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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K/A
Amendment
No. 2
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): March 19, 2024
Prairie
Operating Co.
(Exact
name of registrant as specified in its charter)
Delaware |
|
001-41895 |
|
98-0357690 |
(State
or other jurisdiction
of
incorporation) |
|
(Commission
File
Number) |
|
(IRS
Employer
Identification
No.) |
602
Sawyer Street, Suite 710
Houston,
TX |
|
77007 |
(Address
of principal executive offices) |
|
(Zip
Code) |
Registrant’s
telephone number, including area code: (713) 424-4247
N/A
(Former
Name or Former Address, If Changed Since Last Report)
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under
any of the following provisions (see General Instruction A.2. below):
☐ |
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|
|
☐ |
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
|
|
☐ |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
|
|
☐ |
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
Common
Stock, par value $0.01 per share |
|
PROP |
|
The
Nasdaq Stock Market LLC |
Indicate
by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405)
or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2).
Emerging
Growth Company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Explanatory
Note
On
January 12, 2024, Prairie Operating Co. (the “Company”) filed a Current Report on Form 8-K to announce the Company’s
entry into an asset purchase agreement to acquire the assets of Nickel Road Operating LLC (“NRO”), which the Company subsequently
amended by filing Amendment No. 1 to the Current Report on Form 8-K/A on February 9, 2024 (as so amended, the “Original 8-K”).
This Amendment No. 2 to the Original 8-K (this “Amendment No. 2”), is being filed with the Securities and Exchange Commission
solely to amend and supplement Item 9.01 of the Original 8-K, as described in Item 9.01 below. This Amendment No. 2 makes no other amendments
to the Original 8-K.
Item
9.01 Financial Statements and Exhibits.
(a)
Financial Statements of Businesses Acquired
The
report prepared by Cawley, Gillespie & Associates, Inc., independent petroleum engineers, relating to the reserves of NRO as of December 31, 2023, is filed as Exhibit 99.1 hereto and is incorporated herein by reference.
The
audited financial statements of NRO as of and for the years ended December 31, 2023 and December 31, 2022 are filed as Exhibit 99.2 hereto
and are incorporated herein by reference.
(b)
Pro Forma Financial Information
The
unaudited pro forma condensed combined financial information of the Company as of and for the year ended December 31, 2023 is filed as
Exhibit 99.3 hereto and incorporated herein by reference.
(d)
Exhibits
Exhibit
Number |
|
Description |
23.1 |
|
Consent of Moss Adams LLP. |
23.2 |
|
Consent of Cawley Gillespie & Associates Inc. |
99.1 |
|
Report of Cawley, Gillespie & Associates, Inc., dated January 4, 2024, as to the reserves of Nickel Road Operating LLC as of December 31, 2023. |
99.2 |
|
Audited financial statements of Nickel Road Operating LLC, as of and for the years ended December 31, 2023 and December 31, 2022. |
99.3 |
|
Unaudited Pro Forma Condensed Combined Financial Information as of and for the year ended December 31, 2023. |
104 |
|
Cover
Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
|
Prairie
Operating Co. |
Date:
March 19, 2024 |
|
|
|
By:
|
/s/
Daniel T. Sweeney |
|
|
Daniel
T. Sweeney |
|
|
General
Counsel & Corporate Secretary |
Exhibit
23.1
Consent
of Independent Auditors
We
consent to the incorporation by reference in the Registration Statements on Form S-1 (Nos. 333-272743 and 333-276998) of Prairie Operating
Co. of our report dated March 14, 2024, relating to the consolidated financial statements of Nickel Road Operating LLC and Subsidiaries
as of and for the years ended December 31, 2023 and 2022, appearing in this Amendment No. 2 to the Current Report on Form 8-K of Prairie
Operating Co.
/s/ Moss Adams LLP
Denver,
Colorado
March 19, 2024
Exhibit
23.2
CONSENT
OF INDEPENDENT PETROLEUM RESERVE EXPERTS
We
hereby consent to the references to our firm in the form and context in which they appear, and the inclusion of our
report dated January 4, 2024 with respect to the estimates of reserves and future net revenues of Nickel Road Operating LLC, as of December
31, 2023, in this Amendment No. 2 to the Current Report on Form 8-K/A of the Company, and to the
incorporation by reference of such reports in the Registration Statements (Nos. 333-272743 and 333-276998) on Form S-1 of the Company,
filed with the U.S. Securities and Exchange Commission.
/s/
W. Todd Brooker
President
Cawley, Gillespie & Associates, Inc.
Fort
Worth, Texas
March 19, 2024
Exhibit
99.1
Exhibit
99.2
Report
of Independent Auditors
and Consolidated Financial Statements
Nickel
Road Operating LLC and Subsidiaries
December
31, 2023 and 2022
Table
of Contents
Report
of Independent Auditors
The
Management Committee
Nickel
Road Operating LLC and Subsidiaries
Report
on the Audit of the Financial Statements
Opinion
We
have audited the consolidated financial statements of Nickel Road Operating LLC and Subsidiaries, which comprise the consolidated balance
sheets as of December 31, 2023 and 2022, and the related consolidated statements of income, changes in members’ capital, and cash
flows for the years then ended, and the related notes to the consolidated financial statements.
In
our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Nickel
Road Operating LLC and Subsidiaries as of December 31, 2023 and 2022, and the results of their operations and their cash flows for the
years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis
for Opinion
We
conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section
of our report. We are required to be independent of Nickel Road Operating LLC and Subsidiaries and to meet our other ethical responsibilities,
in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Responsibilities
of Management for the Financial Statements
Management
is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant
to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In
preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate,
that raise substantial doubt about Nickel Road Operating LLC and Subsidiaries’ ability to continue as a going concern within one
year after the date that the financial statements are available to be issued.
Auditor’s
Responsibilities for the Audit of the Financial Statements
Our
objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level
of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always
detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate,
they would influence the judgment made by a reasonable user based on the consolidated financial statements.
In
performing an audit in accordance with GAAS, we:
● | Exercise
professional judgment and maintain professional skepticism throughout the audit. |
| |
● | Identify
and assess the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error, and design and perform audit procedures responsive to those risks.
Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures
in the consolidated financial statements. |
| |
● | Obtain
an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of Nickel Road Operating LLC and Subsidiaries’ internal control.
Accordingly, no such opinion is expressed. |
| |
● | Evaluate
the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluate the overall presentation of the consolidated
financial statements. |
| |
● | Conclude
whether, in our judgment, there are conditions or events, considered in the aggregate, that
raise substantial doubt about Nickel Road Operating LLC and Subsidiaries’ ability to
continue as a going concern for a reasonable period of time. |
We
are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit,
significant audit findings, and certain internal control–related matters that we identified during the audit.
Other
Supplementary Information
Our
audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying supplemental
schedules concerning oil and gas producing properties in Notes 10 and 11 are presented for purposes of additional analysis and is not
a required part of the consolidated financial statements. Because of the significance of the matter described above, it is inappropriate
to, and we do not, express an opinion on this supplementary information.
Denver,
Colorado
March
14, 2024
Consolidated
Financial Statements
Nickel
Road Operating LLC and Subsidiaries
Consolidated
Balance Sheets
December
31, 2023 and 2022
| |
2023 | | |
2022 | |
| |
| | |
| |
ASSETS |
|
|
|
|
|
|
|
|
| |
| | |
| |
CURRENT
ASSETS | |
| | | |
| | |
Cash
and cash equivalents | |
$ | 336,115 | | |
$ | 276,039 | |
Restricted
cash | |
| - | | |
| 3,200,000 | |
Joint
interest receivable | |
| 897,804 | | |
| 197,655 | |
Accrued
oil and gas sales | |
| 5,658,034 | | |
| 3,861,311 | |
Derivative
asset, current | |
| 270,925 | | |
| - | |
Prepaid
expenses | |
| 426,404 | | |
| 693,325 | |
| |
| | | |
| | |
Total
current assets | |
| 7,589,282 | | |
| 8,228,330 | |
| |
| | | |
| | |
OIL
AND GAS PROPERTIES, at cost (successful efforts method) | |
| | | |
| | |
Proved
properties | |
| 137,855,719 | | |
| 113,415,744 | |
Unproved
properties | |
| 1,690,690 | | |
| 1,068,954 | |
Accumulated
depletion | |
| (41,010,449 | ) | |
| (25,691,574 | ) |
| |
| | | |
| | |
Total
oil and gas properties, net | |
| 98,535,960 | | |
| 88,793,124 | |
| |
| | | |
| | |
OTHER
NONCURRENT ASSETS | |
| | | |
| | |
Right-of-use
asset, net | |
| 325,933 | | |
| - | |
| |
| | | |
| | |
TOTAL
ASSETS | |
$ | 106,451,175 | | |
$ | 97,021,454 | |
See
accompanying notes.
Nickel
Road Operating LLC and Subsidiaries
Consolidated
Balance Sheets
December
31, 2023 and 2022
| |
2023 | | |
2022 | |
| |
| | |
| |
LIABILITIES AND MEMBERS’ CAPITAL | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable | |
$ | 1,801,926 | | |
$ | 1,921,542 | |
Accrued liabilities | |
| 12,178,821 | | |
| 9,150,627 | |
Due to related party | |
| 114,346 | | |
| 255,743 | |
Current maturities of long-term debt, net of deferred financing costs | |
| 3,800,000 | | |
| - | |
Short-term lease liability | |
| 192,384 | | |
| - | |
Derivative liability, current | |
| - | | |
| 2,727,867 | |
| |
| | | |
| | |
Total current liabilities | |
| 18,087,477 | | |
| 14,055,779 | |
| |
| | | |
| | |
NONCURRENT LIABILITIES | |
| | | |
| | |
Long-term debt, net of current portion and deferred financing costs | |
| 16,660,116 | | |
| 25,036,040 | |
Long-term lease liability | |
| 133,550 | | |
| - | |
Asset retirement obligations | |
| 1,347,493 | | |
| 1,167,701 | |
| |
| | | |
| | |
Total noncurrent liabilities | |
| 18,141,159 | | |
| 26,203,741 | |
| |
| | | |
| | |
Total liabilities | |
| 36,228,636 | | |
| 40,259,520 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES (Note 7) | |
| | | |
| | |
| |
| | | |
| | |
MEMBERS’ CAPITAL | |
| | | |
| | |
Contributed capital | |
| 64,025,830 | | |
| 64,025,830 | |
Distributed capital | |
| (64,300,000 | ) | |
| (58,000,000 | ) |
Retained earnings | |
| 70,496,709 | | |
| 50,736,104 | |
| |
| | | |
| | |
Total members’ capital | |
| 70,222,539 | | |
| 56,761,934 | |
| |
| | | |
| | |
TOTAL LIABILITIES AND MEMBERS’ CAPITAL | |
$ | 106,451,175 | | |
$ | 97,021,454 | |
See
accompanying notes.
Nickel
Road Operating LLC and Subsidiaries
Consolidated
Statements of Income
Years
Ended December 31, 2023 and 2022
| |
2023 | | |
2022 | |
REVENUES | |
| | | |
| | |
Oil and gas sales | |
$ | 48,169,114 | | |
$ | 66,059,962 | |
| |
| | | |
| | |
OPERATING EXPENSES | |
| | | |
| | |
Production taxes | |
| 4,408,520 | | |
| 4,975,383 | |
Lease operating | |
| 4,616,425 | | |
| 3,942,294 | |
Depreciation, depletion, and amortization | |
| 16,115,889 | | |
| 17,760,179 | |
General and administrative | |
| 4,068,463 | | |
| 4,259,939 | |
Impairment | |
| 5,077,697 | | |
| - | |
Lease expirations | |
| - | | |
| 329,911 | |
| |
| | | |
| | |
Total operating expenses | |
| 34,286,994 | | |
| 31,267,706 | |
| |
| | | |
| | |
INCOME FROM OPERATIONS | |
| 13,882,120 | | |
| 34,792,256 | |
| |
| | | |
| | |
OTHER INCOME (EXPENSE) | |
| | | |
| | |
Interest expense | |
| (2,025,960 | ) | |
| (936,453 | ) |
Gain on sale of oil and gas properties | |
| 5,925,755 | | |
| 25,331,465 | |
Realized loss on derivative instruments | |
| (1,021,596 | ) | |
| (21,751,084 | ) |
Unrealized gain on derivative instruments | |
| 2,998,792 | | |
| 3,286,777 | |
Other income | |
| 4,227 | | |
| 20,029 | |
Income tax expense | |
| (18,000 | ) | |
| (4,748 | ) |
Interest income | |
| 15,267 | | |
| 41,152 | |
| |
| | | |
| | |
Total other income | |
| 5,878,485 | | |
| 5,987,138 | |
| |
| | | |
| | |
NET INCOME | |
$ | 19,760,605 | | |
$ | 40,779,394 | |
See
accompanying notes.
