8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

Amendment No. 1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 9, 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 (the “Original Form 8-K”) to announce the Company’s entry into an asset purchase agreement to acquire the assets of Nickel Road Operating LLC (“NRO”). This Amendment No. 1 to the Original Form 8-K (this “Amendment No. 1”) is being filed with the Securities and Exchange Commission solely to amend and supplement Item 9.01 of the Original Form 8-K, as described in Item 9.01 below. This Amendment No. 1 makes no other amendments to the Original Form 8-K.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired

The audited financial statements of NRO as of and for the years ended December 31, 2022 and December 31, 2021 and the unaudited financial statements of NRO as of and for the nine months ended September 30, 2023 and September 30, 2022 are filed as Exhibits 99.1 and 99.2 hereto and are incorporated herein by reference.

The report prepared by Cawley, Gillespie & Associates, Inc., independent petroleum engineers, relating to the Company’s estimated quantities of its pro forma reserves as of February 1, 2024, is filed as Exhibit 99.3 hereto and is incorporated herein by reference.

The report prepared by Cawley, Gillespie & Associates, Inc., independent petroleum engineers, relating to NRO’s estimated quantities of its proved reserves as of December 31, 2022, is filed as Exhibit 99.4 hereto and is 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 nine months ended September 30, 2023 and for the year ended December 31, 2022 is filed as Exhibit 99.5 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	Audited financial statements of Nickel Road Operating LLC, as of and for the years ended December 31, 2022 and December 31, 2021.
99.2	Unaudited financial statements of Nickel Road Operating LLC, as of and for the nine months ended September 30, 2023 and September 30, 2022.
99.3	Report of Cawley, Gillespie & Associates Inc., dated January 11, 2024, as to the pro forma reserves of Prairie Operating Co. as of February 1, 2024.
99.4	Report of Cawley, Gillespie & Associates, Inc., dated November 6, 2023, as to the reserves of Nickel Road Operating LLC as of December 31, 2022.
99.5	Unaudited Pro Forma Condensed Combined Financial Information as of and for the nine months ended September 30, 2023 and for the year ended December 31, 2022.
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: February 9, 2024
	By:	/s/ Daniel T. Sweeney
		Daniel T. Sweeney
		General Counsel & Corporate Secretary

EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement on Form S-1 (No. 333-272743) of Prairie Operating Co. of our report dated March 30, 2023, relating to the consolidated financial statements of Nickel Road Operating LLC and Subsidiaries as of and for the years ended December 31, 2022 and 2021, appearing in this Amendment No. 1 to the Current Report on Form 8-K of Prairie Operating Co.

/s/ Moss Adams LLP

Denver, Colorado

February 9, 2024

EX-23.2

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 (i) our report dated January 11, 2024, with respect to the estimates of reserves and future net revenues of the Prairie Operating Co. (the “Company”), as of February 1, 2024 and (ii) our report dated November 6, 2023, with respect to the estimates of reserves and future net revenues of Nickel Road Operating LLC, as of December 31, 2022, in this Amendment No. 1 to the Current Report on Form 8-K/A of the Company, and to the incorporation by reference of such reports in the Registration Statement (No. 333-272743) on Form S-1 of the Company, filed with the U.S. Securities and Exchange Commission.

/s/ Cawley, Gillespie & Associates, Inc.

Fort Worth, Texas

February 9, 2024

EX-99.1

Exhibit 99.1

Report of Independent Auditors

and Consolidated Financial Statements

Nickel Road Operating LLC and Subsidiaries

December 31, 2022 and 2021

Table of Contents

	Page
Report of Independent Auditors	1
Consolidated Financial Statements	3
Consolidated Balance Sheets	4
Consolidated Statements of Income	6
Consolidated Statements of Changes in Members’ Capital	7
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial Statements	9

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, 2022 and 2021, 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, 2022 and 2021, 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.

1

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 Note 9 and Note 10 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 30, 2023

2

Consolidated Financial Statements

3

Nickel Road Operating LLC and Subsidiaries

Consolidated Balance Sheets

December 31, 2022 and 2021

	2022			2021
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	276,039		$	148,372
Restricted cash		3,200,000			-
Joint interest receivable		197,655			189,757
Accrued oil and gas sales		3,861,311			8,374,954
Prepaid expenses		693,325			651,207
Total current assets		8,228,330			9,364,290
OIL AND GAS PROPERTIES, at cost (successful efforts method)
Proved properties		113,415,744			116,315,420
Unproved properties		1,068,954			7,659,295
Accumulated depletion		(25,691,574	)		(19,392,383	)
Total oil and gas properties		88,793,124			104,582,332
TOTAL ASSETS	$	97,021,454		$	113,946,622

See accompanying notes.

4

Nickel Road Operating LLC and Subsidiaries

Consolidated Balance Sheets

December 31, 2022 and 2021

	2022			2021
LIABILITIES AND MEMBERS’ CAPITAL
CURRENT LIABILITIES
Accounts payable	$	1,921,542		$	1,815,862
Accrued liabilities		9,150,627			10,454,882
Due to related party		255,743			87,750
Current maturities of long-term debt, net of deferred financing costs		-			12,000,000
Derivative liability, current		2,727,867			5,952,686
Total current liabilities		14,055,779			30,311,180
NON-CURRENT LIABILITIES
Long-term debt, net of current portion and deferred financing costs		25,036,040			8,389,476
Derivative liability, non-current		-			61,958
Asset retirement obligations		1,167,701			1,201,468
Total non-current liabilities		26,203,741			9,652,902
Total liabilities		40,259,520			39,964,082
COMMITMENTS AND CONTINGENCIES (Note 6)
MEMBERS’ CAPITAL
Contributed capital		64,025,830			64,025,830
Distributed capital		(58,000,000	)		-
Retained earnings		50,736,104			9,956,710
Total members’ capital		56,761,934			73,982,540
TOTAL LIABILITIES AND MEMBERS’ CAPITAL	$	97,021,454		$	113,946,622

See accompanying notes.

5

Nickel Road Operating LLC and Subsidiaries

Consolidated Statements of Income

Years Ended December 31, 2022 and 2021

	2022			2021
REVENUES
Oil and gas sales	$	66,059,962		$	43,452,456
Total revenues		66,059,962			43,452,456
OPERATING EXPENSES
Production taxes		4,975,383			3,464,066
Lease operating		3,942,294			2,104,831
Depreciation, depletion, and amortization		17,760,179			11,061,218
General and administrative		4,264,687			3,842,550
Lease expirations		329,911			282,786
Total operating expenses		31,272,454			20,755,451
INCOME FROM OPERATIONS		34,787,508			22,697,005
OTHER INCOME (EXPENSE)
Interest expense		(936,453	)		(466,495	)
Gain on sale of oil and gas properties		25,331,465			-
Realized loss on derivative instruments		(21,751,084	)		(8,690,199	)
Unrealized gain (loss) on derivative instruments		3,286,777			(4,403,945	)
Other income (expense)		20,029			(95,440	)
Interest income		41,152			2,612
Total other income (expense)		5,991,886			(13,653,467	)
NET INCOME	$	40,779,394		$	9,043,538

See accompanying notes.

6

Nickel Road Operating LLC and Subsidiaries

Consolidated Statements of Changes in Members’ Capital

Years Ended December 31, 2022 and 2021

						Retained		Total
	Class A Capital			Class B Capital		Earnings (Deficit)		Members’ Equity
BALANCE, January 1, 2021	$	64,025,830		$	-	$	913,172	$	64,939,002
Capital contributions		-			-		-		-
Net income		-			-		9,043,538		9,043,538
BALANCE, December 31, 2021		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

See accompanying notes.

