completing this process will further strengthen our balance sheet and positioning Prairie for the next phase of growth. We believe the combination of our high-quality asset base, improving financial profile and clear strategic direction positions us to deliver sustainable value for our shareholders. With that in mind, we're also reaffirming our full year guidance for 2026 with average daily production of 25,500 to 27,500 BOE per day, capital expenditures of $200 million to $220 million and adjusted EBITDA of $240 million to $260 million. On behalf of the Board, I want to thank our employees for their continued dedication and execution and our shareholders for their ongoing support. And with that, I'll turn the call back over to the operator for Q&A.

[Operator Instructions] Our first question is from Leo Mariani with ROTH Capital Partners.

I know you guys had considerable production shut-in during the first quarter. I was hoping that you guys could talk a little bit about sort of where current production is here today? I think a lot of those shut-ins might behind you guys at this point in time. And then additionally, your oil cut came down a bit in 1Q, and I suspect a lot of that was due to shut-ins. Just trying to get a sense of where we should expect oil cut kind of for the rest of the year?

Yes. Leo, thanks for joining us this morning. So as we look at the guidance that we put out and as we look at our current position, the 23,200 barrels per day approximately, as of today, we're right around that same number as we're turning those wells back online and as we're flowing back the significant amount of our own production that was shut-in. And again, that was 10 blend wells and 10 Elder wells that were shut-in of our own production as we went back and developed 10 additional blend wells from the same pad. And again, those are not infills. Those are additional DSUs we utilize the same surface for, thus requiring us for safety purposes to shut them in and the same to do with the Elder location as well. So as of today's actual, it's very close to the average we prescribed for the first quarter, and that will continue to increase here as those wells come online and as we get back ramp to full production strength. And that will couple with additional pads here in the second quarter coming online as well.

Okay. Maybe you could provide a little bit more just operational color. You talked about a lot of the wells that you guys drilled in the first quarter. Maybe just starting with the Elder wells, which I think you guys have drilled and completed. Has that last batch of 9 wells come online at this point? Is it still coming online here in the second quarter? And the Opal Coalbank wells, have those been fracked? When are those expected to come online? And then presumably, you guys are drilling some other wells here in the second quarter. So if you could just let us know what second quarter drilling is looking like in terms of activity?

Yes, absolutely. So publicly available data on that. We're currently drilling the Burnett pad. We've been to TD on our first [ well bore ] there in our normal kind of accordance under time limit. And so beating AFE currently on the drill rig on the Burnett. We did just switch to a new precision rig. very happy with that rig. It's an advanced rig with additional mud motor, some additional top drive power for us as we look at some longer reach laterals in our drill program for the year. Stepping backwards into your questions, the blend pad is all back online. The new production is all online at this point in time. The Elder pad, we are just flowing back and have tubed up the new wells that were completed on the Elder pad. We have not started flowback on those. That's expected to start here over the weekend. And then lastly, the Opal Coalbank, to answer the question on the Opal Coalbank is we are in the middle of frac on those. We're roughly 8 days in on the frac process on the Opal Coalbank pad. And so that has a significant amount of time yet to get through that production that is shut in currently and move towards the new completions on that pad, which will be completed towards the end of the second quarter.

Great. I appreciate that. And then just on well costs, you guys talked about coming in below AFE in a bunch of these wells. Could you provide the actual numbers? Like where are you actually coming in on the well costs for these kind of 2-mile laterals?

So these 2-mile laterals have an average AFE ranging from [ $5.2 million to $5.6 million ]. That has to do with the amount of step-out required from the pad we're drilling from. Ultimately, as we look at the majority of these blend wells here, [indiscernible] coupled with the Elders, they did have some larger step-outs on them. So they were more in the range of $5.4 million to $5.5 million of actual cost incurred, and they were targeting [ $5.6 million AFEs ].

Okay. Appreciate that. And then just in terms of your capital, the number looked a little bit kind of low on the first quarter in terms of run rate. You talked about some accrued capital as of March 31. So is it safe to assume that maybe 1Q is kind of your lower CapEx quarter and it ticks up here in the next couple of quarters? And I think maybe you guys have some holidays as we get later in the year.

