Deep Dive Into: (NASDAQ:PROP)
Can we See A Rally With A Chart Like This???
Surrounded by high-quality operators such as Chevron, Civitas, EOG, and Occidental…. Small-cap energy company Prairie Operating Co. (NASDAQ: PROP) may emerge as the next leader!
Billionaires like Warren Buffett are buying oil and gas handover first.
Discover why these wealthy investors are betting on domestic oil and gas and why underfollowed player Prairie Operating Co. (NASDAQ: PROP) could stand to capitalize!
Greetings Investors,
It is always interesting to learn how billionaires are investing their money. After all, these wealthy individuals have a knack for making money and often help other investors grow alongside them. Following their moves can prove to be profitable.
Why might oil and gas look so attractive to Buffett? It may be because of the prospect of Brent Crude Oil prices rising to US$200 per barrel!
Yes, you read that right. $200 per barrel may not be as remote as it sounds. Major disruptions to Russia's crude oil production and exports could result in prices this high.
"According to a scenario developed and modeled by The Conference Board, the economic implications of US$200 oil are acute. Inflation would spike around the world and economic growth would slow. Already high inflation rates in places like the United States and the Eurozone would rise even higher. While no global recession would likely result, economic downturns would be more severe in some economies than others."
In recent months Berkshire Hathaway, the holding company helmed by investing titan Warren Buffett, has upped its stake in Houston-based Occidental Petroleum, buying up shares to bring its holdings to almost 29% of the firm, according to SEC filings. Occidental Petroleum has a market cap in the tens of billions.
In fact, over the last two years, Buffett has allocated almost 10% of Berkshire Hathaway's holdings into oil and gas through investments in Occidental Petroleum as well as Chevron, which has a market cap in the hundreds of billions!
What if another Big Board oil and gas company operates in an area where Occidental and Chevron are? But has a market cap under $200M with tremendous growth potential?
Look no further because that company is Houston-based Prairie Operating Co. (NASDAQ: PROP!
COMPANY OVERVIEW
Prairie Operating Co. (NASDAQ: PROP) is a publicly traded independent energy company engaged in developing and acquiring proven, producing oil and natural gas resources in the United States.
The Company's assets and operations are concentrated in the oil and liquids-rich regions of the Denver-Julesburg (DJ) Basin, with a primary focus on the Niobrara and Codell formations. The Company is committed to the responsible development of its oil and natural gas resources. It maximizes returns through consistent growth, capital discipline, and sustainable cash flow generation.
The Company is additionally dedicated to developing affordable, reliable energy to meet the world's growing demand while continuing to protect the environment.
What Makes NASDAQ: PROP Stand Out?
- The company's share price is up nearly 500% in the last year alone.
- Drilling rights in an area where large oil and gas deposits are proven to exist. ~ 38,500 gross acres in Weld County, CO in the DJ Basin.
- Infrastructure (electricity, pipelines, roads, etc.) is already in place.
- Local landowners and government welcome drilling.
- Geology allows a well to be drilled quickly and economically.
- A seasoned management that knows the local market.
- Adequate capital to carry out its strategic plan, and ZERO debt.
A BOLD MOVE
Prairie Operating Co. (NASDAQ: PROP) was able to make its play in Weld Country due to a "weird market" for oil and gas assets.
This is what happened: When oil prices last slumped, the big companies didn't have enough free capital to invest in developing the land, and the "mom and pop" operations were either overleveraged or retiring and looking for an out.
The team at Prairie took advantage of this! The company gathered investors to participate in a $17 million convertible preferred share offering that closed in May 2023.
This offering attracted some notable investing crop … including the attention of a billionaire who saw an opportunity to get in early on a potential multi-billion-dollar company.
Thanks to this convertible offering, PROP began life completely debt-free, using a portion of the funds to purchase its initial leasehold in the DJ Basin!
PROP is building an unlevered, high-growth E&P company and is still at the beginning stages of its exciting Wall Street narrative! A target-rich environment gives the company ample opportunity to continue executing its acquisition strategy in the prolific DJ Basin.