Nickel
Road Operating LLC and Subsidiaries
Consolidated
Statements of Changes in Members’ Capital
Years
Ended December 31, 2023 and 2022
| |
Class A | | |
Class B | | |
Retained Earnings | | |
Total Members’ | |
| |
Capital | | |
Capital | | |
(Deficit) | | |
Equity | |
| |
| | |
| | |
| | |
| |
BALANCE, January 1, 2022 | |
$ | 64,025,830 | | |
$ | - | | |
$ | 9,956,710 | | |
$ | 73,982,540 | |
| |
| | | |
| | | |
| | | |
| | |
Capital distributions | |
| (58,000,000 | ) | |
| - | | |
| - | | |
| (58,000,000 | ) |
Net income | |
| - | | |
| - | | |
| 40,779,394 | | |
| 40,779,394 | |
| |
| | | |
| | | |
| | | |
| | |
BALANCE, December 31, 2022 | |
| 6,025,830 | | |
| - | | |
| 50,736,104 | | |
| 56,761,934 | |
| |
| | | |
| | | |
| | | |
| | |
Capital distributions | |
| (6,300,000 | ) | |
| - | | |
| - | | |
| (6,300,000 | ) |
Net income | |
| - | | |
| - | | |
| 19,760,605 | | |
| 19,760,605 | |
| |
| | | |
| | | |
| | | |
| | |
BALANCE, December 31, 2023 | |
$ | (274,170 | ) | |
$ | - | | |
$ | 70,496,709 | | |
$ | 70,222,539 | |
See
accompanying notes.
Nickel
Road Operating LLC and Subsidiaries
Consolidated
Statements of Cash Flows
Years
Ended December 31, 2023 and 2022
| |
2023 | | |
2022 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net income | |
$ | 19,760,605 | | |
$ | 40,779,394 | |
Adjustments to reconcile net income to net cash from operating activities | |
| | | |
| | |
Depreciation, depletion, and amortization | |
| 16,115,889 | | |
| 17,760,179 | |
Impairment | |
| 5,077,697 | | |
| - | |
Amortization of debt issuance costs | |
| 104,395 | | |
| 140,941 | |
Gain on sale of oil and gas properties | |
| (5,925,755 | ) | |
| (25,331,465 | ) |
Lease expirations | |
| - | | |
| 329,911 | |
Unrealized gain on derivative instruments | |
| (2,998,792 | ) | |
| (3,286,777 | ) |
Change in operating assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| (2,496,872 | ) | |
| 4,505,745 | |
Prepaid expenses | |
| 266,921 | | |
| (42,120 | ) |
Accounts payables | |
| (119,616 | ) | |
| 105,677 | |
Due to related party | |
| (141,397 | ) | |
| 167,993 | |
Accrued liabilities | |
| 4,472,384 | | |
| 24,449 | |
| |
| | | |
| | |
Net cash from operating activities | |
| 34,115,459 | | |
| 35,153,927 | |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Purchases of oil and gas properties | |
| (32,429,078 | ) | |
| (37,025,536 | ) |
Proceeds from the sale of oil and gas properties | |
| 6,154,013 | | |
| 58,693,653 | |
| |
| | | |
| | |
Net cash (used in) from investing activities | |
| (26,275,065 | ) | |
| 21,668,117 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds from debt | |
| 68,116,667 | | |
| 29,700,000 | |
Repayment of debt | |
| (72,633,333 | ) | |
| (25,175,000 | ) |
Debt issuance costs | |
| (163,652 | ) | |
| (19,377 | ) |
Capital distributions | |
| (6,300,000 | ) | |
| (58,000,000 | ) |
| |
| | | |
| | |
Net cash used in financing activities | |
| (10,980,318 | ) | |
| (53,494,377 | ) |
| |
| | | |
| | |
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | |
| (3,139,924 | ) | |
| 3,327,667 | |
| |
| | | |
| | |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of year | |
| 3,476,039 | | |
| 148,372 | |
| |
| | | |
| | |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of year | |
$ | 336,115 | | |
$ | 3,476,039 | |
| |
| | | |
| | |
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED | |
| | | |
| | |
CASH, end of year | |
| | | |
| | |
Cash and cash equivalents | |
$ | 336,115 | | |
$ | 276,039 | |
Restricted cash | |
| - | | |
| 3,200,000 | |
| |
| | | |
| | |
Cash, cash equivalents, and restricted cash, end of year | |
$ | 336,115 | | |
$ | 3,476,039 | |
| |
| | | |
| | |
SUPPLEMENTAL CASH FLOW INFORMATION | |
| | | |
| | |
Capital expenditures in accounts payable and accrued liabilities | |
$ | 316,880 | | |
$ | - | |
| |
| | | |
| | |
Asset retirement obligations incurred, net | |
$ | 126,707 | | |
$ | 209,652 | |
| |
| | | |
| | |
Asset retirement obligations settled | |
$ | - | | |
$ | 185,440 | |
| |
| | | |
| | |
Right-of-use asset obtained in exchange for lease obligations | |
$ | 388,011 | | |
$ | - | |
| |
| | | |
| | |
Cash paid for interest | |
$ | 1,821,998 | | |
$ | 853,027 | |
See
accompanying notes.
Nickel
Road Operating LLC and Subsidiaries
Notes
to Consolidated Financial Statements
Note
1 – Organization and Summary of Significant Accounting Policies
Organization
– Nickel Road Operating LLC , a Delaware limited liability company (the Company), was formed on July 25, 2017, for the purpose
of engaging in the evaluation, acquisition, exploration, drilling, development, and production of oil and gas in the United States of
America. The Company shall continue in existence until it is liquidated or dissolved under the terms of the Amended Limited Liability
Company Agreement (the LLC Agreement).
As
a Limited Liability Company (LLC), the amount of loss at risk for each individual member is limited to the amount of capital contributed
to the LLC, and unless otherwise noted, the individual member’s liability for indebtedness of an LLC is limited to the member’s
capital contributions.
Basis
of presentation – The Company follows accounting standards established by the Financial Accounting Standards Board (FASB).
The FASB sets accounting principles generally accepted in the United States of America (GAAP) to ensure consistent reporting of the Company’s
financial condition, results of operations, and cash flows. References to GAAP issued by the FASB in these footnotes are to the FASB
Accounting Standards Codification (ASC) or “Codification.”
Use
of estimates in the preparation of financial statements – The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.
Depreciation,
depletion, and amortization of oil and gas properties and the impairment of proved oil and gas properties are determined using estimates
of oil and gas reserves. There are numerous uncertainties in estimating the quantity of reserves and in projecting the future rates of
production and timing of development expenditures, including future costs to dismantle, dispose, and restore the Company’s properties.
Oil and gas reserve engineering must be recognized as a subjective process of estimating underground accumulations of oil and gas that
cannot be measured in an exact way.
Fair
value of financial instruments – The Company’s financial instruments consist of cash and cash equivalents, restricted
cash, trade receivables, trade payables, accrued liabilities, and derivative financial instruments. The carrying value of cash and cash
equivalents, restricted cash, trade payables, accrued liabilities, and derivative financial instruments are considered to be representative
of their fair market value due to the short maturity of these instruments. The carrying amount of debt reflected on the consolidated
balance sheets approximates fair value as this debt has a variable interest rate that approximates a market interest rate.
Principles
of consolidation – The accompanying consolidated financial statements are consolidated and include the accounts of the Company
and its wholly owned subsidiaries, Source Rock Royalty LLC, Nickel Road Development LLC, and Peak Stone Properties LLC. All significant
intercompany amounts have been eliminated in consolidation.
Nickel
Road Operating LLC and Subsidiaries
Notes
to Consolidated Financial Statements
Cash
and cash equivalents – The Company considers all highly liquid investments with a maturity of three months or less, when purchased,
to be cash equivalents. Cash and cash equivalents are maintained at financial institutions, and, at times, balances may exceed federally
insured limits. The Company has not experienced any losses related to such balances, and management believes that the Company is not
exposed to any significant risks on the balances.
Restricted
cash – As of December 31, 2022, the Company held restricted cash of approximately $3,200,000 for accounts held in escrow related
to the Company’s sale of Oil and Gas Properties. Per the terms of the Asset Purchase Agreement, see oil and gas properties within
Note 1, entered on June 1, 2022, the escrow period is defined as one year from the closing date. The restricted cash balance was released
during the period ended December 31, 2023. The Company did not hold any restricted cash as of December 31, 2023.
Accounts
receivable – In June of 2016, the FASB issued ASC Topic 326, Financial Instruments - Credit Losses. This new guidance
replaces the current incurred loss impairment model with a requirement to recognize lifetime expected credit losses immediately when
a financial asset is originated or purchased. This new Current Expected Credit Losses (CECL) model applies to (1) loans, accounts receivable,
trade receivables, and other financial assets measured at amortized cost, (2) loan commitments and certain other off-balance- sheet credit
exposures, (3) debt securities and financial assets measured at fair value, and (4) beneficial interests in securitized financial assets.
The Company adopted this ASU effective January 1, 2023. As originally provided for in the CECL standard, the Company applied the new
guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption, which, for the Company
was January 1, 2023, with future adjustment to credit loss expectations recorded through the income statement as charges or credits to
earnings. The Company’s adoption of this guidance resulted in no cumulative effect adjustment to retained earnings upon adoption
and there was no significant impact to the Company’s operating results during 2023.
Accounts
receivable consist of uncollateralized joint interest owner obligations due within 30 days of the invoice date, uncollateralized accrued
revenues due under normal trade terms, generally requiring payment within 30 days of production, and other miscellaneous receivables.
Management estimates the allowance balance using the relevant available information, from internal and external sources, related to past
events, current conditions, and reasonable and supportable forecasts of economic conditions. No allowance for bad debts has been recorded
during the years ended December 31, 2023 and 2022.
Significant
customers – As of and for the year ended December 31, 2023, the Company’s largest customer generated approximately 90%
of sales, and one customer accounted for approximately 95% of accrued oil and gas sales.
As
of and for the year ended December 31, 2022, the Company’s two largest customers generated approximately 82% and 15% of sales,
and one customer accounted for approximately 88% of accrued oil and gas sales.
Nickel
Road Operating LLC and Subsidiaries
Notes
to Consolidated Financial Statements
Oil
and gas properties – The Company accounts for its oil and gas operations using the successful efforts method of accounting.
Under this method, all costs associated with property acquisitions, successful exploratory wells, and development wells are capitalized.
Items charged to expense generally include geological and geophysical costs, costs of unsuccessful exploratory wells, delay rentals,
and oil and gas production costs. Capitalized costs of proved leasehold costs are depleted on a well-by-well basis using the units-of-production
method based on total proved developed producing oil and gas reserves. Other capitalized costs of producing properties are also depleted
based on total proved developed producing reserves. Depletion expense for the years ended December 31, 2023 and 2022 was approximately
$16,063,000 and $17,712,000, respectively.