7

Nickel Road Operating LLC and Subsidiaries

Consolidated Statements of Cash Flows

Years Ended December 31, 2022 and 2021

	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	40,779,394		$	9,043,538
Adjustments to reconcile net income to net cash from operating activities
Depreciation, depletion, and amortization		17,760,179			11,061,218
Amortization of debt issuance costs		140,941			79,360
Gain on sale of oil and gas properties		(25,331,465	)		-
Lease expirations		329,911			282,786
Unrealized loss on derivative instruments		(3,286,777	)		4,403,945
Change in operating assets and liabilities
Accounts receivable		4,505,745			(5,539,212	)
Prepaid expenses		(42,120	)		(327,200	)
Accounts payables		105,677			1,399,477
Due to related party		167,993			15,731
Accrued liabilities		24,449			4,986,467
Net cash from operating activities		35,153,927			25,406,110
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of oil and gas properties		(37,025,536	)		(51,137,515	)
Proceeds from the sale of oil and gas properties		58,693,653			-
Net cash from investing activities		21,668,117			(51,137,515	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt		29,700,000			30,000,000
Repayment of long-term debt		(25,175,000	)		(9,425,000	)
Debt issuance costs		(19,377	)		(264,884	)
Capital distributions		(58,000,000	)		-
Net cash from financing activities		(53,494,377	)		20,310,116
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		3,327,667			(5,421,289	)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of year		148,372			5,569,661
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year	$	3,476,039		$	148,372
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year
Cash and cash equivalents	$	276,039		$	148,372
Restricted cash		3,200,000			-
Cash, cash equivalents, and restricted cash, end of year	$	3,476,039		$	148,372
SUPPLEMENTAL CASH FLOW INFORMATION
Capital expenditures in accounts payable and accrued liabilities	$	-		$	1,328,700
Asset retirement obligations incurred	$	209,652		$	859,363
Cash paid for interest	$	853,027		$	269,664

See accompanying notes.

8

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.

9

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.

Accounts receivable – 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. All receivables are reviewed periodically, and appropriate actions are taken on past-due amounts and those deemed uncollectible, if any. No allowance for bad debts has been recorded as of December 31, 2022 and 2021.

Significant customers – 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.

As of and for the year ended December 31, 2021, the Company’s two largest customers generated approximately 80% and 15% of sales, and two customers accounted for approximately 86% and 11% of accrued oil and gas sales.

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, 2022 and 2021 was approximately $17,712,000 and $11,034,000, 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. There were no impairments of proved oil and gas properties as of December 31, 2022 and 2021.

10

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

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. At December 31, 2022, management determined there was no impairment of unproved properties.

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.

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 our 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 $281,000 were recognized within long-term debt as a reduction of the current outstanding balance in 2022, net of approximately $216,000 of amortization expense which is recorded as interest expense. See Note 7 for further details.

11

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

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 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 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, natural gas, and NGLs will decrease if market prices decline. The sales of oil, NGLs, and 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 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 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.

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, 2022 or 2021 related to uncertain tax provisions. As of December 31, 2022 or 2021, 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.

12

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

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 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 Company’s ownership interests in oil and natural gas properties, and concluded the Company does not represent a lessee or lessor as defined in Topic 842. Accordingly, the adoption of Topic 842 had no impact on the Company’s consolidated financial statements and the Company has not recognized any lease liabilities or right-of-use assets relating to Topic 842.

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, 2022 and 2021, $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. Therefore, the grant-date fair values were inconsequential, and no amounts were recorded as of December 31, 2022 and 2021 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, 2022 and 2021 the Company made distributions to members of approximately $58,000,000 and $0, respectively.

13

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

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, 2022 and 2021:

	2022			2021
Asset retirement obligations, beginning of year	$	1,201,468		$	315,220
Liabilities incurred during the year		209,652			859,363
Change in estimated plugging costs		(106,690	)		-
Liabilities settled during the year		(185,440	)		-
Accretion of discount		48,711			26,885
Asset retirement obligation, end of year	$	1,167,701		$	1,201,468

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 non-defaulting party in the event of default by one of the parties to the agreement.

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, 2022, the Company had the following commodity derivative instruments outstanding through 2023, as summarized in the table below:

	Collars								Fixed-Price Swaps
					Weighted Average Contract Price								Weighted Average Contract
Commodity/Index/Maturity Period	Quantity		Units		Floor		Ceiling		Quantity		Units		Price
Crude Oil
NYMEX
2023		320,200		BBL	$	60.00	$	75.85		-				-
Natural Gas
NYMEX
2023		195,200		MMBTU		3.91		4.89		-				-
CIG
2023		-				-		-		106,200		MMBTU		(0.14	)

14

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

Derivative liabilities fair value – The fair value of the derivative commodity contracts was a net liability of approximately $2,728,000 and $6,015,000 at December 31, 2022 and 2021, 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,		December 31,
	2022		2021
Derivative liability - current	$	2,727,867	$	5,952,686
Derivative liability - non-current	$	-	$	61,958

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:

	2022			2021
Unrealized gain (loss) on derivatives	$	3,286,777		$	(4,403,945	)
Realized loss on derivatives		(21,751,084	)		(8,690,199	)
Total loss on derivatives	$	(18,464,307	)	$	(13,094,144	)

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.

15

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2022 and 2021:

	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

	Fair Value Measurement at December 31, 2021
	Level 1		Level 2		Level 3		Total
Derivative instruments	$	-	$	6,014,644	$	-	$	6,014,644
Total investments	$	-	$	6,014,644	$	-	$	6,014,644

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 – 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, 2022 or 2021, 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.

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 7 – 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.

16

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

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 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, 2022, was 8.75%. 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, 2022, was $25,036,000, net of debt issuance cost of approximately $64,000. The full outstanding balance of approximately $25,100,000 is due in full on the maturity date of February 22, 2024.

Term loan – On September 1, 2021, the Loan Agreement was amended to establish a term loan (the Term Loan) in the amount of $12,000,000 that matured on August 31, 2022. The Term Loan was payable in monthly principal installments commencing January 31, 2022, plus all accrued interest. Interest for the Term Loan was fixed at 5.25%. The Term Loan also provides the lender with a first security interest in substantially all of the Company assets. As of December 31, 2022, 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, 2022 and 2021, was approximately $795,000 and $387,000, respectively.

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, 2022, 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 not less than 12 months, to be complied with on a quarterly basis.

In addition to the $25,000,000 sublimit, the amended Loan Agreement also allows for a new 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 Term Loan, so long as the aggregate advances do not exceed $10,000,000. The 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 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 Term Note shall never fall below 3.75%.

17

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

Note 8 – 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, 2022 and 2021, the Company incurred service agreement reimbursement costs of approximately $4,122,000 and $3,668,000, respectively. For the years ending December 31, 2022 and 2021, the Company had approximately $256,000 and $88,000 in management fees due to Nickel Road Management LLC, respectively.