Yes. It's incremental. It's more like a roller coaster ride in terms of how you think about the bell curve. It's almost like a triple bell curve throughout the year, starting a little lower at the beginning of January, peaking out in March, staying high through June, then dipping down again, dipping back up throughout August, September, October, then dipping down again a little bit in November. So as you kind of think about the cap curve, you're going to see some of that accrued aspects carry over because, obviously, those periods I just mentioned, and so yes, slightly lower than a straight-line CapEx in the first quarter. But ultimately, that $200 million to $220 million range is still spot on and on track for the year because obviously, that's not going to move too much when you're talking about 20 wellbores and beating by approximately $100,000 a wellbore. We all know that only moves the needle $1 million or $2.

Our next question is from Charles Meade with Johnson Rice.

Rich, Greg to the rest of your team there. You guys had some -- you guys mentioned the Series F Preferred in both of your prepared comments. And I recognize, Greg, I think your words were you're actively engaged in discussions. And so you -- I'm just wondering if you could add a little bit more detail on it. Looks like you've got through, I think, is it the end of June to strike a deal kind of what it looks like the time line is. And can you just talk about how hopeful you are, how optimistic you are about getting that deal done? Or alternatively, if you feel like it's just going to be tough sledding from here?

Charles, we did have snow here back in May. So there was still a little bit of flooding. Preferred instruments provide their own challenges, and we've made progress to date. I think the oil markets have been helpful in continued discussions and avenues of approach. Those avenues, there's multiples. And ultimately, we're evaluating what those options look like with the Board. There's opportunities in all realms in terms of the equity, the structured finance equity as well as the debt avenues. And so as we continue to come to conclusions or solutions in and amongst those, it could be singular or it could be a mixture of them. And so as we continue to evaluate what is best for our stockholders and our shareholders, we've been doing that very closely on almost a recurring daily basis with our Board as we evaluate what's ahead of us. And I think we'll be able to talk more about that as we get through a little bit further in the second quarter.

Okay. And obviously, we'll stay tuned on that. I'm curious, and this is maybe going ahead to the back half of the year, if you do get a -- little simplify your capital structure, I imagine that, that will make you a better player on the acquisition market. And so I wonder if you could talk about how -- what you're seeing. I you guys might not really be on the field right now, but I'm sure you're watching it. Can you tell us what the acquisition opportunity set looks like for you guys?

Charles, this is Richard. I'll kind of address it. There are -- there's really a focus here of just really primarily building on our organic growth right now. We've got over 63,000 net acres in the basin. And so the way it is, it's sort of a chess game of putting together drilling and spacing units and actively and successfully adding to that footprint daily. We watch whatever is going down in the M&A market. Clearly, there's a number of operators who would like to take advantage of this current commodity price. But at this point in time, I'll say that until we find a wholesome solution for the Pref F, we're more on the sidelines.

Our next question is from [ Chris Degner ] with Water Tower Research.

Just wanted to check with you guys and your thoughts on how the capital markets are looking now that we are in what looks like an extended higher price environment. I believe you went through your borrowing base redetermination back in January. Is that correct?

That's correct, and we'll be entering into another one here very shortly for the RBL documentation.

Okay. So the prior one you went through like kind of like the pre Iran war pre-price spike environment. Is that fair to say?

Yes.

Okay. Have you seen any outlooks on like a rough price deck that you could share with them? Or if not, I understand...

Ultimately, the bank's price decks have not moved too much at this point in time. And so ultimately, we hope to see some of that movement really occur most likely in the [indiscernible] redetermination.

Okay. And then on just the pace of capital spending, I think it looks like you're guiding towards most of it being in the second half of the year. Is that fair with well completions?

Really straddled, Chris, between the second quarter, the third quarter and then stretching into the first couple of months of the -- or the first month of the fourth quarter. That's kind of where our capital allocation is centralized.

Okay. That sounds good. And in terms of a hedging philosophy going forward, is there a percentage of production that you're aiming for or required to do?

Hedging, we have done incrementally as the markets have moved. We've been opportunistic as we kind of have rolled quarter-to-quarter and benefited from the uplift in obviously, some of the effects of the Iran war. As we look at the PDP, there's obviously a component that's required under the credit agreement to be hedged. And as we think about that requirement, roughly 85% over the next 24 months, ability to hedge into the 36-month period. We are able to hedge into the development wedge slightly. So as we think about the end of the year rolling into the first quarter, we were hedged into the development wedge of roughly 25%. So as you think about the forward look, we're just over 100% on a PDP basis hedged into the development wedge. It equates at the end of the first quarter to roughly 80% of our development hedged on average in 2026. And then obviously, as the rig continues, that number will decrease, and we'll take the opportunistic view of continued escalation in the, we'll say, the curve as we think it will continue to come up. And so at this moment, we are staying within the guidelines required by the credit agreement, but taking advantage of the market.