The
Company assesses its proved oil and gas properties for impairment whenever events or circumstances indicate that the carrying value of
the assets may not be recoverable, but at least annually. The impairment test compares undiscounted future net cash flows to the assets’
net book value. If the net capitalized costs exceed future net cash flows, then the cost of the property is written down to the estimated
fair value. Fair value for oil and natural gas properties is generally determined based on an analysis of discounted future net cash
flows adjusted for certain risk factors. General rules for asset impairment described in ASC Topic 360 also apply. Impairment of proved
properties as of December 31, 2023 and 2022 was approximately $4,991,000 and $0, respectively.
Unproved
properties are assessed periodically on a project-by-project basis to determine whether an impairment has occurred. Management’s
assessment includes consideration of the results of exploration activities, commodity price predictions or forecasts, planned future
sales, or expiration of all or a portion of such projects. Impairment of unproved properties as of December 31, 2023 and 2022 was approximately
$87,000 and $0, respectively.
Gains
and losses arising from sales of oil and gas properties are included in other income. However, a partial sale of proved properties within
an existing field that does not significantly affect the unit-of-production depletion rate will be accounted for as a normal retirement
with no gain or loss recognized. The sale of a partial interest within a proved property is accounted for as a recovery of cost. The
partial sale of unproved property is accounted for as a recovery of cost when there is uncertainty of the ultimate recovery of the cost
applicable to the interest retained.
On
June 1, 2022, the Company entered into an Asset Purchase Agreement with a third party to sell a portion of the Company’s proved
and unproved oil and gas properties. The Company sold various oil and gas properties held in the DJ Basin to a third party for $64,000,000;
after purchase price adjustments total proceeds were approximately $58,694,000. The oil and gas properties sold by the Company had a
carrying value of approximately $33,363,000, resulting in a gain of approximately $25,331,000.
On
March 1, 2023, and closed on August 31, 2023, the Company entered into an Asset Purchase Agreement with a third party to sell the Company’s
royalty assets owned by the subsidiary, Source Rock Royalty LLC. The Company sold for $7,000,000; after purchase price adjustments total
proceeds were approximately $6,405,000. The oil and gas properties sold by the Company had a carrying value of approximately $2,017,000,
resulting in a gain of approximately $4,388,000.
Nickel
Road Operating LLC and Subsidiaries
Notes
to Consolidated Financial Statements
Derivative
financial instruments – The Company enters into derivative contracts, primarily swaps, and collars to hedge future crude oil
and natural gas production in order to mitigate the risk of market price fluctuations. All derivative instruments are recorded on the
balance sheet at fair value. The Company has elected not to apply hedge accounting to any of its derivative transactions; consequently,
the Company recognizes mark-to-market gains and losses in earnings currently, rather than deferring such amounts in other comprehensive
income for those commodity derivatives that qualify as cash flow hedges.
Asset
retirement obligations – An asset retirement obligation associated with the retirement of a tangible long-lived asset is recognized
as a liability in the period incurred, with an associated increase in the carrying amount of the related long-lived asset and oil and
natural gas properties. The cost of the tangible asset, including the asset retirement cost, is depleted over the useful life of the
asset. The asset retirement obligation is recorded at its estimated fair value, measured by reference to the expected future cash outflows
required to satisfy the retirement obligation discounted at the credit-adjusted, risk-free interest rate. Accretion expense is recognized
over time, as the discounted liability is accreted to its expected settlement value. Accretion expense is recorded within “Depletion,
depreciation, and amortization” in the consolidated statements of operations. If the estimated future cost of the asset retirement
obligation changes, an adjustment is recorded to both the asset retirement obligation and the long-lived asset. Revisions to estimated
asset retirement obligations can result from changes in retirement cost estimates, revisions to estimated inflation rates, and changes
in the estimated timing of abandonment.
Deferred
financing costs – Deferred financing costs are capitalized and amortized over the contractual term of the related obligations.
Debt issuance costs of approximately $444,000 were recognized within long-term debt as a reduction of the current outstanding balance
in 2023, net of approximately $104,000 of amortization expense which is recorded as interest expense. See Note 8 for further details.
Revenue
recognition – The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from
Contracts with Customers. Revenue from the sale of oil, natural gas liquids (NGLs), and natural gas is recognized as the product
is delivered to the customers’ custody transfer points, and collectability is reasonably assured. The Company fulfills the performance
obligations under the customer contracts through daily delivery of oil, NGLs, and natural gas to the customers’ custody transfer
points, and revenues are recorded on a monthly basis. The prices received for oil, NGLs, and natural gas sales under the Company’s
contracts are generally derived from stated market prices, which are then adjusted to reflect deductions, including transportation, fractionation,
and processing. As a result, the revenues from the sale of oil, NGLs, and natural gas will decrease if market prices decline. The sales
of oil, NGLs, and natural gas, as presented on the condensed consolidated statements of operations, represent the Company’s share
of revenues, net of royalties and excluding revenue interests owned by others. When selling oil, NGLs, and natural gas on behalf of royalty
owners or working interest owners, the Company is acting as an agent and, thus, reports the revenue on a net basis. To the extent actual
volumes and prices of oil, NGLs, and natural gas sales are unavailable for a given reporting period because of timing or information
not received from third parties, the expected sales volumes and prices for those properties are estimated and recorded.
Nickel
Road Operating LLC and Subsidiaries
Notes
to Consolidated Financial Statements
Income
taxes – The Company is an LLC, which is not subject to U.S. federal income taxes. Rather, the Company’s taxable income
flows through to the owners, who are responsible for paying the applicable income taxes on the income allocated to them. For tax years
beginning on or after January 1, 2018, the Company is subject to audit rules enacted as part of the Bipartisan Budget Act of 2015 (the
Centralized Partnership Audit Regime). Under the Centralized Partnership Audit Regime, any IRS audit of the Company would be conducted
at the Company level, and if the IRS determines an adjustment, the default rule is that the Company would pay an “imputed underpayment,”
including interest and penalties, if applicable. The Company may, instead, elect to make a “push-out” election, in which
case the partners for the year that is under audit would be required to take into account the adjustments on their own personal income
tax returns.
The
LLC Agreement does not stipulate how the Company will address imputed underpayments. If the Company receives an imputed underpayment,
a determination will be made based on the relevant facts and circumstances that exist at that time. Any payments that the Company ultimately
makes on behalf of its current partners will be reflected as a dividend, rather than as a tax expense, at the time that such dividend
is declared.
The
Company has not recorded any liabilities as of December 31, 2023 or 2022 related to uncertain tax provisions. As of December 31, 2023
or 2022, the Company made no provision for interest or penalties related to uncertain tax positions. The Company files income tax returns
in the U.S. federal jurisdiction and in various states. There are currently no federal or state income tax examinations underway for
these jurisdictions.
Leases
– In February 2016, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2016-02,
Leases (Topic 842) which amended the existing lease accounting guidance to require lessees to recognize a right-of-use (ROU) asset
and lease liability on the consolidated balance sheets for all leases with terms greater than 12 months. The Company adopted the new
lease standard and all related amendments on January 1, 2022. The Company applied a modified retrospective transition approach when adopting
this new guidance which resulted in no cumulative-effect adjustments to the opening balance of retained earnings. The Company also elected
the package of practical expedients permitted under the transition guidance that retain the lease classification and initial direct costs
for any leases that existed prior to adoption of the standard. In addition, the Company has not reassessed the accounting treatment of
contracts entered into prior to adoption of the new lease guidance. The Company evaluated whether its contractual arrangements entered
into on or after January 1, 2022, contain leases. Specifically, the Company considered whether it can control the underlying asset and
have the right to obtain substantially all of the economic benefits or outputs from the asset. The Company evaluated the contractual
arrangements, including the agreements governing the operation of both the Company and the Company’s ownership interests in oil
and natural gas properties. At adoption, the Company concluded it did not have leases that represented a lessee or lessor as defined
in Topic 842. The Company entered into a new lease under Topic 842 during 2023.
Nickel
Road Operating LLC and Subsidiaries
Notes
to Consolidated Financial Statements
Note
2 – Members’ Capital
The
Company is a limited liability company with membership interests issued and held by various members. The LLC Agreement authorizes Class
A units and Class B units. Class A members are eligible to receive distributions. Upon formation, the Company issued a total of approximately
19,000 Class A units to members in proportion to their initial contributions. As of December 31, 2023 and 2022, $64,025,830 in cumulative
capital contributions had been received.
Upon
formation, 100 Class B units were granted to certain executives. Class B units are intended to provide compensation to the Class B member
upon a liquidation event, subject to returns as described in the LLC Agreement. The requirements to provide compensation to the Class
B members had not been met under the arrangement, nor was it considered probable the requirements would be met as of December 31, 2023
and 2022. Therefore, the grant-date fair values were inconsequential, and no amounts were recorded as of December 31, 2023 and 2022 in
the accompanying consolidated financial statements.
By
the terms of the LLC Agreement, distributions occur according to their respective equity interests, as defined. For the years ending
December 31, 2023 and 2022 the Company made distributions to members of approximately $6,300,000 and $58,000,000, respectively.
Note
3 – Asset Retirement Obligations
Asset
retirement obligations represent the estimated present value of the amount to plug, abandon, and remediate producing properties at the
end of their productive lives in accordance with applicable laws. The following table summarizes the Company’s asset retirement
obligation transactions for the years ending December 31, 2023 and 2022:
| |
2023 | | |
2022 | |
| |
| | |
| |
Asset retirement obligations, beginning of year | |
$ | 1,167,701 | | |
$ | 1,201,468 | |
| |
| | | |
| | |
Liabilities incurred during the year | |
| 208,832 | | |
| 209,652 | |
Change in estimated plugging costs | |
| (82,125 | ) | |
| (106,690 | ) |
Liabilities settled during the year | |
| - | | |
| (185,440 | ) |
Accretion of discount | |
| 53,085 | | |
| 48,711 | |
| |
| | | |
| | |
Asset retirement obligation, end of year | |
$ | 1,347,493 | | |
$ | 1,167,701 | |
Note
4 – Hedging and Derivative Financial Instruments
Commodity
derivative agreements – The Company utilizes swap and collar contracts to hedge the effect of price changes on a portion of
its future oil and natural gas production. The objective of the Company’s hedging activities and the use of derivative financial
instruments is to achieve more predictable cash flows. The use of derivatives involves the risk that the counterparties to such instruments
will be unable to meet the financial terms of such contracts. The derivative contracts may be terminated by a nondefaulting party in
the event of default by one of the parties to the agreement.
Nickel
Road Operating LLC and Subsidiaries
Notes
to Consolidated Financial Statements
The
Company has elected not to apply hedge accounting to any of its derivative transactions, and, consequently, the Company recognizes mark-to-market
gains and losses in earnings currently, rather than deferring such amounts in accumulated other comprehensive income for those commodity
derivatives that would otherwise qualify as cash flow hedges. All derivative instruments are recorded on the balance sheet at fair value.
As
of December 31, 2023, the Company had the following commodity derivative instruments outstanding through 2023, as summarized in the table
below:
| |
Collars | |
| |
| | |
| |
Weighted Average Contract Price | |
Commodity/Index/Maturity Period | |
Quantity | | |
Units | |
Floor | | |
Ceiling | |
| |
| | |
| |
| | |
| |
Crude Oil | |
| | | |
| |
| | | |
| | |
NYMEX | |
| | | |
| |
| | | |
| | |
2024 | |
| 247,100 | | |
BBL | |
$ | 66.55 | | |
$ | 79.15 | |
Derivative
assets and liabilities fair value – The fair value of the derivative commodity contracts was a net asset of approximately $271,000
and a net liability of approximately $2,728,000 at December 31, 2023 and 2022, respectively. The following table details the fair value
of derivatives recorded in the accompanying consolidated balance sheets, by category:
| |
Fair Value | | |
Fair Value | |
| |
December 31, 2023 | | |
December 31, 2022 | |
| |
| | |
| |
Derivative asset - current | |
$ | 270,925 | | |
$ | - | |
Derivative liability - current | |
$ | - | | |
$ | 2,727,867 | |
Derivative
gain (loss) – The following table summarizes the components of the net derivative gain (loss) line item presented in the accompanying
consolidated statements of operations during the years ended December 31:
| |
2023 | | |
2022 | |
| |
| | |
| |
Unrealized gain on derivatives | |
$ | 2,998,792 | | |
$ | 3,286,777 | |
Realized loss on derivatives | |
| (1,021,596 | ) | |
| (21,751,084 | ) |
| |
| | | |
| | |
Total gain (loss) on derivatives | |
$ | 1,977,196 | | |
$ | (18,464,307 | ) |
Nickel
Road Operating LLC and Subsidiaries
Notes
to Consolidated Financial Statements
Note
5 – Fair Value Measurements
The
Company follows ASC 820, Fair Value Measurements and Disclosures, which establishes a hierarchy for the inputs utilized in measuring
fair value. The hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
Level
1 – Quoted prices for identical assets or liabilities in active markets;
Level
2 – Quoted prices for similar assets or liabilities in active markets; and
Level
3 – Unobservable inputs for the asset or liability, such as discounted cash models.