The DJ Basin
The Denver-Julesberg (DJ) Basin is a significant oil and gas-producing region in the United States. It is known for its prolific shale formations and utilization of advanced drilling techniques like hydraulic fracturing and horizontal drilling to extract hydrocarbons.
Oil and gas production in the D-J Basin traces back to a discovery in Boulder County, Colorado, in 1901, marking a long history of energy development in the area. The basin is highly productive, primarily due to its stacked plays, similar to those in other regions like the Anadarko Basin (with its SCOOP and STACK plays) and the Permian Basin. This geological feature is a key reason for the high productivity of wells in the DJ Basin.
- Colorado is the fifth-largest crude oil-producing state in the U.S., trailing behind Texas, New Mexico, North Dakota and Alaska.
- The DJ Basin accounts for most of that production; nearly 90% of Colorado crude comes from Weld County, one of five counties the basin spans in the state.
Read how Chevron describes the DJ Basin here: https://www.chevron.com/newsroom/2023/q3/explainer-what-is-the-dj-basin 
The DJ Basin in Colorado is a key location for many leading oil and gas companies, including both major players and smaller independents. Among the public companies with the largest presence in the basin are EOG Resources, Civitas, Chevron, and Occidental.
The Trillionaire Neighbors...
Key players like Chevron and Occidental Petroleum have operations right next to Prairie's 38,500+ acre lease.
To reiterate, Occidental is a company Warren Buffett is betting big on!
In recent years, the DJ Basin has been a hotspot for M&A:
- Occidental Petroleum Corporation's acquisition of Anadarko Petroleum in August 2019 for $38 billion, a deal that included taking on Anadarko's debt. This acquisition was one of the largest in the industry and significantly expanded Occidental's footprint in the region.
- Chevron Corporation's acquisition of Noble Energy, Inc. in 2020 through an all-stock deal valued at $5 billion. Noble Energy had a significant presence in the DJ Basin, enhancing Chevron's operations in the area.
- Chevron's acquisition of PDC Energy in August 2023, another all-stock transaction, this time valued at $7.6 billion, including debt. Through this deal, Chevron gained 275,000 net acres in the DJ Basin, adjacent to its existing operations in northeast Colorado, reinforcing its position in the basin.
- PDC Energy's acquisition of SRC Energy (formerly Synergy Resources) in an all-stock deal valued at about $1.7 billion. This merger expanded PDC Energy's footprint in the DJ Basin.
- The merger of Bonanza Creek Energy with Extraction Oil & Gas in 2021, which resulted in the creation of Civitas Resources, Inc. This merger established a leading presence in the DJ Basin with a combined enterprise value of around $2.6 billion.
- Civitas Resources' acquisition of Bison Oil & Gas II, a privately held operator in the DJ Basin, for approximately $346 million.
- Williams' acquisition of Cureton Front Range and the remaining 50% of Rocky Mountain Midstream Holdings from KKR in November 2023 for $1.3 billion.
Source
Could there be BUYOUT potential in Prairie Operating Co. (NASDAQ: PROP)'s future?
With majors like Chevron, Occidental, EOG, Civitas, and Samson in its backyard, Prairie has a real opportunity to eventually attract a takeover suitor.
Let's elaborate on this….
A STRATEGIC ACQUISITION
Prairie Operating Co. (NASDAQ: PROP) kicked off 2024 by announcing that the company has entered into a definitive agreement to acquire the assets of Nickel Road Operating LLC ("NRO") for $94.5 million. The total consideration consists of $83 million in cash and $11.5 million in deferred cash payments.
Source: Nickel Road Operating LLC
The addition of NRO's assets strategically expands Prairie's core operating area, increases inventory of high rate-of-return drilling locations, and provides additional flexibility to the 2024 drill schedule.
- The transaction adds over 5,500 net leasehold acres and 62 fully permitted proven undeveloped ("PUD") drilling locations.