Note 9 – 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,
	2022		2021
Acquisition costs
Proved	$	1,028,411	$	6,537,937
Unproved		1,213,079		400,638
Exploration costs
Geological and geophysical		-		112,627
Development costs		34,719,791		50,924,901
Total costs incurred	$	36,961,281	$	57,976,103

18

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, 2020, 2021, and 2022. 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, 2020		7,523,571			15,643,734			4,479,670			14,610,530
Revisions		(713,886	)		(2,534,693	)		(1,003,525	)		(2,139,860	)
Extensions		2,901,457			4,087,821			800,146			4,382,907
Divestiture of reserves		-			-			-			-
Acquisition of reserves		-			-			-			-
Production		(561,018	)		(810,683	)		(150,232	)		(846,364	)
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	)		(2,511,679	)
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
Proved developed reserves at:
December 31, 2020		1,415,209			4,193,520			1,010,929			3,125,058
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
Proved undeveloped reserves at:
December 31, 2020		6,108,362			11,450,214			3,468,741			11,485,472
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

19

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

Note 10 – 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,
	2022			2021
Future cash inflows	$	883,016,626		$	762,792,704
Future production costs and taxes		(293,548,055	)		(202,378,828	)
Future development costs		(147,621,778	)		(90,494,378	)
Future income tax expense		-			-
Future net cash flows		441,846,793			469,919,498
10% annual discount for estimated timing of cash flows		(197,175,725	)		(209,994,570	)
Standardized measure of discounted future net cash flows	$	244,671,068		$	259,924,928

The following are the principal sources of change in the standardized measure of discounted future net cash flows from the Company’s proved oil and gas reserves:

	Years Ended December 31,
	2022			2021
Balance, beginning of year	$	259,924,928		$	57,068,129
Net change in prices and production costs		66,158,782			124,014,280
Net change in future development costs		(18,682,942	)		447,826
Oil & Gas net revenue		(57,149,450	)		(37,892,101	)
Extensions		52,216,906			118,176,519
Acquisition of reserves		-			-
Divestiture of reserves		(48,657,637	)		-
Revisions of previous quantity estimates		(49,945,233	)		(14,044,829	)
Previously estimated development costs incurred		15,239,276			-
Net change in taxes		-			-
Accretion of discount		25,992,493			5,706,813
Changes in timing and other		(426,055	)		6,448,291
Balance, end of year	$	244,671,068		$	259,924,928

Estimated net future cash flows represent an estimate of 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, 2022 and 2021 were measured using commodity prices based on the twelve-month unweighted arithmetic mean of the first day of the month price for the period January through December. No deduction has been reflected for depreciation, depletion, or any direct cost, such as general and administrative costs.

Note 11 – Subsequent Events

The Company has reviewed all subsequent events through March 30, 2023, the date the consolidated financial statements were available to be issued.

20

EX-99.2

Exhibit 99.2

Table of Contents

	Page
Consolidated Financial Statements	1
Consolidated Balance Sheets	2
Consolidated Statements of Income	4
Consolidated Statements of Changes in Members’ Capital	5
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	7

Consolidated Financial Statements

1

Nickel Road Operating LLC and Subsidiaries

Consolidated Balance Sheets

September 30, 2023 and 2022

	2023			2022
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	3,897,937		$	3,474,056
Restricted cash		-			3,200,000
Joint interest receivable		832,883			188,697
Accrued oil and gas sales		4,785,376			3,716,319
Prepaid expenses		565,834			465,037
Total current assets		10,082,030			11,044,109
OIL AND GAS PROPERTIES, at cost (successful efforts method)
Proved properties		140,552,991			97,792,407
Unproved properties		1,253,263			1,258,984
Accumulated depletion		(37,757,172	)		(17,992,847	)
Total oil and gas properties		104,049,082			81,058,544
OTHER NON-CURRENT ASSETS
Right-of-use asset, net		372,586			-
Total other non-current assets		372,586			-
TOTAL ASSETS	$	114,503,698		$	92,102,653

See accompanying notes.

2

Nickel Road Operating LLC and Subsidiaries

Consolidated Balance Sheets

September 30, 2023 and 2022

	2023			2022
LIABILITIES AND MEMBERS’ CAPITAL
CURRENT LIABILITIES
Accounts payable	$	13,721,369		$	3,850,638
Accrued liabilities		11,268,874			13,082,620
Current maturities of long-term debt		5,700,000			-
Derivative liability, current		2,303,718			2,786,213
Short-term lease liability		190,060			-
Total current liabilities		33,184,021			19,719,471
NON-CURRENT LIABILITIES
Long-term debt, net of current portion and deferred financing costs		7,280,670			7,033,656
Derivative liability, non-current		106,225			112,967
Asset retirement obligations		1,211,157			1,058,190
Long-term lease liability		182,526			-
Total non-current liabilities		8,780,578			8,204,813
Total liabilities		41,964,599			27,924,284
COMMITMENTS AND CONTINGENCIES (Note 7)
MEMBERS’ CAPITAL
Contributed capital		64,025,830			64,025,830
Distributed capital		(58,000,000	)		(58,000,000	)
Retained earnings		66,513,269			58,152,539
Total members’ capital		72,539,099			64,178,369
TOTAL LIABILITIES AND MEMBERS’ CAPITAL	$	114,503,698		$	92,102,653

See accompanying notes.

3

Nickel Road Operating LLC and Subsidiaries

Consolidated Statements of Income

Periods Ended September 30, 2023 and 2022

	2023			2022
REVENUES
Oil and gas sales	$	34,210,491		$	58,172,696
Total revenues		34,210,491			58,172,696
OPERATING EXPENSES
Production taxes		3,422,294			4,352,423
Lease operating		3,316,866			3,142,012
Depreciation, depletion, and amortization		12,852,983			10,054,903
General and administrative		3,098,777			3,353,479
Lease expirations		-			139,881
Total operating expenses		22,690,920			21,042,698
INCOME FROM OPERATIONS		11,519,571			37,129,998
OTHER INCOME (EXPENSE)
Interest expense		(1,524,751	)		(548,703	)
Gain on sale of oil and gas properties		6,261,551			28,439,708
Realized loss on derivative instruments		(789,972	)		(19,968,789	)
Unrealized gain on derivative instruments		317,924			3,115,464
Other income (expense)		(7,158	)		28,151
Total other income (expense)		4,257,594			11,065,831
NET INCOME	$	15,777,165		$	48,195,829

See accompanying notes.

4

Nickel Road Operating LLC and Subsidiaries

Consolidated Statements of Changes in Members’ Capital

Periods Ended September 30, 2023 and 2022

	Class A			Class B		Retained		Total
	Capital			Capital		Earnings (Deficit)		Members’ Equity
BALANCE, January 1, 2022	$	64,025,830		$	-	$	9,956,710	$	73,982,540
Capital distributions		(58,000,000	)		-		-		(58,000,000	)
Net income		-			-		48,195,829		48,195,829
BALANCE, September 30, 2022	$	6,025,830		$	-	$	58,152,539	$	64,178,369
BALANCE, January 1, 2023	$	6,025,830		$	-	$	50,736,104	$	56,761,934
Net income		-			-		15,777,165		15,777,165
BALANCE, September 30, 2023	$	6,025,830		$	-	$	66,513,269	$	72,539,099

See accompanying notes.