The
following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December
31, 2023 and 2022:
| |
Fair Value Measurement at December 31, 2023 |
|
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| |
| | |
| | |
| | |
| |
Derivative instruments | |
$ | - | | |
$ | 270,925 | | |
$ | - | | |
$ | 270,925 | |
| |
| | | |
| | | |
| | | |
| | |
Total investments | |
$ | - | | |
$ | 270,925 | | |
$ | - | | |
$ | 270,925 | |
| |
Fair Value Measurement at December 31, 2022 |
|
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
| |
| | |
| | |
| | |
| |
Derivative instruments | |
$ | - | | |
$ | 2,727,867 | | |
$ | - | | |
$ | 2,727,867 | |
| |
| | | |
| | | |
| | | |
| | |
Total investments | |
$ | - | | |
$ | 2,727,867 | | |
$ | - | | |
$ | 2,727,867 | |
The
inputs used to determine such fair value are primarily based upon observable market data for similar instruments, including the forward
curve for commodity prices based on quoted market prices and would be classified within Level 2.
Note
6 – Leases
The
Company leases a compressor under a noncancellable operating lease agreement. It has been determined that the lease does not constitute
a finance lease. Operating lease ROU assets and liabilities are recognized based on the present value of the future minimum lease payments
over the lease term at commencement date. The Company believes any option to terminate is not reasonably certain for the operating lease
agreement.
For
the year ended December 31, 2023, components of lease expense were as follows:
Operating lease cost | |
$ | 68,000 | |
Short-term lease cost | |
$ | 1,270,763 | |
Nickel
Road Operating LLC and Subsidiaries
Notes
to Consolidated Financial Statements
All
components of lease costs are expensed within lease operating expenses on the consolidated statement of income.
There
was not any lease expense under ASC 842 during the year ended December 31, 2022.
For
the year ended December 31, 2023, supplemental cash flow information related to leases was as follows:
Cash paid for amounts included in measurement of lease liabilities | |
| | |
Operating cash flows used for operating leases (including short-term) | |
$ | 68,000 | |
| |
| | |
Right-of-use assets obtained in exchange for lease obligations (noncash) | |
| | |
Operating leases | |
$ | 388,011 | |
| |
| | |
Weighted-average remaining lease term (years) | |
| | |
Operating leases | |
| 1.7 | |
| |
| | |
Weighted-average discount rate | |
| | |
Operating leases | |
| 4.9 | % |
The
following is the future maturities of the annual undiscounted cash flows of the operating lease liability as of December 31, 2023:
Years Ending | |
| |
December 31, | |
| |
| |
| |
2024 | |
$ | 204,000 | |
2025 | |
| 136,000 | |
| |
| | |
Total minimum lease payments | |
| 340,000 | |
| |
| | |
Less imputed interest | |
| (14,067 | ) |
| |
| | |
Present value of lease liability | |
$ | 325,933 | |
Note
7 – Commitments and Contingencies
Government
regulation – Many aspects of the oil and gas industry are extensively regulated by federal, state, and local governments in
all areas in which the Company has operations. Regulations govern such things as drilling permits, environmental protection and pollution
control, spacing of wells, the unitization and pooling of properties, reports concerning operations, royalty rates, and various other
matters, including taxation. Oil and gas industry legislation and administrative regulations are periodically changed for a variety of
political, economic, and other reasons. As of December 31, 2023 or 2022, the Company has not been fined or cited for any violations of
governmental regulations that would have a material adverse effect upon the financial condition, capital expenditures, earnings, or competitive
position of the Company in the oil and gas industry.
Nickel
Road Operating LLC and Subsidiaries
Notes
to Consolidated Financial Statements
Litigation
– From time to time, the Company may be involved in litigation related to claims arising out of its operations in the normal
course of business. As of the date of this report, no legal proceedings are ongoing or pending that management believes could have a
materially adverse effect upon the Company’s financial condition or results of operations.
Note
8 – Long-Term Debt
Revolving
Loan – On February 22, 2021, the Company entered into a revolving loan agreement (the Loan Agreement) with a maturity of February
22, 2024. The Loan Agreement provides for a maximum revolving loan (the Revolving Loan) of $35,000,000 with an initial borrowing base
of $10,000,000. In October 2022, the Loan Agreement was amended. The total borrowing base and sublimit increased to $30,000,000 for the
revolving loan.
All
sums advanced under the Revolving Loan, together with all accrued but unpaid interest thereon, are due in full at maturity. The Loan
Agreement requires the Company to maintain certain affirmative and negative covenants, including certain financial ratios defined in
the Loan Agreement and second amendment, and provides the lender with a first security interest in substantially all of the Company assets.
The interest rate of the Revolving Loan is the lesser of the (1) Wall Street Journal prime rate, plus the applicable margin, or (2) the
Maximum Rate as defined per the Loan Agreement. The interest rate as of December 31, 2023, was 9.50%. Commitment fees equal to 0.5% of
the undrawn amount are payable quarterly under this agreement. The outstanding balance on the Revolving Loan as of December 31, 2023,
was $16,783,333, due in full on the maturity date of February 22, 2024. Debt issuance cost was approximately $123,000.
On
March 30, 2023, the Company amended its Loan Agreement to provide for a maximum Revolving Loan of $50,000,000 which matures on February
22, 2026. As of the date of the amendment the borrowing base was increased to $35,000,000, with a sublimit of $25,000,000, and continues
to be subject to regular redeterminations by the lender. Permitted distributions are subject to limitations defined within the amendment
and required hedge transactions are amended such that as of December 31, 2023, and thereafter, so long as the borrowing base utilization
exceeds 60%, the Company is required to maintain crude oil hedges of at least 60% of the Company’s anticipated crude oil production
for a period of no less than 12 months, to be complied with on a quarterly basis.
On
August 31, 2023, the Company amended its Loan Agreement to decrease the borrowing base to $33,000,000.
March
2023 Term Loan – The March 2023 amended Loan Agreement also allows for a new Term Loan (March 2023 Term Loan) in the amount
of $10,000,000 which commences on the date of the amendment and continues through July 31, 2023, after which the Lender shall have no
further commitment to make an advance on the March 2023 Term Loan, so long as the aggregate advances do not exceed $10,000,000. The March
2023 Term Loan shall be payable in monthly principal installments commencing on August 1, 2023, plus all accrued interest, and matures
on July 1, 2024. The March 2023 Term Loan bears interest at a rate equal to the sum of the Prime Rate, plus the Applicable Margin (as
defined in the Loan Agreement); provided, however, that the interest rate on the March 2023 Term Loan shall never fall below 3.75%. The
outstanding balance on the March 2023 Term Loan as of December 31, 2023, was $3,800,000. The full outstanding balance is due in full
on the maturity date of July 1, 2024.
Nickel
Road Operating LLC and Subsidiaries
Notes
to Consolidated Financial Statements
September
2021 Term Loan – On September 1, 2021, the Loan Agreement was amended to establish a term loan (September 2021 Term Loan) in
the amount of $12,000,000 that matured on August 31, 2022. The September 2021 Term Loan was payable in monthly principal installments
commencing January 31, 2022, plus all accrued interest. Interest for the September 2021 Term Loan was fixed at 5.25%. The September 2021
Term Loan also provides the lender with a first security interest in substantially all of the Company assets. As of December 31, 2023,
this loan matured and was paid off in full.
Interest
expense related to the Revolving Loan and the Term Loan for the years ended December 31, 2023 and 2022, was approximately $1,922,000
and $795,000, respectively.
Note
9 – Related Parties
Management
fees – The Company receives management services from Nickel Road Management LLC under the Management Services Agreement dated
March 30, 2018 (the Services Agreement). In accordance with the Service Agreement, Nickel Road Management LLC provides management services,
including office space and employment of all employees. The Company pays Nickel Road Management LLC a monthly amount equal to the allocated
costs for monthly general and administrative expenses approved by the managers (the Development Plan and Budget). The Services Agreement
will remain in effect for three years and will automatically extend for successive one-year terms coinciding with the period covered
by the Development Plan and Budget unless terminated under the terms of the Services Agreement. For the years ended December 31, 2023
and 2022, the Company incurred service agreement reimbursement costs of approximately $3,781,000 and $4,122,000, respectively. For the
years ending December 31, 2023 and 2022, the Company had approximately $114,000 and $256,000 in management fees due to Nickel Road Management
LLC, respectively.
Note
10 – Estimated Quantities of Oil and Gas Reserves (unaudited)
Costs
Incurred
The
following table sets forth the costs incurred for property acquisitions, exploration, and development activities:
| |
Years Ended December 31, | |
| |
2023 | | |
2022 | |
Acquisition costs | |
| | | |
| | |
Proved | |
$ | 134,895 | | |
$ | 1,028,411 | |
Unproved | |
| 720,003 | | |
| 1,213,079 | |
Exploration costs | |
| | | |
| | |
Geological and geophysical | |
| - | | |
| - | |
Development costs | |
| 31,918,742 | | |
| 34,719,791 | |
Total costs incurred | |
$ | 32,773,640 | | |
$ | 36,961,281 | |
Nickel
Road Operating LLC and Subsidiaries
Notes
to Consolidated Financial Statements
Oil
and Natural Gas Reserves
The
following table sets forth the Company’s net proved oil and gas reserves and the changes in net proved oil and gas reserves for
the years ended December 31, 2021, 2022, and 2023. All of the Company’s proved reserves are located in the state of Colorado in
the United States of America.