- The 84% liquids weighted assets produce approximately 3,370 net boed and add third-party engineered proven reserves estimated at 22.2 MMboe and $254 million in PV10 value, according to an independent, third-party reserve report by Cawley, Gillespie & Associates, Inc.
NRO's assets and operations are located near Prairie's existing DJ basin operations in largely rural Weld County, Colorado. The permitted PUDs are expected to payout in approximately 1 year from the onset of production and are economic in a low commodity price environment, with operational break-evens below $30/bbl WTI. In addition, existing infrastructure provides takeaway capacity and opportunities to improve efficiencies.
"This acquisition increases and strengthens our overall position within a top-tier U.S. shale basin and aligns with our strategy of creating value through accretive acquisitions. Furthermore, the transaction positions us to accelerate our development program within free cash flow, supporting the Company's stated goal of debt-free, long-term growth."
- Ed Kovalik, Chairman and Chief Executive Officer of the Company.
The Next Permian Basin
The DJ Basin has the potential to become the next Permian Basin!
The Permian Basin lies at the center of America's energy security. If the Permian were a country, it would be the world's third-largest oil producer.
Big players in this area include Concho, Endeavor, Chevron, ExxonMobil, and Diamondback Energy. Diamondback Energy (FANG)'s work in the Permian Basin resulted in their stock price rising from a measly $18 in March 2020 to the massive $150 it's at today!.
Diamondback Energy's recent acquisition of Endeavor Energy for $26 billion has created the third-largest oil producer in the Permian Basin.
The fracking revolution of the early 2000s made the Permian Basin in West Texas one of the world's most productive (and most profitable) oil regions.
In fact, in the last 5 years, the Permian Basin has been at the center of some of America's great stock market success stories.
The DJ Basin may turn into the next center of America's energy security and Prairie Operating Co. (NASDAQ: PROP) aims to be at the forefront – led by a seasoned team of executives!
THE TEAM
The PROP senior management team has a long record of commitment to responsible investment and safe operations. Management has over 100 years of operational experience around the world and applies best practices from the board room to field operations!
President Gary Hanna has over 40 years of corporate and start up experience in exploration and production. Previously, he served as Chairman, President and CEO of KLR Energy, which turned pure-play Permian Basin company Rosehill Resources into a 22,000 BOEPD producer. Before that, he was the Chairman, President and CEO of EPL Oil & Gas, which eventually got bought out in an all-cash transaction of $2.4 billion.
Prairie's Chairman and CEO Ed Kovalik was previously a managing member of the KLR Group, a merchant bank focused on the energy sector. He was part of the team that grew Rosehill Resources into a company with $750 million in enterprise value.
Prairie's Executive Operations Engineer Bryan Freeman is the former Senior VP of Drilling and Completions at Rosehill. He managed large production teams at SM Energy, Hess and Chevron as well.
This is a team that has made serious money for shareholders before and is aiming to do it again with Prairie Operating Co. (NASDAQ: PROP)!
In Summary
With estimated potential reserves of 285.3 million barrels of oil equivalent, Prairie Operating Co. (NASDAQ: PROP) could be well positioned to generate a major cash flow, especially if oil prices head higher.
The fact that the company's management indicates that Prairie could remain profitable even if oil prices tumble to $40ish per barrel - this screams in volumes.
With the potential war in the Middle East threatening to spike oil prices across the globe, a domestic oil play like Prairie provides a compelling risk/reward profile.
Let's recap the company's highlights:
- Fully engineered proven reserves with over $250mm in PV10 value
- 45,000 acres de-risked by Chevron, Civitas, EOG, and Occidental
- Deep inventory across multiple benches supports long-term development plans
- Strong projected returns with low break-evens and operating expenses
- Fast capital recycle times increase drilling cadence and production timing
- Ability to optimize by applying enhanced D&C techniques Improves cash flow potential with no leverage
- Management team with decades of industry experience with publicly traded E&Ps
- Successful track record of building and monetizing multi-billion-dollar companies
With its promising position in the DJ Basin and the potential to create a solid cash flow, investors would be wise to have Prairie Operating Co. (NASDAQ: PROP) high on their watchlist!
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