5

Nickel Road Operating LLC and Subsidiaries

Consolidated Statements of Cash Flows

Periods Ended September 30, 2023 and 2022

	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	15,777,165		$	48,195,829
Adjustments to reconcile net income to net cash from operating activities
Depreciation, depletion, and amortization		12,852,983			10,054,903
Amortization of debt issuance costs		74,949			126,142
Gain on sale of oil and gas properties		(6,261,551	)		(28,439,708	)
Lease expirations		-			139,881
Unrealized gain on derivative instruments		(317,924	)		(3,115,464	)
Change in operating assets and liabilities
Accounts receivable		(1,559,293	)		4,659,695
Prepaid expenses		127,491			186,171
Accounts payables		11,799,827			2,034,773
Accrued liabilities		3,623,569			3,868,690
Net cash from operating activities		36,117,216			37,710,912
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of oil and gas properties		(30,112,374	)		(20,847,399	)
Proceeds from the sale of oil and gas properties		6,547,375			61,144,133
Net cash from investing activities		(23,564,999	)		40,296,734
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term and long-term debt		47,366,667			11,700,000
Repayment of short-term and long-term debt		(59,333,334	)		(25,175,000	)
Debt issuance costs		(163,652	)		(6,962	)
Capital distributions		-			(58,000,000	)
Net cash from financing activities		(12,130,319	)		(71,481,962	)
NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		421,898			6,525,684
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, beginning of period		3,476,039			148,372
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, end of period	$	3,897,937		$	6,674,056
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of period
Cash and cash equivalents	$	3,897,937		$	3,474,056
Restricted cash		-			3,200,000
Cash, cash equivalents, and restricted cash, end of period	$	3,897,937		$	6,674,056
SUPPLEMENTAL CASH FLOW INFORMATION
Right-of-use asset obtained in exchange for lease obligations	$	388,011		$	-
Cash paid for interest	$	1,419,053		$	143,209
Accrued capital expenditures	$	-		$	658,614

See accompanying notes.

6

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.

7

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 September 30, 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 September 30, 2023. The Company did not hold any restricted cash as of September 30, 2023.

Accounts receivable – 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. All receivables are reviewed periodically, and appropriate actions are taken on past-due amounts and those deemed uncollectible, if any. No allowance for bad debts has been recorded as of September 30, 2023 and 2022. The accounts receivable balance on January 1, 2023 and 2022 was $4,059,000 and $8,565,000, respectively.

Significant customers – As of and for the period ended September 30, 2023, the Company’s largest customer generated approximately 90% of sales, and one customer accounted for approximately 93% of accrued oil and gas sales.

As of and for the period ended September 30, 2022, the Company’s two largest customers generated approximately 82% and 15% of sales, and two customers accounted for approximately 70% and 22% of revenue receivable.

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 periods ended September 30, 2023 and 2022 was approximately $12,810,000 and $10,013,000, 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. There were no impairments of proved oil and gas properties as of September 30, 2023 and 2022.

8

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

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. At September 30, 2023, management determined there was no impairment of unproved properties.

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 received through September 30, 2022 were approximately $61,144,000. In the fourth quarter of 2022, the Company paid final net purchase price adjustments totaling approximately $3,109,000. The oil and gas properties sold by the Company had a carrying value of approximately $32,704,000, resulting in a gain of approximately $28,440,000.

On March 1, 2023, the Company entered into an Asset Purchase Agreement with a third party to sell a portion of the Company’s royalty interests in oil and gas properties. The Company sold various royalty interests in oil and gas properties held in the DJ Basin to a third party for $7,000,000; after purchase price adjustments total proceeds were approximately $6,503,000. The oil and gas properties sold by the Company had a carrying value of approximately $2,017,000, resulting in a gain of approximately $4,486,000.

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 consolidated balance sheets 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 our 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 income. 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.

9

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

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 and $272,000 were recognized within long-term debt as a reduction of the current outstanding balance during the periods ended September 30, 2023 and 2022, respectively, net of approximately $75,000 and $126,000 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 income, 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 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.

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 period 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 September 30, 2023 or 2022 related to uncertain tax provisions. As of September 30, 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.

10

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

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 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 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 has recognized a lease under Topic 842 during 2023.

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. As of September 30, 2023 and 2022, approximately 64.7 Class A units were outstanding to members.

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. Therefore, the grant-date fair values were inconsequential, and no amounts were recorded as of September 30, 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 periods ending September 30, 2023 and 2022 the Company made distributions to members of approximately $0 and $58,000,000, respectively.

11

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

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 periods ending September 30, 2023 and 2022:

	2023		2022
Asset retirement obligations, beginning of year	$	1,167,701	$	1,201,468
Liabilities settled during the year		-		(185,440	)
Accretion of discount		43,456		42,162
Asset retirement obligation, end of year	$	1,211,157	$	1,058,190

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 non-defaulting party in the event of default by one of the parties to the agreement.

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.

12

Nickel Road Operating LLC and Subsidiaries

Notes to Consolidated Financial Statements

As of September 30, 2023, the Company had the following commodity derivative instruments outstanding through 2024, as summarized in the table below:

	Collars							Fixed-Price Swaps
				Weighted-Average Contract Price
Commodity/Index/Maturity Period	Quantity		Units	Floor		Ceiling		Quantity		Units	Weighted-Average Contract Price
Crude Oil
NYMEX
Oct 23 – Sep 24		284,100	BBL	$	64.92	$	78.18		3,000	BBL	$	74.40
Natural Gas
NYMEX
Oct 23 – Sep 24		18,000	MMBTU		5.00		6.65		-	MMBTU	$	-

Collars

Fixed-Price Swaps

Weighted-Average Contract Price

Commodity/Index/Maturity Period

Quantity

Units

Floor

Ceiling

Quantity

Units

Weighted-Average Contract Price

Crude Oil

NYMEX

Oct 24 – Dec 24

47,500

BBL

$

67.50

$

81.07

-

BBL

$

-

Derivative liabilities fair value – The fair value of the derivative commodity contracts was a net liability of approximately $2,410,000 and $2,899,000 at September 30, 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
	September 30,		September 30,
	2023		2022
Derivative liability - current	$	2,303,718	$	2,786,213
Derivative liability - non-current		106,225		112,967
Total derivative liabilities	$	2,409,943	$	2,899,180

Derivative gain (loss) – The following table summarizes the components of the net derivative gain (loss) line item presented in the accompanying consolidated statements of income during the periods ended September 30:

	2023			2022
Unrealized gain on derivatives	$	317,924		$	3,115,464
Realized loss on derivatives		(789,972	)		(19,968,789	)
Net loss on derivatives	$	(472,048	)	$	(16,853,325	)

13

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 September 30, 2023 and 2022:

	Fair Value Measurement at September 30, 2023
	Level 1		Level 2		Level 3		Total
Derivative instruments	$	-	$	2,409,943	$	-	$	2,409,943
Total assets and liabilities measured at fair value	$	-	$	2,409,943	$	-	$	2,409,943

	Fair Value Measurement at September 30, 2022
	Level 1		Level 2		Level 3		Total
Derivative instruments	$	-	$	2,899,180	$	-	$	2,899,180
Total assets and liabilities measured at fair value	$	-	$	2,899,180	$	-	$	2,899,180

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 non-cancellable operating lease agreement. It has been determined that the lease does not constitute finance leases. Operating lease ROU assets and liabilities are recognized based on the present value of 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 period ended September 30, 2023, components of lease expense were as follows:

Operating lease cost	$	17,000
Short-term lease cost	$	717,000

14

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 period ended September 30, 2022.

For the period ended September 30, 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)	$	17,000
Right-of-use assets obtained in exchange for lease obligations (non-cash)
Operating leases	$	388,011
Weighted-average remaining lease term (years)
Operating leases		1.9
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 September 30, 2023:

Years Ending
September 30,
2024	$	204,000
2025		187,000
Total minimum lease payments		391,000
Less imputed interest		(18,414	)
Present value of lease liability	$	372,586

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 September 30, 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.

15

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 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 September 30, 2023, was 8.75%. 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 September 30, 2023, was $7,280,000, net of debt issuance cost of approximately $153,000. The outstanding balance of approximately $7,433,000 is due in full on the maturity date of February 22, 2026.