| |
Oil (Bbl) | | |
Gas (Mcf) | | |
Liquids (Bbl) | | |
BOE | |
Proved reserves at December 31, 2021 | |
| 9,150,124 | | |
| 16,386,179 | | |
| 4,126,059 | | |
| 16,007,213 | |
Revisions | |
| (1,806,746 | ) | |
| 875,476 | | |
| (850,846 | ) | |
| (2,511,680 | ) |
Extensions | |
| 2,238,184 | | |
| 5,752,187 | | |
| 1,031,821 | | |
| 4,228,703 | |
Divestiture of reserves | |
| (1,705,171 | ) | |
| (3,197,920 | ) | |
| (785,350 | ) | |
| (3,023,508 | ) |
Acquisition of reserves | |
| - | | |
| - | | |
| - | | |
| - | |
Production | |
| (618,787 | ) | |
| (919,804 | ) | |
| (161,585 | ) | |
| (933,673 | ) |
Proved reserves at December 31, 2022 | |
| 7,257,604 | | |
| 18,896,118 | | |
| 3,360,099 | | |
| 13,767,056 | |
Revisions | |
| 177,709 | | |
| 485,626 | | |
| (40,027 | ) | |
| 218,620 | |
Extensions | |
| 1,992,949 | | |
| 4,513,455 | | |
| 786,530 | | |
| 3,531,722 | |
Divestiture of reserves | |
| (155,373 | ) | |
| (286,151 | ) | |
| (49,733 | ) | |
| (252,798 | ) |
Acquisition of reserves | |
| - | | |
| - | | |
| - | | |
| - | |
Production | |
| (616,616 | ) | |
| (887,881 | ) | |
| (149,000 | ) | |
| (913,596 | ) |
Proved reserves at December 31, 2023 | |
| 8,656,273 | | |
| 22,721,167 | | |
| 3,907,869 | | |
| 16,351,003 | |
| |
| | | |
| | | |
| | | |
| | |
Proved developed reserves at | |
| | | |
| | | |
| | | |
| | |
December 31, 2021 | |
| 3,731,662 | | |
| 6,669,807 | | |
| 1,182,570 | | |
| 6,025,867 | |
December 31, 2022 | |
| 2,599,724 | | |
| 6,452,542 | | |
| 1,103,821 | | |
| 4,778,969 | |
December 31, 2023 | |
| 2,481,059 | | |
| 7,689,981 | | |
| 1,287,231 | | |
| 5,049,954 | |
| |
| | | |
| | | |
| | | |
| | |
Proved undeveloped reserves at | |
| | | |
| | | |
| | | |
| | |
December 31, 2021 | |
| 5,418,462 | | |
| 9,716,372 | | |
| 2,943,489 | | |
| 9,981,346 | |
December 31, 2022 | |
| 4,657,880 | | |
| 12,443,576 | | |
| 2,256,278 | | |
| 8,988,087 | |
December 31, 2023 | |
| 6,175,214 | | |
| 15,031,186 | | |
| 2,620,638 | | |
| 11,301,050 | |
Nickel
Road Operating LLC and Subsidiaries
Notes
to Consolidated Financial Statements
Note
11 – Standardized Measure of Discounted Future Net Cash Flows (unaudited)
The
standardized measure of discounted future net cash flows from the Company’s proved oil and gas reserves is presented in the following
table:
| |
Years Ended December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Future cash inflows | |
$ | 797,665,069 | | |
$ | 883,016,626 | |
Future production costs and taxes | |
| (304,141,326 | ) | |
| (293,548,055 | ) |
Future development costs | |
| (170,282,285 | ) | |
| (147,621,778 | ) |
Future income tax expense | |
| - | | |
| - | |
| |
| | | |
| | |
Future net cash flows | |
| 323,241,458 | | |
| 441,846,793 | |
10% annual discount for estimated timing of cash flows | |
| (149,312,372 | ) | |
| (197,175,725 | ) |
Standardized measure of discounted future net cash flows | |
$ | 173,929,086 | | |
$ | 244,671,068 | |
The
following are the principal sources of change in standardized measure of discounted future net cash flows from the Company’s proved
oil and gas reserves:
| |
Years Ended December 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Balance, beginning of year | |
$ | 244,671,068 | | |
$ | 259,924,928 | |
Net change in prices and production costs | |
| (98,531,959 | ) | |
| 66,158,782 | |
Net change in future development costs | |
| 3,286,634 | | |
| (18,682,942 | ) |
Oil and gas net revenue | |
| (39,144,165 | ) | |
| (57,149,450 | ) |
Extensions | |
| 31,061,825 | | |
| 52,216,906 | |
Acquisition of reserves | |
| - | | |
| - | |
Divestiture of reserves | |
| (8,286,790 | ) | |
| (48,657,637 | ) |
Revisions of previous quantity estimates | |
| 3,822,640 | | |
| (49,945,233 | ) |
Previously estimated development costs incurred | |
| 21,453,129 | | |
| 15,239,276 | |
Net change in taxes | |
| - | | |
| - | |
Accretion of discount | |
| 24,467,107 | | |
| 25,992,493 | |
Changes in timing and other | |
| (8,870,403 | ) | |
| (426,055 | ) |
Balance, end of year | |
$ | 173,929,086 | | |
$ | 244,671,068 | |
Estimated
net future cash flows represent an estimate on future net revenues from the production of proved reserves using average sales prices
along with estimates of the operating costs, production taxes, and future development and abandonment costs necessary to produce such
reserves. The Company’s proved reserves as of December 31, 2023 and 2022, were measured using commodity prices based on the twelve-month
unweighted arithmetic mean of the first day of the month price for the period of January through December. No deduction has been reflected
for depreciation, depletion, or any direct cost, such as general and administrative costs.
Note
12 – Subsequent Events
On
January 11, 2024, the Company entered into an Asset Purchase Agreement (the Transaction) with Prairie Operating Co., LLC (Prairie) to
sell all of the Company’s interests in its oil and gas properties effective February 1, 2024, for cash proceeds of $83.0 million,
subject to customary closing adjustments, and additional cash consideration of $11.5 million for existing permitted locations drilled
by Prairie. The Transaction has not closed as of the date the financial statements were available to be issued.
In
conjunction with the Transaction, the Company liquidated its open hedge positions in January 2024 resulting in net cash proceeds of approximately
$223,000. On January 31, 2024, the Company received a waiver of the minimum hedge transaction requirement from the lender through July
1, 2024. The Revolving Loan is reflected as a long-term debt on the Company’s balance sheet as of December 31, 2023. However, should
the Company fail to repay the loan in full, reapply required hedges, or receive another such waiver from the lender, the Revolving Loan
could become due on July 1, 2024.
The
Company has reviewed all subsequent events through March 14, 2024, the date the consolidated financial statements were available to be
issued.
Exhibit
99.3
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
As
previously disclosed, Prairie Operating Co. (the “Company”) entered into an asset purchase agreement, dated January 11, 2024
(the “NRO Agreement”), by and among the Company, Nickel Road Development LLC, Nickel Road Operating LLC (“NRO”)
and Prairie Operating Co., LLC (“Prairie LLC”), to acquire certain assets of NRO for total consideration of $94.5 million
(the “Purchase Price”), subject to certain closing price adjustments and other customary closing conditions (the “NRO
Acquisition”). The Purchase Price consists of $83.0 million in cash and $11.5 million in deferred cash payments. The Company deposited
$9 million of the Purchase Price into an escrow account on January 11, 2024 (the “Deposit”), which will be released to NRO
upon the earlier of the date of the closing of the NRO Acquisition pursuant to the NRO Agreement (the “Closing”) 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.
The
Company is providing the following unaudited pro forma condensed combined financial information to aid in the analysis of the financial
aspects of the following:
| (i) | the
proposed issuance and sale of shares of common stock of the Company, par value $0.01 per
share (“Common Stock”), in an underwritten public offering (the “Offering”); |
| (iii) | the
sale of all of the Company’s cryptocurrency miners (the “Mining Equipment”)
and the assignment of all of the Company’s rights and obligations under the Master
Services Agreement, dated February 16, 2023, by and between Atlas Power Hosting, LLC and
the Company, to a private purchaser pursuant to an asset purchase agreement, dated January
23, 2024 (the “Crypto Sale”); and |
| (iv) | the
merger of Creek Road Merger Sub, LLC, a Delaware limited liability company and a wholly owned
subsidiary of the Company (“Merger Sub”), with and into Prairie LLC, with Prairie
LLC surviving and continuing to exist as a Delaware limited liability company and a wholly
owned subsidiary of the Company pursuant to that certain Amended and Restated Agreement and
Plan of Merger, dated as of May 3, 2023, by and among the Company, Merger Sub and Prairie
LLC (the “Merger” and collectively, with the Offering, the NRO Acquisition and
the Crypto Sale, the “Transactions”). |
The
following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation
S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses”
and presents the combination of historical financial information of the Company and Prairie LLC, adjusted to give effect to the Transactions
and subsequent events thereto (the “Subsequent Events”) as described in Note 3 below.
The
unaudited pro forma condensed combined balance sheet as of December 31, 2023 combines the historical balance sheet of the Company as
of December 31, 2023 on a pro forma basis as if the Transactions and the Subsequent Events, described in Note 3 below, had been consummated
on December 31, 2023.
The
unaudited pro forma condensed combined statements of operations for the year ended December 31, 2023 combine the historical statements
of operations of the Company, the historical statements of operations of Creek Road Miners, Inc. and the historical consolidated
statements of operations of NRO, as applicable, for such periods on a pro forma as if the Transactions and Subsequent Events, described
in Note 3 below, had been consummated on January 1, 2023.
The
unaudited pro forma condensed combined financial information is based on, and should be read in conjunction with:
| (a) | the
Company’s audited historical consolidated financial statements and related notes included
in its Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities
and Exchange Commission (the “SEC”) on March 19, 2024; |
| (b) | the
Company’s unaudited historical condensed consolidated financial statements and related
notes for the three months ended March 31, 2023 included in its Quarterly Report on Form
10-Q/A for the period ended March 31, 2023, filed with the SEC on June 16, 2023; |
| (c) | the
section entitled “Management’s Discussion and Analysis of Financial Condition
and Results of Operations of Prairie Operating Co.” included in the Company’s
Annual Report on Form 10-K for the year ended 2023, filed with the SEC on March 19,
2024; |
| (d) | NRO’s
audited consolidated financial statements for the year ended December 31, 2023, included
in the Company’s Amendment to its Current Report on Form 8-K/A, filed with the SEC
on March 19, 2024; and |
| (e) | the
section in this prospectus entitled “Management’s Discussion and Analysis
of Financial Condition and Results of Operations of Nickel Road Operating LLC”. |
The
unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and does not necessarily
reflect what the Company’s financial condition or results of operations would have been had the Transactions or Subsequent Events,
described in Note 3 below, occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information
do not project the Company’s future financial condition and results of operations. The actual financial position and results of
operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma
adjustments represent management’s estimates based on information available as of the date of this filing and certain assumptions
that management believes are factually supportable and are expected to have a continuing impact on the Company’s results of operations,
and are subject to change as additional information becomes available and analyses are performed.
Description
of the Merger and Related Transactions
On
May 3, 2023 (the “Merger Closing Date”), the Company completed the Merger, and upon consummation thereof, the Company changed
its name from “Creek Road Miners, Inc.” to “Prairie Operating Co.” (the “Merger Closing”). Prior
to the consummation of the Merger, the Company effectuated certain restructuring transactions in the following order and issued an aggregate
of 3,375,288 shares of Common Stock (excluding shares reserved for issuance and unissued subject to certain beneficial ownership limitations)
and 4,423 shares of Series D preferred stock, par value $0.01 per share (“Series D Preferred Stock”):
| (i) | the
Company’s Series A preferred stock, par value $0.0001 per share (“Series A Preferred
Stock”), Series B preferred stock, par value $0.0001 per share (“Series B Preferred
Stock”), and Series C preferred stock, par value $0.0001 per share (“Series C
Preferred Stock”), plus accrued dividends, were converted, in the aggregate, into shares
of Common Stock; |
| (ii) | the
Company’s 12% senior secured convertible debentures (the “Original Debentures”),
plus accrued but unpaid interest and a 30% premium, were exchanged, in the aggregate, for
(a) the 12% amended and restated senior secured convertible debentures (collectively, the
“AR Debentures”) in the principal amount of $1,000,000 in substantially the same
form as their respective Original Debentures, (b) shares of Common Stock and (c) shares of
Series D Preferred Stock; |
| (iii) | accrued
fees payable to the certain members of the board of directors of the Company in the amount
of $110,250 were converted into shares of Common Stock; |
| (iv) | accrued
consulting fees of the Company in the amount of $318,750 payable to Bristol Capital, LLC
(“Bristol Capital”) were converted into shares of Common Stock; and |
| (v) | all
amounts payable pursuant to certain convertible promissory notes were converted into shares
of Common Stock. |
Prior
to the Merger Closing, the Company’s then-existing warrants to purchase shares of Common Stock, warrants to purchase shares of
Series B Preferred Stock and options to purchase shares of Common Stock were cancelled and retired and ceased to exist without the payment
of any consideration to the holders thereof.
At
the effective time of the Merger, all membership interests in Prairie LLC were converted into the right to receive each member’s
pro rata share of 2,297,668 shares of Common Stock.
At
the effective time of the Merger, the Company assumed and converted options to purchase membership interests of Prairie LLC outstanding
and unexercised as of immediately prior to the effective time of the Merger into non-compensatory options to acquire 8,000,000 shares
of Common Stock for $7.14 per share (“Non-Compensatory Options”), which are only exercisable if specific production hurdles
are achieved, and the Company entered into option agreements at the effective time of the Merger with each of Gary C. Hanna, Edward Kovalik,
Paul Kessler and a third-party investor. An aggregate of 2,000,000 Non-Compensatory Options are subject to be transferred to the Series
D PIPE Investors (as defined below), based on their then percentage ownership of Series D Preferred Stock to the aggregate Series D Preferred
Stock issued in connection with the Series D PIPE outstanding and held by all Series D PIPE Investors as of the Merger Closing Date,
if the Company does not meet certain performance metrics by May 3, 2026.
