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 Second 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 are subject to certain risks, uncertainties and assumptions. Results that actually occur could differ materially from those in any forward-looking statements. On top of that, we may reference non-GAAP financial measures. For a more detailed discussion of the risks and uncertainties that could cause actual results to differ materially, as well as reconciliations of non-GAAP financial measures, please see the company's earnings release and public filings, including our Form 10-Q for the quarter ended June 30, 2026. Those materials are available on our website, along with an updated investor presentation. With me today are Greg Patton, Chief Executive Officer and Director; and Michael Shelly, Executive Vice President and Chief Financial Officer; with that, I'll hand the call over to our CEO, Greg Patton.

Appreciate that, Wobbe, and good morning to all of you. For Prairie, the second quarter marked a period of transformation; we moved our DJ Basin development program forward and, at the same time, made substantial changes throughout the company aimed at strengthening our organization and positioning Prairie for the next phase of growth. Over the quarter, we shifted our management team, brought fresh faces onto the Board, and welcomed new directors whose experience and viewpoints sharpen our oversight and strategic decision-making; we also finished a meaningful partial refinancing of the Series F Preferred stock, which lowered the outstanding preferred balance and potential warrant-related dilution, and we recently pushed our anniversary warrant date out to August 31, 2026. All of that was meant to accomplish a few things: give us more liquidity, make our finances more adaptable, and get management and the Board pulling in the same direction when it comes to running the business with discipline and building shareholder value over the long haul. What we're concentrating on are the things that drive value over time — operating safely and efficiently, allocating capital carefully, continuing to bring costs down, and keeping our financial position strong and nimble. The ground we've gained so far in 2026 reflects how good our assets are and how hard our people have worked, and we see it as a sturdy base for the remainder of this year and on into 2027. Zooming out a bit, I want to walk through how we did operationally in the second quarter — the headway our team made in production, in how we drill, and in getting more out of every dollar we spend. During Q2, output totaled about 2 million BOE — that works out to 21,866 BOE each day — and liquids made up around 72% of that, with oil alone at roughly 50%. Versus Q2 of 2025, we saw output climb by about 4%. We managed that even with how new well activity was timed and a deliberate break we took between the Opal Coalbank pad and the Burnett pad, which we did while holding off until the Colorado Parks and Wildlife seasonal restrictions wrapped up. Drilling results continued to improve steadily as well. We spudded 12 wells in the quarter — 2 of them Codell and 10 Niobrara. Of those dozen wells, 8 got drilled in one single run, and every one of the 12 came in under AFE. Measured depth for those wells came in at roughly 19,100 feet on average, with penetration running at about 390 feet per hour and spud-to-rig release averaging 6.65 days. Beyond that, a number of notable technical milestones were reached. In the quarter, we drilled a 3-mile lateral for the first time — a Niobrara B well — accomplishing it in one run. Over on the Castor pad, two trials were carried out with a 7 7/8-inch hole design, tested against the 8.5-inch design we normally use. Those trials delivered savings of over $40,000 for each well, and all of it was done while keeping the same 5.5-inch production casing, with the delivered completion and production configuration left untouched. Given what these figures show, we intend to use the narrower bore configuration on a large share of the Niobrara wells we'll drill in the coming program. It demonstrates well how our people are finding efficiencies that repeat, bringing well expenses down while keeping both the design and the performance we expect intact. Through this year to date, 27 wells have been drilled — 6 in the Codell and 21 in the Niobrara, with 19 of them completed in one run. The wells came in under AFE on average. Thus far this year, those wells averaged about 18,700 feet in measured depth, with penetration rates of 377 feet per hour on average and an average of 6.2 days spanning spud to rig release. During 2026, we wrapped up drilling at the Elder, Opal Coalbank, Burnett and Castor pads. A key point: since the Opal Coalbank wells only started producing toward the end of June, they added only a small amount to second quarter average production; now that those wells are contributing more fully, our average month-to-date production for August has climbed to roughly 27,000 net BOE per day. This result showcases how strong our recently completed wells are, underscores the quality and depth of our DJ Basin asset base and gives us encouraging momentum as we progress through the second half of the year. These accomplishments speak to the quality of our assets and to our operating capabilities, which keep improving. As we move into the back half of the year, our focus remains straightforward: carry out our development plan safely, bring established efficiencies to bear throughout the program, and direct capital toward the opportunities that will yield the best returns. At this point, I'll turn the call over to Michael, who will walk through our financial results, liquidity, and capital structure.