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 September 30, 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 not 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 September 30, 2023, was $5,700,000. The full outstanding balance is due in full on the maturity date of July 1, 2024.

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 September 30, 2023, this loan matured and was paid off in full.

Interest expense related to the Revolving Loan and the Term Loans for the periods ended September 30, 2023 and 2022, was approximately $1,450,000,000 and $423,000, 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 periods ended September 30, 2023 and 2022, the Company incurred service agreement reimbursement costs of approximately $2,947,000 and $3,205,000, respectively. For the periods ending September 30, 2023 and 2022, the Company had approximately $1,300 and $139,000 in management fees due to Nickel Road Management LLC, respectively. These balances are included accrued liabilities on the consolidated balance sheets.

Note 10 – Subsequent Events

The Company has reviewed all subsequent events through December 7, 2023, the date the consolidated financial statements were available to be issued.

16

EX-99.3

Exhibit 99.3

 

 

EX-99.4

Exhibit 99.4

EX-99.5

Exhibit 99.5

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 the 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”);
(ii)	the NRO Acquisition;
(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”);
(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”);
(v)	the Series D PIPE (as defined below); and
(vi)	the Exok Transaction (as defined below and collectively, with the Offering, [the Genesis Bolt-on Acquisition,] the NRO Acquisition, the Crypto Sale, the Merger and the Series D PIPE, 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 as described in Note 2 below.

The unaudited pro forma condensed combined balance sheet as of September 30, 2023 combines the historical balance sheet of the Company as of September 30, 2023 on a pro forma basis as if the Transactions and the subsequent events, described in Note 2 below, had been consummated on September 30, 2023.

The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2023 and the year ended December 31, 2022 combine the historical statements of operations of Prairie LLC, 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 as if the Transactions and subsequent events, described in Note 2 below, had been consummated on January 1, 2022.

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 fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023;
(b)	the Company’s unaudited historical condensed consolidated financial statements and related notes for the three and nine months ended September 30, 2023, included in its Quarterly Report on Form 10-Q for the period ended September 30, 2023, filed with the SEC on November 14, 2023;
(c)	Prairie LLC’s audited financial statements for the period from June 7, 2022 (date of inception) to December 31, 2022 and related notes included in the Company’s Amendment to its Current Report on Form 8-K/A, filed with the SEC on June 16, 2023;
(d)	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 fiscal year ended 2022, filed with the SEC on March 31, 2023, and in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2023, filed with the SEC on November 14, 2023;
(e)	NRO’s unaudited consolidated financial statements for the nine months ended September 30, 2023, included in the Company’s Amendment to its Current Report on Form 8-K/A, filed with the SEC on February 9, 2024;
(f)	NRO’s audited consolidated financial statements for the year ended December 31, 2022, included in the Company’s Amendment to its Current Report on Form 8-K/A, filed with the SEC on February 9, 2024; and
(g)	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 2 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 September 30, 2023 other than the subsequent events described in Note 2 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

Reverse Stock Split

On October 12, 2023, the Company filed a Certificate of Amendment to its Certificate of Incorporation (the “Certificate of Amendment”) with the Delaware Secretary of State to effect a reverse stock split of the Company’s Common Stock, effective October 16, 2023, at a ratio of 1:28.5714286 (the “Reverse Stock Split”) (see Note 2). Unless otherwise noted, all per share and share amounts presented herein have been retroactively adjusted for the effect of the Reverse Stock Split for all periods presented.

Conversion of AR Debentures

In October 2023, conversion notices were received from holders of the AR Debentures and the Company issued 400,667 shares of Common Stock to effect the conversion. This represented the full conversion of the AR Debentures and accrued interest due to one of the holders.

Exercise of Series D B Warrants

On November 13, 2023, Narrogal Nominees Pty Ltd ATF Gregory K O’Neill Family Trust (“O’Neill Trust”) delivered notice to the Company of the exercise of Series D B Warrants to purchase 2,000,000 shares of Common Stock at an exercise price of $6.00 per share for total proceeds to the Company of $12 million (the “Warrant Exercise”).

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.

Genesis Bolt-on Acquisition

On February 5, 2024, the Company acquired oil and natural gas properties comprised of a 1,280 acre drillable spacing unit and eight permitted drilling locations in the DJ Basin from a private seller for $900,000.