In
addition, in connection with the Merger Closing, the Company consummated the purchase of oil and gas leases, including all of the right,
title and interest in, to and under certain undeveloped oil and gas leases in Weld County, Colorado in the DJ Basin of Exok, Inc., an
Oklahoma corporation (“Exok”), together with certain other associated assets, data and records, consisting of approximately
3,158 net mineral acres in, on and under approximately 4,494 gross acres from Exok for $3,000,000 pursuant to that certain Amended and
Restated Purchase and Sale Agreement, dated as of May 3, 2023 (the “Exok Agreement”), by and among the Company, Prairie LLC
and Exok (the “Exok Transaction”).
To
fund the Exok Transaction, the Company sold an aggregate of approximately $17.38 million of Series D Preferred Stock with a stated value
of $1,000 per share and convertible into shares of Common Stock at a price of $5.00 per share, Series A warrants to purchase 3,475,250
shares of Common Stock at an exercise price of $6.00 per share (“Series D A Warrants”) and Series B warrants to purchase
3,475,250 shares of Common Stock at an exercise price of $6.00 per share (“Series D B Warrants”) in a private placement (the
“Series D PIPE”) pursuant to securities purchase agreements, dated May 3, 2023, by and between the Company and each of the
investors thereto (the “Series D PIPE Investors”).
The
Merger has been accounted for as a reverse asset acquisition under existing GAAP. For accounting purposes, Prairie LLC was treated as
acquiring Merger Sub in the Merger. See Note 1 for further discussion.
Accordingly,
for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of Prairie LLC
with the acquisition being treated as the equivalent of Prairie LLC issuing stock for the net assets of the Company. On the Merger Closing
Date, the assets and liabilities of the Company were recorded based upon relative fair values, with no goodwill or other intangible assets
recorded.
The
assumptions and estimates underlying the unaudited pro forma adjustments are described in the accompanying notes. Actual results may
differ materially from the assumptions used to present the accompanying unaudited pro forma condensed combined financial information.
The pro forma adjustments do not consider borrowings, financings and other transactions that may have occurred subsequent to December
31, 2023 other than the Subsequent Events described in Note 3 below and reflected in the pro forma financial information, nor do they
reflect anticipated financings or other transactions that may occur in the future, other than the Offering.
NRO
Acquisition
On
January 11, 2024, the Company entered into the NRO Agreement to acquire the assets of NRO 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. 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 date of the Closing 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.
The
NRO Acquisition is expected to be accounted for as an asset acquisition in accordance with ASC 805. The estimated fair value of the consideration
to be paid by us and allocation of that amount to the underlying assets acquired, on a relative fair value basis, will be recorded on
our books as of the date of the Closing of the NRO Acquisition. Additionally, costs directly related to the NRO Acquisition are capitalized
as a component of the Purchase Price.
Subsequent
Events
Deposit
on NRO Acquisition
In
conjunction with the NRO Acquisition, 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 date of the Closing and August 15, 2024, or earlier under certain circumstances.
Sale
of Cryptocurrency Mining Equipment
On
January 23, 2024, the Company completed the Crypto Sale, for consideration consisting of (i) $1.0 million in cash and (ii) $1.0 million
(plus accrued interest) in deferred cash payments to be made out of a portion of the future net revenues associated with the Mining Equipment.
See “Description of the Crypto Sale.”
Unaudited
Pro Forma Condensed Combined Balance Sheet
as
of December 31, 2023
| |
Prairie
Operating Co. (Historical) | | |
Nickel
Road (Historical) | | |
Nickel
Road Transaction Accounting Adjustments | | |
Cryptocurrency
Asset Sale
Adjustments | | |
Subsequent
Event Adjustments | | |
Equity Financing | | |
Combined Pro
Forma | |
| |
| | | |
| | | |
| (See
Note 6) | | |
| (See
Notes 5 and 6) | | |
| (See
Notes 3 and 6) | | |
| (See
Note 7) | | |
| | |
Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Current
assets: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash
and cash equivalents | |
$ | 13,036,950 | | |
$ | 336,115 | | |
$ | (74,000,000 | )(b) | |
$ | 1,000,000 | (c) | |
$ | (9,000,000 | )(a) | |
$ | 90,000,000 | | |
$ | 20,036,950 | |
| |
| | | |
| | | |
| (336,115 | )(j) | |
| | | |
| — | | |
| | | |
| | |
Accounts
and other receivable | |
| 329,750 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 329,750 | |
Joint
interest receivable | |
| — | | |
| 897,804 | | |
| (897,804 | )(j) | |
| — | | |
| — | | |
| — | | |
| — | |
Accrued
oil and gas sales | |
| — | | |
| 5,658,034 | | |
| (5,658,034 | )(j) | |
| — | | |
| — | | |
| — | | |
| — | |
Derivative
asset, current | |
| — | | |
| 270,925 | | |
| (270,925 | )(j) | |
| — | | |
| — | | |
| — | | |
| — | |
Prepaid
expenses | |
| 164,391 | | |
| 426,404 | | |
| (426,404 | )(j) | |
| — | | |
| — | | |
| — | | |
| 164,391 | |
Note
receivable | |
| — | | |
| — | | |
| — | | |
| 1,000,000 | (c) | |
| — | | |
| — | | |
| 1,000,000 | |
Total
current assets | |
| 13,531,091 | | |
| 7,589,282 | | |
| (81,589,282 | ) | |
| 2,000,000 | | |
| (9,000,000 | ) | |
| 90,000,000 | | |
| 22,531,091 | |
Property
and equipment | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Oil
and natural gas properties, successful efforts method of accounting | |
| 28,705,404 | | |
| — | | |
| 93,989,761 | (b) | |
| — | | |
| — | | |
| — | | |
| 122,695,165 | |
Proved
properties | |
| — | | |
| 137,855,719 | | |
| (137,855,719 | )(b) | |
| — | | |
| — | | |
| — | | |
| — | |
Unproved
properties | |
| — | | |
| 1,690,690 | | |
| (1,690,690 | )(b) | |
| — | | |
| — | | |
| — | | |
| — | |
Accumulated
depletion | |
| — | | |
| (41,010,449 | ) | |
| 41,010,449 | (b) | |
| — | | |
| — | | |
| — | | |
| — | |
Cryptocurrency
mining equipment | |
| 4,293,422 | | |
| — | | |
| — | | |
| (4,293,422 | )(c) | |
| — | | |
| — | | |
| — | |
Less:
Accumulated depreciation, depletion and amortization | |
| (1,111,115 | ) | |
| — | | |
| — | | |
| 1,111,115 | (c) | |
| — | | |
| — | | |
| — | |
Total
property and equipment, net | |
| 31,887,711 | | |
| 98,535,960 | | |
| (4,546,199 | ) | |
| (3,182,307 | ) | |
| — | | |
| — | | |
| 122,695,165 | |
Deposits
on oil and natural gas properties | |
| — | | |
| — | | |
| (9,000,000 | )(b) | |
| — | | |
| 9,000,000 | (a) | |
| — | | |
| — | |
Operating
lease assets | |
| 155,253 | | |
| 325,933 | | |
| (325,933 | )(j) | |
| — | | |
| — | | |
| — | | |
| 155,253 | |
Deferred
transaction costs | |
| 108,956 | | |
| — | | |
| (108,956 | )(b) | |
| — | | |
| — | | |
| — | | |
| — | |
Total
assets | |
$ | 45,683,011 | | |
$ | 106,451,175 | | |
$ | (95,570,370 | ) | |
$ | (1,182,307 | ) | |
$ | — | | |
$ | 90,000,000 | | |
$ | 145,381,509 | |
Liabilities,
Members’ Capital and Stockholders’ Equity | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Current
liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Accounts
payable and accrued expenses | |
$ | 5,374,494 | | |
$ | — | | |
$ | 66,044 | (b) | |
$ | — | | |
| — | | |
$ | — | | |
$ | 5,440,538 | |
Accounts
payable | |
| — | | |
| 1,801,926 | | |
| (1,801,926 | )(j) | |
| — | | |
| — | | |
| — | | |
| — | |
Accrued
liabilities | |
| — | | |
| 12,178,821 | | |
| (12,178,821 | )(j) | |
| — | | |
| — | | |
| — | | |
| — | |
Accrued
interest and expenses - related parties | |
| — | | |
| 114,346 | | |
| (114,346 | )(j) | |
| — | | |
| — | | |
| — | | |
| — | |
Current
maturities of long-term debt | |
| — | | |
| 3,800,000 | | |
| (3,800,000 | )(j) | |
| — | | |
| — | | |
| — | | |
| — | |
Operating
lease liabilities, current | |
| 41,890 | | |
| 192,384 | | |
| (192,384 | )(j) | |
| — | | |
| — | | |
| — | | |
| 41,890 | |
Deferred
purchase price, current | |
| — | | |
| — | | |
| 3,123,533 | (b) | |
| — | | |
| — | | |
| — | | |
| 3,123,533 | |
Total
current liabilities | |
| 5,416,384 | | |
| 18,087,477 | | |
| (14,897,900 | ) | |
| — | | |
| — | | |
| — | | |
| 8,605,961 | |
Long-term
liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Long-term
debt, net of current portion and deferred financing costs | |
| — | | |
| 16,660,116 | | |
| (16,660,116 | )(j) | |
| — | | |
| — | | |
| — | | |
| — | |
Deferred
purchase price, long-term | |
| — | | |
| — | | |
| 6,855,806 | (b) | |
| — | | |
| — | | |
| — | | |
| 6,855,806 | |
Asset
retirement obligations | |
| — | | |
| 1,347,493 | | |
| (512,072 | )(b) | |
| — | | |
| — | | |
| — | | |
| 835,421 | |
Operating
lease liabilities, long-term | |
| 93,817 | | |
| 133,550 | | |
| (133,550 | )(j) | |
| — | | |
| — | | |
| — | | |
| 93,817 | |
Total
long-term liabilities | |
| 93,817 | | |
| 18,141,159 | | |
| (10,449,931 | ) | |
| — | | |
| — | | |
| — | | |
| 7,785,045 | |
Total
liabilities | |
| 5,510,201 | | |
| 36,228,636 | | |
| (25,347,831 | ) | |
| — | | |
| — | | |
| — | | |
| 16,391,006 | |
Commitments
and contingencies | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Members’
capital | |
| — | | |
| 70,222,539 | | |
| (70,222,539 | )(j) | |
| — | | |
| — | | |
| — | | |
| — | |
Stockholders’
equity: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Preferred
stock; 50,000 shares authorized: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Series
D convertible preferred stock; $0.01 par value; 20,627 shares issued and outstanding | |
| 206 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 206 | |
Series
E convertible preferred stock; $0.01 par value; 20,000 shares issued and outstanding | |
| 200 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 200 | |
Common
stock; $0.01 par value; 500,000,000 shares authorized and 9,826,719 shares issued and outstanding, actual* and 19,469,921 shares
issued and outstanding, as adjusted | |
| 98,267 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 96,432 | | |
| 194,699 | |
Additional
paid-in capital | |
| 118,927,814 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 89,903,568 | | |
| 208,831,382 | |
Accumulated
deficit | |
| (78,853,677 | ) | |
| — | | |
| — | | |
| (1,182,307 | )(c) | |
| — | | |
| — | | |
| (80,035,984 | ) |
Total
stockholders’ equity | |
| 40,172,810 | | |
| — | | |
| — | | |
| (1,182,307 | ) | |
| — | | |
| 90,000,000 | | |
| 128,990,503 | |
Total
liabilities, members’ capital and stockholders’ equity | |
$ | 45,683,011 | | |
$ | 106,451,175 | | |
$ | (95,570,370 | ) | |
$ | (1,182,307 | ) | |
$ | — | | |
$ | 90,000,000 | | |
$ | 145,381,509 | |
Unaudited
Pro Forma Condensed Combined Statement of Operations
Year
Ended December 31, 2023
| |
Prairie
Operating Co. (Historical) | | |
Creek
Road Miners,
Inc. (As
Adjusted) | | |
Nickel
Road (Historical) | | |
Creek
Road Miners, Inc. Acquisition Adjustments | | |
Nickel
Road Transaction Accounting Adjustments | | |
Cryptocurrency
Asset Sale
Adjustments | | |
Equity Financing | | |
Combined Pro
Forma | |
| |
| | |
(See
Note 2) | | |
| | |
(See
Note 6) | | |
(See
Note 6) | | |
(See
Notes 5 and 6) | | |
(See
Note 7) | | |
| |
Revenue: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cryptocurrency
mining | |
$ | 1,545,792 | | |
$ | 73,584 | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | (1,619,376 | )(c) | |
$ | — | | |
$ | — | |
Oil
and gas sales | |
| — | | |
| — | | |
| 48,169,114 | | |
| — | | |
| (899,352 | )(h) | |
| — | | |
| — | | |
| 47,269,762 | |
Total
revenues | |
| 1,545,792 | | |
| 73,584 | | |