Appreciate that, Greg. Morning, everybody. Prairie turned in a strong financial showing across the second quarter and the whole first half of 2026, helped along by ongoing execution of our development program and the quality of the asset base underneath it. Through that quarter, we moved the needle on making our capital structure simpler by partially refinancing the Series F Preferred stock. That deal brought down the remaining preferred balance and cut potential dilution tied to warrants by a meaningful amount. We're still zeroed in on further chances to deal with what's left on that balance, boost liquidity and firm up the balance sheet. In the second quarter, Prairie brought in total revenue of $98.9 million, up roughly 45% versus the same period a year earlier. Oil revenue came to $93.5 million. Production came in at an average of 21,866 BOE per day, roughly 72% of which was liquids, with 50% oil. Average realized prices, before derivative effects, came to $94.21 per barrel for oil, $21.64 per barrel of NGLs and negative $1.30 per Mcf for natural gas. That negative natural gas realization came from weaker gross sales, mostly tied to softer CIG pricing over the quarter. GAAP net income attributable to Prairie was $109 million. Once preferred stock dividends and remeasurement adjustments are factored in, net income attributable to Prairie's common stockholders came to $193.8 million, or $1.75 per basic share and $0.23 per diluted share. Those results carried noncash impacts tied to derivatives, income taxes and fair value adjustments connected to our capital structure. Adjusted EBITDA for the quarter was $34 million. Net cash from operating activities came to roughly $52 million, while cash capital expenditures over the quarter were about $98.5 million, which reflects how development and turn-in-line work was concentrated in that period; measured per BOE, lease operating expense was $6.85, transportation and processing expense was $1.22, ad valorem and production taxes were $4.01 and G&A expense was $6.01. The better G&A per BOE versus the prior year quarter comes from greater scale and ongoing cost discipline. Across the first 6 months of 2026, Prairie brought in revenue of $182.3 million, up roughly 125% versus the same period a year earlier, along with adjusted EBITDA of $71.1 million, an increase of roughly 65%. Net cash from operating activities was $94.3 million, and cash capital expenditures over that period came to $132.6 million. Total production was roughly 4.1 million BOE, or about 22,500 BOE per day, with approximately 72% liquids, including 49% oil. Moving to liquidity. As of June 30, our reserve-based credit facility carried a borrowing base and aggregate elected commitments of $475 million, with $436 million drawn under the facility, leaving $39 million of availability at quarter end. Our risk management program is still in good shape. Our commodity hedge portfolio runs through the second quarter of 2029 and gives us solid downside protection plus better visibility into future cash flows. For the back half of 2026, our oil swaps cover about 2.7 million barrels at a weighted average price of $63.09 per barrel, while our natural gas swaps cover roughly 7.6 million MMBtu at a weighted average price of $4.08 per MMBtu. When it comes to how we manage our finances, the focus stays on putting capital to work carefully, keeping our liquidity strong, and making sure what we spend lines up with how operations are performing. The money we put in through the first 6 months, we think, sets Prairie up to gain from output tied to wells brought online recently across the rest of 2026; so with that, I'll hand things back over to Greg to wrap up.

Thanks, Michael. The results we posted for Q2 and for the opening six months of the year show how much progress Prairie is achieving throughout the company. Operational execution is getting better, we're moving forward with a development program that can be repeated and is efficient with capital, we're giving greater visibility into cash flow by way of our hedging approach, and we're taking significant actions to make our capital structure simpler. For the full year 2026, we're revising guidance to average daily production between 23,000 and 25,000 BOE per day, capital expenditures between $185 million and $195 million, and adjusted EBITDA between $180 million and $190 million; the guidance change is meant to safeguard and grow liquidity while keeping a disciplined stance on development and to reflect first half 2026 results, among them the effect of CIG pricing from April to June and TIL timings. The updated plan places emphasis on capital efficiency, builds in extra planning for Colorado Parks and Wildlife seasonal operating restrictions, and lets us match the pace of investment more closely with operating performance and the capital we have available. In our view, this way of doing things raises certainty of execution, shields financial flexibility, and puts Prairie in position to produce more durable value for shareholders. As the second half of 2026 gets underway, we stay focused on safe and consistent execution, disciplined allocation of capital, a stronger balance sheet, and turning our high-quality DJ Basin inventory into sustainable production and cash flow. We're confident this approach lays the groundwork for durable growth and long-term shareholder value. On behalf of the Board and the management team, I want to express thanks to our employees for their continued dedication and execution and to our shareholders for their ongoing support. With that, I'll hand the call back to the operator for Q&A.

I wanted to check in on the production side of things. It seems like there's been a pretty solid increase in August. Is that 4-well Burnett pad producing now? If that's the case, could you give a bit of detail on what the initial rates were like? Also, do you anticipate output climbing gradually as we move into 4Q? What's your outlook for that roughly 27,000 BOE per day figure over the remainder of the quarter and the rest of the year?

Leo, this is Greg Patton. Thanks for asking. Yes, I'm glad to address that. Right now Burnett is going through flowback; everything's tied into the infrastructure it needs, but as of this morning we haven't begun cutting hydrocarbons. I'd anticipate at any point now, we'll begin cutting hydrocarbons. Then we can share a bit more detail on that; so those wells aren't included in that roughly 27,000 net barrels a day figure. The Castor pad is likewise in the midst of completion; so clearly those figures aren't included in that; so we'll see — those 2 things clearly connect to the second half of your question, which is what we expect during the next — this quarter and heading into the following quarter. In the end, there will be some fluctuations, but somewhere around that 26,000, 28,000 figure; so the midpoint of that 26,000, 27,000 figure. And so in the end, as you observe that across the third quarter, going into the early portion of the fourth quarter, we do anticipate a modest decline as we close out the year.

All right. Thanks for that. Next, I was hoping to get some detail on the adjustments made to the bank facility. One of your 8-Ks mentioned a minimum production threshold tied to the revolver. Could you walk through what that looks like numerically? I don't believe I've come across that before.

Sure, happy to. As you know, we've now passed the one-year point since entering our development stage and operating status as a company. The second quarter saw very robust development on our part. Because of that, we needed to engage with the banks to amend the credit facility so it aligns with our ongoing development and guarantees that liquidity remains on hand for us to keep developing and producing the wells we've brought online. The purpose of that production threshold is basically to assist us in striking a balance — avoiding excessive growth, while at the same time not simply going to a blowdown scenario. So it functions as a modifier that lets us keep liquidity accessible and move ahead with our development plan.

All right. Then, regarding the preferred, I believe you've secured yet another extension on the anniversary warrant date — roughly the close of this month, right? Could you perhaps discuss the possibility of refinancing it? Is that something you're actively trying to get done in the near term?