Unaudited Pro Forma Condensed Combined Balance Sheet

as of September 30, 2023

							Nickel Road Transaction Accounting Adjustments
	Prairie Operating Co. (Historical)			Nickel Road (Historical)			Removal of Nickel Road (Historical)			Nickel Road Acquisition Adjustments			Cryptocurrency Asset Sale Adjustments			Subsequent Event Adjustments			Equity Financing		Combined Pro Forma
							(See Note 5(d))			(See Note 5)			(See Notes 4 and 5)			(See Notes 2 and 5)			(See Note 6)
Assets
Current assets:
Cash and cash equivalents	$	7,241,811		$	3,897,937		$	(3,897,937	)	$	(74,000,000	)(f)	$	1,000,000	(g)	$	(60,000	)(a)	$	90,000,000	$	26,281,811
																	12,000,000	(b)
																	(9,000,000	)(e)
																	(900,000	)(q)
Accounts and other receivable		97,293			—			—			—			—			—			—		97,293
Joint interest receivable		—			832,883			(832,883	)		—			—			—			—		—
Accrued oil and gas sales		—			4,785,376			(4,785,376	)		—			—			—			—		—
Prepaid expenses		271,839			565,834			(565,834	)		—			—			—			—		271,839
Note receivable		—			—			—			—			1,000,000	(g)		—			—		1,000,000
Total current assets		7,610,943			10,082,030			(10,082,030	)		(74,000,000	)		2,000,000			2,904,000			90,000,000		27,650,943
Property and equipment
Oil and natural gas properties, successful efforts method of accounting		28,595,051			—			—			93,904,482	(f)		—			900,000	(q)		—		123,399,533
Proved properties		—			140,552,991			(140,552,991	)		—			—			—			—		—
Unproved properties		—			1,253,263			(1,253,263	)		—			—			—			—		—
Accumulated depletion		—			(37,757,172	)		37,757,172			—			—			—			—		—
Cryptocurrency mining equipment		4,293,422			—			—			—			(4,293,422	)(g)		—			—		—
Less: Accumulated depreciation, depletion and amortization		(558,319	)		—			—			—			558,319	(g)		—			—		—
Total property and equipment, net		32,330,154			104,049,082			(104,049,082	)		93,904,482			(3,735,103	)		900,000			—		123,399,533
Deposits on mining equipment		150,000			—			—			—			—			—			—		150,000
Deposits on oil and natural gas properties		—			—			—			(9,000,000	)(f)		—			9,000,000	(e)		—		—
Right-of-use asset, net		—			372,586			(372,586	)		—			—			—			—		—
Total assets	$	40,091,097		$	114,503,698		$	(114,503,698	)	$	10,904,482		$	(1,735,103	)	$	11,940,000		$	90,000,000	$	151,200,476
Liabilities, Members’ Capital, Mezzanine Equity and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	6,708,498		$	—		$	—		$	175,000	(f)	$	—		$	(30,000	)(a)	$	—	$	6,853,498
Accounts payable		—			13,721,369			(13,721,369	)		—			—			—			—		—
Accrued liabilities		—			11,268,874			(11,268,874	)		—			—			—			—		—
Accrued interest and expenses - related parties		30,000			—			—			—			—			(30,000	)(a)		—		—
Secured convertible debenture (related party)		2,431,500			—			—			—			—			(2,431,500	)(a)		—		—
Secured convertible debenture		2,431,500			—			—			—			—			(2,431,500	)(a)		—		—
Current maturities of long-term debt		—			5,700,000			(5,700,000	)		—			—			—			—		—
Derivative liability, current		—			2,303,718			(2,303,718	)		—			—			—			—		—
Short-term lease liability		—			190,060			(190,060	)		—			—			—			—		—
Deferred acquisition cost, current		—			—			—			3,123,533	(f)		—			—			—		3,123,533
Total current liabilities		11,601,498			33,184,021			(33,184,021	)		3,298,533			—			(4,923,000	)		—		9,977,031
Long-term liabilities:
Warrant liabilities		50,738,180			—			—			—			—			(50,738,180	)(c)		—		—
Long-term debt, net of current portion and deferred financing costs		—			7,280,670			(7,280,670	)		—			—			—			—		—
Deferred acquisition cost, long-term		—			—			—			6,855,806	(f)		—			—			—		6,855,806
Derivative liability, non-current		—			106,225			(106,225	)		—			—			—			—		—
Asset retirement obligations		—			1,211,157			(1,211,157	)(f)		750,142	(f)		—			—			—		750,142
Long-term lease liability		—			182,526			(182,526	)		—			—			—			—		—
Total long-term liabilities		50,738,180			8,780,578			(8,780,578	)		7,605,948			—			(50,738,180	)		—		7,605,948
Total liabilities		62,339,678			41,964,599			(41,964,599	)		10,904,482			—			(55,661,180	)		—		17,582,980
Commitments and contingencies
Members’ capital		—			72,539,099			(72,539,099	)		—			—			—			—		—
Mezzanine equity
Series D convertible preferred stock; $0.01 par value; 21,799 shares issued and outstanding		21,799,250			—			—			—			—			(21,799,250	)(c)		—		—
Series E convertible preferred stock; $0.01 par value; 20,000 shares issued and outstanding		20,000,000			—			—			—			—			(20,000,000	)(c)		—		—
Stockholders’ equity:
Preferred stock; 50,000 shares authorized:
Series D convertible preferred stock; $0.01 par value; 21,799 shares issued and outstanding		—			—			—			—			—			218	(c)		—		218
Series E convertible preferred stock; $0.01 par value; 20,000 shares issued and outstanding		—			—			—			—			—			200	(c)		—		200
Common stock; $0.01 par value; 500,000,000 shares authorized and 7,074,742 shares issued and outstanding, actual* and 19,574,742 shares issued and outstanding, as adjusted		70,747			—			—			—			—			4,007	(a)		121,359		216,113
																	20,000	(b)
Additional paid-in capital		(8,716,827	)		—			—			—			—			4,858,993	(a)		89,878,641		190,537,819
																	11,980,000	(b)
																	50,738,180	(c)
																	21,799,032	(c)
																	19,999,800	(c)
Accumulated deficit		(55,401,751	)		—			—			—			(1,735,103	)(g)		—			—		(57,136,854	)
Total stockholders’ equity		(64,047,831	)		—			—			—			(1,735,103	)		109,400,430			90,000,000		133,617,496
Total liabilities, members’ capital, mezzanine equity and stockholders’ equity	$	40,091,097		$	114,503,698		$	(114,503,698	)	$	10,904,482		$	(1,735,103	)	$	11,940,000		$	90,000,000	$	151,200,476

Unaudited Pro Forma Condensed Combined Statement of Operations

Nine Months Ended September 30, 2023

													Nickel Road Transaction Accounting Adjustments
	Prairie Operating Co. (Historical)			Creek Road Miners, Inc. (Historical)			Nickel Road (Historical)			Creek Road Miners, Inc. Acquisition Adjustments			Removal of Nickel Road (Historical)			Nickel Road Acquisition Adjustments			Cryptocurrency Asset Sale Adjustments			Subsequent Event Adjustments			Equity Financing		Combined Pro Forma
										(See Note 5)			(See Note 5(d))			(See Note 5)			(See Notes 4 and 5)			(See Notes 2 and 5)			(See Note 6)
Revenue:
Cryptocurrency mining	$	637,269		$	73,584		$	—		$	—		$	—		$	—		$	(710,853	)(g)	$	—		$	—	$	—
Oil and gas sales		—			—			34,210,491			—			(34,210,491	)		33,311,139	(k)		—			—			—		33,311,139
Total revenues		637,269			73,584			34,210,491			—			(34,210,491	)		33,311,139			(710,853	)		—			—		33,311,139
Operating costs and expenses:
Cryptocurrency mining costs (exclusive of depreciation and amortization shown below)		303,172			80,140			—			—			—			—			(383,312	)(g)		—			—		—
Depreciation, depletion and amortization		558,319			116,724			12,852,983			141,885	(h)		(12,852,983	)		3,394,509	(k)		(816,928	)(g)		—			—		3,394,509
Production taxes		—			—			3,422,294			—			(3,422,294	)		2,983,356	(k)		—			—			—		2,983,356
Lease operating		—			—			3,316,866			—			(3,316,866	)		3,316,866	(k)		—			—			—		3,316,866
General and administrative		9,236,815			1,119,277			3,098,777			170,120	(i)		(3,098,777	)		3,098,777	(k)		—			—			—		13,624,989
Stock based compensation		—			170,120			—			(170,120	)(i)		—			—			—			—			—		—
Impairment of cryptocurrency mining equipment		16,794,688			—			—			—			—			—			(16,794,688	)(g)		—			—		—
Total operating expenses		26,892,994			1,486,261			22,690,920			141,885			(22,690,920	)		12,793,507			(17,994,928	)		—			—		23,319,719
Income (loss) from operations		(26,255,725	)		(1,412,677	)		11,519,571			(141,885	)		11,519,571			20,517,632			17,284,075			—			—		9,991,420
Other income (expense):
Interest income		128,202			—			—			—			—			—			—			—			—		128,202
Interest expense		(111,463	)		(214,344	)		(1,524,751	)		141,588	(j)		1,524,751			(748,450	)(l)		—			180,000	(n)		—		(752,669	)
Gain on sale of oil and gas properties		—			—			6,261,551			—			(6,261,551	)		—			—			—			—		—
Realized loss on derivative instruments		—			—			(789,972	)		—			789,972			—			—			—			—		—
Unrealized gain (loss) on derivative instruments		—			—			317,924			—			(317,924	)		—			—			—			—		—
Other income (expense)		—			—			(7,158	)		—			7,158			—			—			—			—		—
Loss on adjustment to fair value - warrant liabilities		(24,855,085	)		—			—			—			—			—			—			24,855,085	(o)		—		—
Loss on adjustment to fair value - AR Debentures		(2,882,000	)		—			—			—			—			—			—			2,882,000	(p)		—		—
Loss on adjustment to fair value - Obligation Shares		(1,477,103	)		—			—			—			—			—			—			—			—		(1,477,103	)
Liquidated damages		(173,763	)		—			—			—			—			—			—			—			—		(173,763	)
Total other income (expense)		(29,371,212	)		(214,344	)		4,257,594			141,588			(4,257,594	)		(748,450	)		—			27,917,085			—		(2,275,333	)
Income (loss) from operations before provision for income taxes		(55,626,937	)		(1,627,021	)		15,777,165			(297	)		(15,777,165	)		19,769,181			17,284,075			27,917,085			—		7,716,087
Provision for income taxes		—			—			—			—			—			(1,959,886	)(m)		—			—			—		(1,959,886	)
Income (loss) from continuing operations	$	(55,626,937	)	$	(1,627,021	)	$	15,777,165		$	(297	)	$	(15,777,165	)	$	17,809,298		$	17,284,075		$	27,917,085		$	—	$	5,756,201
Income (loss) per common share:
Income (loss) per share, basic	$	(15.80	)	$	(4.02	)																					$	0.28
Income (loss) per share, diluted	$	(15.80	)	$	(4.02	)																					$	0.13
Weighted average common shares outstanding, basic - Note 4(r)		3,520,843			428,611																					12,135,922		20,832,180
Weighted average common shares outstanding, diluted - Note 4(r)		3,520,843			428,611																					12,135,922		42,866,918