| 48,169,114 | | |
| — | | |
| (899,352 | ) | |
| (1,619,376 | ) | |
| — | | |
| 47,269,762 | |
Operating
costs and expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cryptocurrency
mining costs (exclusive of depreciation and amortization shown below) | |
| 548,617 | | |
| 80,140 | | |
| — | | |
| — | | |
| — | | |
| (628,757 | )(c) | |
| — | | |
| — | |
Depreciation,
depletion and amortization | |
| 983,788 | | |
| 116,724 | | |
| 16,115,889 | | |
| 141,885 | (d) | |
| (11,236,147 | )(g) | |
| (1,242,397 | )(c) | |
| — | | |
| 4,879,742 | |
Production
taxes | |
| — | | |
| — | | |
| 4,408,520 | | |
| — | | |
| (438,939 | )(h) | |
| — | | |
| — | | |
| 3,969,582 | |
Lease
operating | |
| — | | |
| — | | |
| 4,616,425 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4,616,425 | |
General
and administrative | |
| 16,269,045 | | |
| 1,119,277 | | |
| 4,068,463 | | |
| 170,120 | (e) | |
| — | | |
| — | | |
| — | | |
| 21,626,905 | |
Stock
based compensation | |
| — | | |
| 170,120 | | |
| — | | |
| (170,120 | )(e) | |
| — | | |
| — | | |
| — | | |
| — | |
Impairment
of cryptocurrency mining equipment | |
| 17,072,015 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (17,072,015 | )(c) | |
| — | | |
| — | |
Impairment
of oil and natural gas properties | |
| — | | |
| — | | |
| 5,077,697 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 5,077,697 | |
Exploration | |
| 263,757 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 263,757 | |
Total
operating expenses | |
| 35,137,222 | | |
| 1,486,261 | | |
| 34,286,994 | | |
| 141,885 | | |
| (11,675,086 | ) | |
| (18,943,169 | ) | |
| — | | |
| 40,434,107 | |
Income
(loss) from operations | |
| (33,591,430 | ) | |
| (1,412,677 | ) | |
| 13,882,120 | | |
| (141,885 | ) | |
| 10,775,733 | | |
| 17,323,793 | | |
| — | | |
| 6,835,654 | |
Other
income (expense): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Interest
income | |
| 248,073 | | |
| — | | |
| 15,267 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 263,340 | |
Interest
expense | |
| (121,834 | ) | |
| (214,344 | ) | |
| (2,025,960 | ) | |
| 120,076 | (f) | |
| 1,277,510 | (i) | |
| — | | |
| — | | |
| (964,552 | ) |
Gain
on sale of oil and gas properties | |
| — | | |
| — | | |
| 5,925,755 | | |
| — | | |
| (5,925,755 | )(j) | |
| — | | |
| — | | |
| — | |
Realized
loss on derivative instruments | |
| — | | |
| — | | |
| (1,021,596 | ) | |
| — | | |
| 1,021,596 | (j) | |
| — | | |
| — | | |
| — | |
Unrealized
gain (loss) on derivative instruments | |
| — | | |
| — | | |
| 2,998,792 | | |
| — | | |
| (2,998,792 | )(j) | |
| — | | |
| — | | |
| — | |
Other
income (expense) | |
| — | | |
| — | | |
| 4,227 | | |
| — | | |
| (4,227 | )(j) | |
| — | | |
| — | | |
| — | |
Loss
on adjustment to fair value - warrant liabilities | |
| (39,797,994 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (39,797,994 | ) |
Loss
on adjustment to fair value - AR Debentures | |
| (3,790,428 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (3,790,428 | ) |
Loss
on adjustment to fair value - Obligation Shares | |
| (1,477,103 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (1,477,103 | ) |
Liquidated
damages | |
| (548,144 | ) | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (548,144 | ) |
Total
other income (expense) | |
| (45,487,430 | ) | |
| (214,344 | ) | |
| 5,896,485 | | |
| 120,076 | | |
| (6,629,668 | ) | |
| — | | |
| — | | |
| (46,314,881 | ) |
Income
(loss) from operations before provision for income taxes | |
| (79,078,860 | ) | |
| (1,627,021 | ) | |
| 19,778,605 | | |
| (21,809 | ) | |
| 4,146,065 | | |
| 17,323,793 | | |
| — | | |
| (39,479,227 | ) |
Provision
for income taxes | |
| — | | |
| — | | |
| (18,000 | ) | |
| — | | |
| 18,000 | (j) | |
| — | | |
| — | | |
| — | |
Income
(loss) from continuing operations | |
$ | (79,078,860 | ) | |
$ | (1,627,021 | ) | |
$ | 19,760,605 | | |
$ | (21,809 | ) | |
$ | 4,164,065 | | |
$ | 17,323,793 | | |
$ | — | | |
$ | (39,479,227 | ) |
Income
(loss) per common share: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Income
(loss) per share, basic | |
$ | (16.51 | ) | |
$ | (4.02 | ) | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | (2.39 | ) |
Income
(loss) per share, diluted | |
$ | (16.51 | ) | |
$ | (4.02 | ) | |
| | | |
| | | |
| | | |
| | | |
| | | |
$ | (2.39 | ) |
Weighted
average common shares outstanding, basic | |
| 4,788,412 | | |
| 428,611 | | |
| | | |
| 1,646,741 | | |
| | | |
| | | |
| 9,643,202 | | |
| 16,506,966 | |
Weighted
average common shares outstanding, diluted | |
| 4,788,412 | | |
| 428,611 | | |
| | | |
| 1,646,741 | | |
| | | |
| | | |
| 9,643,202 | | |
| 16,506,966 | |
Note
1. Basis of Pro Forma Presentation
The
NRO Acquisition is expected to be accounted for as an asset acquisition in accordance with ASC 805. The estimated fair value of the consideration
to be paid by us and allocation of that amount to the underlying assets acquired, on a relative fair value basis, will be recorded on
our books as of the date of the Closing of the NRO Acquisition. Additionally, costs directly related to the NRO Acquisition are capitalized
as a component of the Purchase Price.
The
Crypto Sale requires presentation as discontinued operations upon the issuance of future financial statements in accordance with GAAP.
Pursuant to the requirements of Article 3 of Regulation S-X, the Crypto Sale is considered a significant disposition and requires pro
forma presentation in accordance with Article 11 of Regulation S-X.
The
Merger was accounted for as a reverse asset acquisition under existing GAAP. For accounting purposes, Prairie LLC was treated as acquiring
Merger Sub in the Merger.
Accordingly,
for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of Prairie LLC
with the acquisition being treated as the equivalent of Prairie LLC issuing stock for the net assets of the Company. On the Merger Closing
Date, the assets and liabilities of the Company were recorded based upon relative fair values, with no goodwill or other intangible assets
recorded.
The
unaudited pro forma condensed combined balance sheet as of December 31, 2023 combines the historical balance sheet of the Company as
of December 31, 2023 on a pro forma basis in accordance with Article 11 of Regulation S-X, as amended, as if the Transactions and the
Subsequent Events, described in Note 3 below, had been consummated on December 31, 2023.
The
unaudited pro forma condensed combined statements of operations for the year ended December 31, 2023 combines the historical statements
of operations of the Company and the historical consolidated statements of operations of NRO, as applicable, for such periods on a pro
forma basis as if the Transactions and Subsequent Events, described in Note 3 below, had been consummated on January 1, 2023.
The
pro forma basic and diluted earnings (loss) per share amounts presented in the unaudited pro forma condensed combined statements of operations
are based upon the number of shares of Common Stock outstanding, assuming the Transactions and Subsequent Events, described in Note 3
below, occurred on January 1, 2023.
The
unaudited pro forma condensed combined financial information is based on, and should be read in conjunction with, the audited historical
financial statements of the Company as of and for the year ended December 31, 2023 and NRO as of and for the year ended December 31,
2023 and the notes thereto, as well as the disclosures contained in the section “Management’s Discussion and Analysis
of Financial Condition and Results of Operations of Prairie Operating Co.” included in the Company’s Annual Report on
Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 19, 2024, the unaudited historical financial
statements of the Company as of and for the three months ended March 31, 2023 and the notes thereto, included in the Company’s
Quarterly Report on Form 10-Q/A for the three months ended March 31, 2023, filed with the SEC on June 16, 2023 and the section in this
prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Nickel Road
Operating LLC.”
The
unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and does not necessarily
reflect what the Company’s financial condition or results of operations would have been had the Transactions or Subsequent Events,
described in Note 3 below, occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information
do not project the Company’s future financial condition and results of operations. The actual financial position and results of
operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma
adjustments represent management’s estimates based on information available as of the date of this filing and certain assumptions
that management believes are factually supportable and are expected to have a continuing impact on the Company’s results of operations,
and are subject to change as additional information becomes available and analyses are performed.
Note
2. Creek Road Miners, Inc. As Adjusted Historical Financial Statement Information
The
historical financial statements of Creek Road Miners, Inc. (“Creek Road”) included in the Company’s Quarterly Report
on Form 10-Q/A filed with the SEC on June 16, 2023 include the historical statement of operations of Creek Road for the three months
ended March 31, 2023. Given the Merger was not completed until May 3, 2023, for pro forma purposes herein in order to determine the Creek
Road, As Adjusted amounts, Creek Road’s results of operations for the three months ended March 31, 2023, have been added to Creek
Road’s results of operations for the period from April 1, 2023, through May 2, 2023, as reflected in the Pro Forma Condensed Combined
Statement of Operations for the year ended December 31, 2023.
| |
Creek
Road | |
| |
For
the Three Months Ended March
31, 2023 | | |
For
the Period from April 1, 2023 through May 2, 2023 | | |
As
Adjusted | |
Revenue: | |
| | | |
| | | |
| | |
Cryptocurrency
mining | |
$ | — | | |
$ | 73,584 | | |
$ | 73,584 | |
Total
revenues | |
| — | | |
| 73,584 | | |
| 73,584 | |
Operating
costs and expenses: | |
| | | |
| | | |
| | |
Cryptocurrency
mining costs (exclusive of depreciation and amortization shown below) | |
| 6,305 | | |
| 73,835 | | |
| 80,140 | |
Depreciation,
depletion and amortization | |
| 64,576 | | |
| 52,148 | | |
| 116,724 | |
General
and administrative | |
| 576,289 | | |
| 542,988 | | |
| 1,119,277 | |
Stock
based compensation | |
| 170,120 | | |
| — | | |
| 170,120 | |
Total
operating expenses | |
| 817,290 | | |
| 668,971 | | |
| 1,486,261 | |
Income
(loss) from operations | |
| (817,290 | ) | |
| (595,387 | ) | |
| (1,412,677 | ) |
Other
income (expense): | |
| | | |
| | | |
| | |
Interest
expense | |
| (154,076 | ) | |
| (60,268 | ) | |
| (214,344 | ) |
Total
other income (expense) | |
| (154,076 | ) | |
| (60,268 | ) | |
| (214,344 | ) |
Income
(loss) from operations before provision for income taxes | |
| (971,366 | ) | |
| (655,655 | ) | |
| (1,627,021 | ) |
Provision
for income taxes | |
| — | | |
| — | | |
| — | |
Income
(loss) from continuing operations | |
$ | (971,366 | ) | |
$ | (655,655 | ) | |
$ | (1,627,021 | ) |
Income
(loss) per common share: | |
| | | |
| | | |
| | |
Income
(loss) per share, basic | |
$ | (2.49 | ) | |
$ | (1.53 | ) | |
$ | (4.02 | ) |
Income
(loss) per share, diluted | |
$ | (2.49 | ) | |
$ | (1.53 | ) | |
$ | (4.02 | ) |
Weighted
average common shares outstanding, basic | |
| 428,611 | | |
| 428,611 | | |
| 428,611 | |
Weighted
average common shares outstanding, diluted | |
| 428,611 | | |
| 428,611 | | |
| 428,611 | |
Note
3. Subsequent Events
Deposit
on NRO Acquisition
In
conjunction with the NRO Acquisition, 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 date of the Closing and August 15, 2024, or earlier under certain circumstances.