Okay. That makes a lot of sense. I think that's all I have for now. Actually, one more question as I think of it. As you look out at your development wedge, is there any incremental capital that you'll need for gathering and takeaway and other short-term midstream needs?

Great question. So Rich hinted on the organic growth and expanding into new arenas and continuing to build our DSUs. As we do that, obviously, each DSU is generally 1 mile by 2 miles long. And as we continue to expand or build those tetris blocks, we will need to put additional capital into the development plan. That's a more of a '27 and '28 activity in terms of outside of the normal scope of facility design and interconnects, et cetera, and so forth that are factored in for 2026.

Excellent. And then one last one. I said that I was going through the 2025 permit data in Colorado. And I was kind of surprised to see that there's a continued uptick in permits granted by the government. Is that something you guys have seen? And if so, what do you think is causing it?

You say stranded?

There's been an impact in -- there's been an increase in Form 2 permits by the state. I was curious if you see that.

Yes, yes. Sorry, I misheard your question, Chris. Ultimately, the state has -- with the guidelines put in place, the operators have had a more systematic approach to getting permits through the system. And the state has been working through those in, I'll say, [indiscernible]. And so we've seen a lot more interaction and ability in partnership to get those permits pushed through, albeit there's a lot of requirements to it. And it really holds us to creating that cleanest molecule and best-in-class operations throughout the continental United States.

I might add, though, there's a budget shortfall projected for the state of Colorado. And I think the regulators are realizing one way to increase revenue for the state is to increase drilling permits and increase oil production. I think they're coming to that realization.

It only took them a decade.

Our next question is from Tim Moore with Clear Street.

Just kind of curious, I mean, what do you believe might be the overall lease operating expense per BOE this year? I know it was a bit high in the March quarter, you had shut-ins. You had weather, September was a bit high. Do you think it could be closer to $6, $6.25 per BOE maybe for the rest of the year?

I think that's a target that's achievable, Tim. Ultimately, our goal is to continue to refine things as we improve the facilities, we consolidate operational expenses with the 500 wellbore locations we're operating today. And our goal is to get it below that $6.25 number. But I think $6.25 would be an achievement that we would be proud of. We think that it is achievable. And so we are heading towards that. And obviously, the BOE metrics help with that as well as the production comes on. So some of those fixed aspects just stay fixed and the variable aspects, ultimately, production helps.

Great. And then just a little bit more sense on the production guidance being reiterated for this year. I know you talked a little bit about the shut-ins in the plan. It's gotten better a little bit in the quarter. So would you expect a decent production sequential increase in the second quarter from the March quarter? I mean, just kind of curious, it won't be flat, right?

No, it won't be flat. There'll be an uptick more so in the more so in the last month of the second quarter, than in the first month. The first month of the quarter was still in the downturn with wells shut-in, albeit April. So we are seeing that uptick as we speak today.

I got it. That's what I thought from the commentary and just the timing of stuff coming back on and reoccupying. Last question is just a follow-up on the hedging question. I get asked this a lot. You went through that. Oil prices are good for you. You just had to hedge a lot before you even started with the banking financing. So what do you kind of think might be the EBITDA total uplift this year from higher oil prices? Is it $8 million, $10 million, something like that?

So I mean, ultimately, when you look at total production on the year and we look at, we'll call it, 9 million to 10 million of total BOEs per day, if we see 80% -- so let's say, 20% of that, we just talked about 80% being hedged, 20% of that, call it, 2 million barrels, high-level math, ultimately is kind of unhedged when you look at the price differential on that. I think your $10 million is a conservative number. But ultimately, we're not re-guiding to anything at this point in time because we don't know The Street could open tomorrow. I think there was an acronym, it was Nacho, not a chance the Strait of Hormuz opens. And so if that happens, I think there is more opportunity to benefit from the price curve. But at this point in time, we're not adjusting anything because we don't know really what's going to happen. We're 5 months into the year. We've seen benefits over a 2 months period. Ultimately, we'll see what the rest of the year brings.

Yes, that's what I was kind of getting at. It made sense for you to keep the guidance, especially with some of the first quarter shut-ins and weather.

Thank you. There are no further questions at this time. This does conclude today's conference. You may disconnect your lines at this time, and we thank you again for your participation.