Unaudited Pro Forma Condensed Combined Statement of Operations

Year Ended December 31, 2022

													Nickel Road Transaction Accounting Adjustments
	Prairie Operating Co., LLC (Historical)			Creek Road Miners, Inc. (Historical)			Nickel Road (Historical)			Creek Road Miners, Inc. Acquisition Pro-Forma Adjustments			Removal of Nickel Road (Historical)			Nickel Road Acquisition Adjustments			Cryptocurrency Asset Sale Adjustments			Subsequent Event Adjustments			Equity Financing		Combined Pro Forma
										(See Note 5)			(See Note 5(d))			(See Note 5)			(See Notes 4 and 5)			(See Notes 2 and 5)			(See Note 6)
Revenue:
Cryptocurrency mining	$	—		$	517,602		$	—		$	—		$	—		$	—		$	(517,602	)(g)	$	—		$	—	$	—
Oil and gas sales		—			—			66,059,962			—			(66,059,962	)		52,378,105	(k)		—			—			—		52,378,105
Total revenues		—			517,602			66,059,962			—			(66,059,962	)		52,378,105			(517,602	)		—			—		52,378,105
Operating costs and expenses:
Cryptocurrency mining costs (exclusive of depreciation and amortization shown below)		—			1,071,458			—			—			—			—			(1,071,458	)(g)		—			—		—
Depreciation, depletion and amortization		—			658,080			17,760,179			117,748	(h)		(17,760,179	)		3,896,094	(k)		(775,828	)(g)		—			—		3,896,094
Production taxes		—			—			4,975,383			—			(4,975,383	)		3,958,274	(k)		—			—			—		3,958,274
Lease operating		—			—			3,942,294			—			(3,942,294	)		3,345,854	(k)		—			—			—		3,345,854
General and administrative		461,520			3,606,522			4,264,687			2,681,201	(i)		(4,264,687	)		4,264,687	(k)		—			—			—		11,013,930
Stock based compensation		—			2,681,201			—			(2,681,201	)(i)		—			—			—			—			—		—
Lease expirations		—			—			329,911			—			(329,911	)		—			—			—			—		—
Impairment of mined cryptocurrency		—			107,174			—			—			—			—			(107,174	)(g)		—			—		—
Total operating expenses		461,520			8,124,435			31,272,454			117,748			(31,272,454	)		15,464,908			(1,954,460	)		—			—		22,214,151
Income (loss) from operations		(461,520	)		(7,606,833	)		34,787,508			(117,748	)		(34,787,508	)		36,913,197			1,436,858			—			—		30,163,954
Other income (expense):
Interest income		—			—			41,152			—			(41,152	)		—			—			—			—		—
Interest expense		—			(613,827	)		(936,453	)		368,202	(j)		936,453			(997,934	)(l)		—			240,000	(n)		—		(1,003,559	)
Realized loss on sale of cryptocurrency		—			(127,222	)		—			—			—			—			127,222	(g)		—			—		—
Impairment on fixed assets		—			(5,231,752	)		—			—			—			—			5,231,752	(g)		—			—		—
Loss on sale of investment		—			(19,104	)		—			—			—			—			—			—			—		(19,104	)
PPP loan forgiveness		—			197,662			—			—			—			—			—			—			—		197,662
Loss on sale of cryptocurrency mining equipment		—			—			—			—			—			—			—(g)			—			—		—
Gain on sale of oil and gas properties		—			—			25,331,465			—			(25,331,465	)		—			—			—			—		—
Realized loss on derivative instruments		—			—			(21,751,084	)		—			21,751,084			—			—			—			—		—
Unrealized gain (loss) on derivative instruments		—			—			3,286,777			—			(3,286,777	)		—			—			—			—		—
Other income (expense)		—			—			20,029			—			(20,029	)		—			—			—			—		—
Total other income (expense)		—			(5,794,243	)		5,991,886			368,202			(5,991,886	)		(997,934	)		5,358,974			240,000			—		(825,001	)
Income (loss) from operations before provision for income taxes		(461,520	)		(13,401,076	)		40,779,394			250,454			(40,779,394	)		35,915,263			6,795,832			240,000			—		29,338,953
Provision for income taxes		—			—			—			—			—			(7,452,094	)(m)		—			—			—		(7,452,094	)
Income (loss) from continuing operations	$	(461,520	)	$	(13,401,076	)	$	40,779,394		$	250,454		$	(40,779,394	)	$	28,463,469		$	6,795,832		$	240,000		$	—	$	21,886,859
Income (loss) per common share:
Income (loss) per share from continuing operations, basic	$	—		$	(33.78	)																					$	1.06
Income (loss) per share from continuing operations, diluted	$	—		$	(33.78	)																					$	0.51
Weighted average common shares outstanding, basic - Note 4(r)		—			407,711																					12,135,922		20,695,174
Weighted average common shares outstanding, diluted - Note 4(r)		—			407,711																					12,135,922		42,729,912

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 September 30, 2023 combines the historical balance sheet of the Company as of September 30, 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 2 below, had been consummated on September 30, 2023.

The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2023 and year ended December 31, 2022 combine the historical statements of operations of Prairie LLC, 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 2 below, had been consummated on January 1, 2022.

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 2 below, occurred on January 1, 2022.

The unaudited pro forma condensed combined financial information is based on, and should be read in conjunction with, the audited historical financial statements of each of Prairie LLC as of December 31, 2022 and for the period from June 7, 2022 (date of inception) to December 31, 2022, the Company as of and for the year ended December 31, 2022, and NRO as of and for the year ended December 31, 2022 and the notes thereto, the unaudited historical financial statements of the Company and NRO as of and for the nine months ended September 30, 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, 2022, filed with the SEC on March 31, 2023, and in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2023, filed with the SEC on November 14, 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 2 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. Subsequent Events

Reverse Stock Split

On October 12, 2023, the Company filed the Certificate of Amendment with the Delaware Secretary of State to effect the Reverse Stock Split. The Reverse Stock Split became effective on October 16, 2023. The Reverse Stock Split decreased the number of outstanding shares and increased net loss per common share. All per share and share amounts presented have been retroactively adjusted for the effect of this reverse stock split for all periods presented.

Conversion of AR Debentures

In October 2023, conversion notices were received from holders of the AR Debentures and the Company issued 400,667 shares of Common Stock to effect the conversion. As a result, the AR Debentures were fully extinguished in October 2023.

Exercise of Series D B Warrants

On November 13, 2023, O’Neill Trust delivered notice to the Company of the exercise of Series D B Warrants to purchase 2,000,000 shares of Common Stock at an exercise price of $6.00 per share for total proceeds to the Company of $12 million.

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.

Genesis Bolt-on Acquisition

On February 5, 2024, the Company acquired oil and natural gas properties comprised of a 1,280 acre drillable spacing unit and eight permitted drilling locations in the DJ Basin from a private seller for $900,000.