Sale
of Cryptocurrency Mining Equipment
On
January 23, 2024, the Company completed the sale of all of the Mining Equipment for consideration consisting of (i) $1.0 million in cash
and (ii) $1.0 million (plus accrued interest) in deferred cash payments to be made out of a portion of the future net revenues associated
with the Mining Equipment. See “Description of Crypto Sale.”
Note
4. Preliminary Purchase Price
The
preliminary allocation of the total Purchase Price in the NRO Acquisition, on a relative fair value basis, is based upon management’s
estimates of and assumptions related to the fair value of assets to be acquired and liabilities to be assumed as of the date of the Closing
of the transaction using currently available information. Because the unaudited pro forma condensed combined financial information has
been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on our financial position
and results of operations may differ significantly from the pro forma amounts included herein.
The
preliminary purchase price allocation is subject to change due to several factors, including but not limited to changes in the estimated
fair value of assets acquired and liabilities assumed as of the date of the Closing of the transaction, which could result from changes
in future oil and natural gas commodity prices, reserve estimates, interest rates, as well as other factors.
The
consideration transferred, assets acquired and liabilities assumed by the Company are expected to be initially recorded as follows:
Consideration: | |
| | |
Cash
consideration (1) | |
$ | 74,000,000 | |
Deposit
on oil and gas properties (2) | |
| 9,000,000 | |
Deferred
cash consideration (3) | |
| 9,979,340 | |
Direct
transaction costs (4) | |
| 175,000 | |
Total
consideration | |
$ | 93,154,340 | |
Assets
acquired: | |
| | |
Oil
and gas properties | |
$ | 93,989,761 | |
Liabilities
assumed: | |
| | |
Asset
retirement obligation, long-term | |
$ | 835,421 | |
(1) | Includes
preliminary customary purchase price adjustments. |
(2) | Represents
the Deposit paid by the Company to NRO (See Note 3). |
(3) | Represents
the estimated fair value of $11.5 million of deferred cash consideration to be paid to NRO
over a period of up to 18 months from the date of the Closing. |
(4) | Represents
estimated transaction costs associated with the NRO Acquisition which have been capitalized
in accordance with ASC 805-50. |
The
consideration will be allocated to the assets acquired and liabilities assumed on a relative fair value basis. The fair value measurements
of assets acquired and liabilities assumed, on a relative fair value basis, are based on inputs that are not observable in the market
and therefore represent Level 3 inputs. The fair value of oil and gas properties and asset retirement obligations were measured using
the discounted cash flow technique of valuation.
Significant
inputs to the valuation of oil and gas properties include estimates of: (i) reserves, (ii) future operating and development costs, (iii)
future commodity prices, (iv) future plugging and abandonment costs, (v) estimated future cash flows, and (vi) a market-based weighted
average cost of capital rate. These inputs require significant judgments and estimates and are the most sensitive and subject to change.
Note
5. Crypto Sale
On
January 23, 2024, we completed the Crypto Sale for consideration consisting of (i) $1.0 million in cash and (ii) $1.0 million (plus accrued
interest) in deferred cash payments to be made out of a portion of the future revenues associated with the Mining Equipment. For purposes
of the pro forma financial statements, this was a significant disposition and resulted in a net loss of $1.2 million. It requires presentation
within discontinued operations upon the issuance of future financial statements.
Note
6. Unaudited Pro Forma Adjustments
The
pro forma adjustments included in the unaudited pro forma condensed combined balance sheet as of December 31, 2023 and in the unaudited
pro forma condensed combined statements of operations for the year ended December 31, 2023 are as follows:
| (a) | Reflects
the adjustment for the Company’s Deposit utilized to partially fund the NRO Acquisition. |
| (b) | Reflects
the adjustment to record the assets acquired and liabilities assumed, on a relative fair
value basis, in the NRO Acquisition along with transfer of consideration. |
| (c) | Reflects
the adjustment to record the Crypto Sale. |
| (d) | Reflects
the adjustment to depreciation expense required to reflect a decrease in the estimated useful
life of acquired cryptocurrency mining assets of approximately one year. |
| (e) | Reflects
the reclassification of stock based compensation to conform to the Company’s financial
statement presentation. |
| (f) | Reflects
the adjustment to interest expense from the conversion of notes payable and the Original
Debentures. |
| (g) | Reflect
the adjustment for depreciation, depletion and amortization expense associated with the assets
acquired in the NRO Acquisition reflecting a decrease in depreciable asset base after the
purchase price allocation along with a decrease in the units of production depletion rate. |
| (h) | Reflects
the adjustments to reflect the NRO Acquisition based on information provided by NRO with
respect to assets acquired and removing amounts related to assets not acquired. |
| (i) | Reflects
the adjustment to recognize interest expense on the deferred cash consideration recognized
pursuant to the preliminary purchase price allocation (see Note 4) on an effective interest
method. |
| (j) | Reflects
the adjustment to remove the financial statement effect of amounts related to assets that
were not acquired and liabilities that were not assumed in the NRO Acquisition. |
Note
7. Equity Financing
We
expect to generate gross proceeds of $100.0 million (before underwriting discounts and commissions and offering expenses) from the Offering,
which we intend to use to fund the remaining cash consideration in the NRO Acquisition and the remainder for general corporate
purposes. After deducting the underwriting discounts and commissions and offering expenses payable by us, the total net proceeds are
expected to be approximately $90.0 million. Based on the closing price of the Company’s Common Stock on March 8, 2024 of $10.37,
we expect to issue approximately 9.6 million shares of Common Stock (assuming no exercise of the underwriters’ option to purchase
additional shares). The following table summarizes the estimated Common Stock to be issued resulting from a 10% fluctuation in the market
price of the shares of Common Stock:
| |
Share
Price | | |
Common
Stock Issued | |
As
presented | |
$ | 10.37 | | |
| 9,643,202 | |
10%
increase | |
| 11.41 | | |
| 8,764,242 | |
10%
decrease | |
| 9.33 | | |
| 10,718,114 | |
Note
8. Supplemental Unaudited Combined Oil and Natural Gas Reserves and Standardized Measure Information
The
following table sets forth information with respect to the historical and combined estimated proved oil and natural gas reserves as of
December 31, 2023 for Prairie and NRO. Future exploration, exploitation and development expenditures, as well as future commodity prices
and service costs, will affect the quantity of reserve volumes. The reserve estimates shown below were determined using the average first
day of the month price for each of the preceding 12 months for oil and natural gas for the year ended December 31, 2023. Estimated future
costs to settle asset retirement obligations have been included in the calculation of the Standardized Measure for each period present.
| |
Prairie | | |
Nickel
Road | | |
Pro
Forma Combined | |
Estimated
Proved Developed Reserves: | |
| | | |
| | | |
| | |
Oil
(Bbl) | |
| — | | |
| 2,481,059 | | |
| 2,481,059 | |
Natural
Gas (Mcf) | |
| — | | |
| 7,689,981 | | |
| 7,689,981 | |
Natural
Gas Liquids (Bbl) | |
| — | | |
| 1,287,231 | | |
| 1,287,231 | |
Total
(Boe)(1) | |
| — | | |
| 5,049,954 | | |
| 5,049,954 | |
Estimated
Proved Undeveloped Reserves: | |
| | | |
| | | |
| | |
Oil
(Bbl) | |
| — | | |
| 6,175,214 | | |
| 6,175,214 | |
Natural
Gas (Mcf) | |
| — | | |
| 15,031,186 | | |
| 15,031,186 | |
Natural
Gas Liquids (Bbl) | |
| — | | |
| 2,620,638 | | |
| 2,620,638 | |
Total
(Boe)(1) | |
| — | | |
| 11,301,050 | | |
| 11,301,050 | |
Estimated
Proved Reserves: | |
| | | |
| | | |
| | |
Oil
(Bbl) | |
| — | | |
| 8,656,273 | | |
| 8,656,273 | |
Natural
Gas (Mcf) | |
| — | | |
| 22,721,167 | | |
| 22,721,167 | |
Natural
Gas Liquids (Bbl) | |
| — | | |
| 3,907,869 | | |
| 3,907,869 | |
Total
(Boe)(1) | |
| — | | |
| 16,351,003 | | |
| 16,351,003 | |
(1) | Assumes
a ratio of 6 Mcf of natural gas per Boe. |
The
following table sets forth summary information with respect to historical and combined oil and natural gas production for the year ended
December 31, 2023 for Prairie and NRO. The NRO oil and natural gas production data presented below was derived from the supplemental
oil and gas reserve information (unaudited) included in notes to the audited financial statements for the year ended December 31, 2023
of NRO and information provided by NRO.
| |
Prairie | | |
Nickel
Road (Total) | | |
NRO
(Unacquired) | | |
NRO
Acquired(1) | | |
Pro
Forma Combined | |
Oil
(Bbl) | |
| — | | |
| 616,616 | | |
| (10,720 | ) | |
| 605,896 | | |
| 605,896 | |
Natural
Gas (Mcf) | |
| — | | |
| 887,881 | | |
| (21,807 | ) | |
| 866,074 | | |
| 866,074 | |
Natural
Gas Liquids (Bbl) | |
| — | | |
| 149,000 | | |
| (3,847 | ) | |
| 145,153 | | |
| 145,153 | |
Total
(Boe)(2) | |
| — | | |
| 913,596 | | |
| (18,201 | ) | |
| 895,395 | | |
| 895,395 | |
(1) | Represents
production data associated with the assets acquired from NRO. |
(2) | Assumes
a ratio of 6 Mcf of natural gas per Boe. |
The
following unaudited combined estimated discounted future net cash flows reflect Prairie and NRO as of December 31, 2023. The unaudited
combined Standardized Measure of discounted future net cash flows are as follows:
| |
Prairie | | |
NRO
(Total)(1) | | |
Combined | |
Future
cash inflows | |
$ | — | | |
$ | 797,665,069 | | |
$ | 797,665,069 | |
Future
production costs | |
| — | | |
| (304,141,326 | ) | |
| (304,141,326 | ) |
Future
development costs | |
| — | | |
| (170,282,285 | ) | |
| (170,282,285 | ) |
Future
income tax expense | |
| — | | |
| — | | |
| — | |
Future
net cash flows | |
| — | | |
| 323,241,458 | | |
| 323,241,458 | |
10%
annual discount for estimated timing of cash flows | |
| — | | |
| (149,312,372 | ) | |
| (149,312,372 | ) |
Standardized
Measure of discounted future net cash flows | |
$ | — | | |
$ | 173,929,086 | | |
$ | 173,929,086 | |
(1) | Represents
the total amounts as reported in NRO’s consolidated financial statements as of and
for the year ended December 31, 2023. |
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