Note 3. 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	$	93,904,482
Liabilities assumed:
Asset retirement obligation, long-term	$	750,142

(1)	Includes preliminary customary purchase price adjustments.
(2)	Represents the Deposit paid by the Company to NRO (See Note 2).
(3)	Represents the estimated fair value of $11.5 million of spud fee cash payments 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 4. 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 $1.7 million. It requires presentation within discontinued operations upon the issuance of future financial statements.

Note 5. Unaudited Pro Forma Adjustments

The pro forma adjustments included in the unaudited pro forma condensed combined balance sheet as of September 30, 2023 and in the unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2023 and year ended December 31, 2022 are as follows:

(a)	Reflects the conversion of the AR Debentures into common shares and payment of accrued interest in cash.
(b)	Reflects the exercise of Series D B Warrants for $12.0 million and issuance of 2,000,000 shares of Common Stock.
(c)	Reflects the reclassification of warrant liabilities, Series D Preferred Stock and Series E preferred stock of the Company, par value $0.01 per share, upon the consummation of the Reverse Stock Split.
(d)	Reflect the adjustments to remove the historical financial results of NRO.
(e)	Reflects the adjustment for the Company’s Deposit utilized to partially fund the NRO Acquisition.
(f)	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.
(g)	Reflects the adjustment to record the Crypto Sale.
(h)	Reflects the adjustment to depreciation expense due to fair value allocated at the Merger and useful life of the acquired assets.

(i)	Reflects the reclassification of stock based compensation to conform to the Company’s financial statement presentation.
(j)	Reflects the adjustment to interest expense from the conversion of notes payable and the Original Debentures.
(k)	Reflect the adjustments to reflect the NRO acquisition based on information provided by NRO and adjust for depreciation, depletion and amortization expense associated with the NRO Acquisition.
(l)	Reflects the adjustment to recognize interest expense on the deferred cash consideration on an effective interest method.
(m)	Reflects the estimated income tax effects of the adjustments calculated using the federal statutory tax rate of 21% and a statutory Colorado income tax rate of 4.4%.
(n)	Reflects the adjustment to interest expense from the conversion of the AR Debentures.
(o)	Reflects the adjustment required to reflect classification of warrant liabilities within stockholders’ equity in conjunction with the Reverse Stock Split.
(p)	Reflects the adjustment to reflect the conversion of the AR Debentures into shares of Common Stock.
(q)	Reflects the adjustment to record the Genesis Bolt-on Acquisition.
(r)	Reflects weighted average shares of Common Stock after the impact of the Transactions and the Subsequent Events described in Note 2. The following table sets forth the computation of pro forma weighted average shares of Common Stock for the nine months ended September 30, 2023 and year ended December 31, 2022:

	Nine months ended September 30, 2023		Year ended December 31, 2022
Weighted average shares of Common Stock outstanding, basic and diluted (prior to the Transactions)		137,006		—
Net adjustment upon consummation of the Transactions to reflect the issuance of shares of Common Stock		6,158,585		6,158,585
Adjustment upon issuance of shares of Common Stock associated with conversion of the AR Debentures		400,667		400,667
Adjustment upon the issuance of shares of Common Stock associated with the Warrant Exercise		2,000,000		2,000,000
Adjustment from the Common Stock expected to be issued in the Offering (see Note 6)		12,135,922		12,135,922
Weighted average shares of Common Stock outstanding, basic (Pro Forma)		20,832,180		20,695,174
Common Stock warrants		13,674,938		13,674,938
Series D Preferred Stock		4,359,800		4,359,800
Series E Preferred Stock		4,000,000		4,000,000
Weighted average shares of Common Stock outstanding, diluted (Pro Forma)		42,866,918		42,729,912

Note 6. 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 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 February 1, 2024 of $8.24, we expect to issue approximately 12.1 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	$	8.24		12,135,922
10% increase		9.06		11,037,528
10% decrease		7.42		13,477,089

Note 7. 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 oil and natural gas reserves as of December 31, 2022 for Prairie LLC 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, 2022.

	Prairie		Nickel Road (Total)		Nickel Road (Unacquired)			Nickel Road (Acquired) (1)		Pro Forma Combined
Estimated Proved Developed Reserves:
Oil (Bbl)		—		2,599,723		(128,190	)		2,471,533		2,471,533
Natural Gas (Mcf)		—		6,452,542		(213,658	)		6,238,884		6,238,884
Natural Gas Liquids (Bbl)		—		1,103,821		(36,684	)		1,067,137		1,067,137
Total (Boe)(2)		—		4,778,968		(200,484	)		4,578,483		4,578,483
Estimated Proved Undeveloped Reserves:
Oil (Bbl)		—		4,657,880		(27,183	)		4,630,697		4,630,697
Natural Gas (Mcf)		—		12,443,577		(72,494	)		12,371,083		12,371,083
Natural Gas Liquids (Bbl)		—		2,256,278		(13,048	)		2,243,230		2,243,230
Total (Boe)(2)		—		8,988,088		(52,313	)		8,935,774		8,935,774
Estimated Proved Reserves:
Oil (Bbl)		—		7,257,603		(155,373	)		7,102,230		7,102,230
Natural Gas (Mcf)		—		18,896,119		(286,151	)		18,609,968		18,609,968
Natural Gas Liquids (Bbl)		—		3,360,099		(49,733	)		3,310,366		3,310,366
Total (Boe)(2)		—		13,767,055		(252,798	)		13,514,257		13,514,257

(1)	Represents reserves associated with the assets acquired from NRO.
(2)	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, 2022 for Prairie LLC 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, 2022 of NRO and information provided by NRO.

	Prairie		Nickel Road (Total)		NRO (Unacquired)			NRO Acquired (1)		Pro Forma Combined
Oil (Bbl)		—		618,787		(123,681	)		495,106		495,106
Natural Gas (Mcf)		—		919,804		(188,311	)		731,493		731,493
Natural Gas Liquids (Bbl)		—		161,585		(32,078	)		129,507		129,507
Total (Boe)(2)		—		933,673		(187,144	)		746,529		746,529

(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, 2022. The unaudited combined standardized measure of discounted future net cash flows are as follows:

	Prairie		NRO (Total) (1)			Combined
Future cash inflows	$	—	$	883,016,626		$	883,016,626
Future production costs		—		(293,548,055	)		(293,548,055	)
Future development costs		—		(147,621,778	)		(147,621,778	)
Future income tax expense		—		—			—
Future net cash flows		—		441,846,793			441,846,793
10% annual discount for estimated timing of cash flows		—		(197,175,725	)		(197,175,725	)
Standardized measure of discounted future net cash flows	$	—	$	244,671,068		$	244,671,068

(1) Represents the total amounts as reported in NRO’s consolidated financial statements as of and for the year ended December 31, 2022.

XML

Cover	Feb. 09, 2024
Cover [Abstract]
Document Type	8-K/A
Amendment Flag	true
Amendment Description	Amendment No. 1
Document Period End Date	Feb. 09, 2024
Entity File Number	001-41895
Entity Registrant Name	Prairie Operating Co.
Entity Central Index Key	0001162896
Entity Tax Identification Number	98-0357690
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	602 Sawyer Street
Entity Address, Address Line Two	Suite 710
Entity Address, City or Town	Houston
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	77007
City Area Code	(713)
Local Phone Number	424-4247
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	PROP
Security Exchange Name	NASDAQ
Entity Emerging Growth Company	false