Fair Value Measurements

6 Months Ended

Jun. 30, 2026

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 5 – Fair Value Measurements

Certain of the Company’s assets and liabilities are carried at fair value and measured on either a recurring or non-recurring basis. Per ASC Topic 820, Fair Value Measurements and Disclosures, fair value is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market–based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

The GAAP fair value valuation hierarchy categorizes assets and liabilities measured at fair value into one of three levels depending on the observability of the inputs used in determining fair value. The three levels of the fair value hierarchy are as follows:

● Level 1 valuations – Consist of observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date.

● Level 2 valuations – Consist of observable market–based inputs or unobservable inputs that are corroborated by market data. These are inputs other than quoted prices in active markets included in Level 1 that are either directly or indirectly observable as of the reporting date.

● Level 3 valuations – Consist of unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value.

The classification of an asset or liability within the fair value hierarchy is based on the lowest level input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement of an asset or liability requires judgment and may affect the valuation of the fair value asset or liability and its placement within the fair value hierarchy. There have been no transfers between fair value hierarchy levels.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, other current assets, accounts payable, and other current liabilities on the condensed consolidated balance sheets approximate fair value because of their short–term nature. Additionally, the carrying value of the Company’s reserve–based credit agreement with Citibank, N.A. (“Citi”) (the “Credit Facility”) approximates fair value as it is subject to short–term floating interest rates that reflect market rates available to the Company at the time of borrowing.

Liabilities Measured at Fair Value on a Recurring Basis

The following tables summarize the Company’s assets and liabilities which were measured at fair value on a recurring basis as of the periods presented and their classification within the fair value hierarchy:

	Fair Value Measurement as of June 30, 2026
	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities:
Commodity derivative contracts	$	31,665	$	—	$	31,665	$	—
Subordinated note warrants – related party	$	26	$	—	$	—	$	26
Series F Preferred Stock embedded derivatives	$	12,262	$	—	$	—	$	12,262
Series F Preferred Stock anniversary warrants	$	9,492	$	—	$	—	$	9,492
Incremental share right liability	$	15,264	$	15,264	$	—	$	—

	Fair Value Measurement as of December 31, 2025
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Commodity derivative contracts	$	53,439	$	—	$	53,439	$	—
Liabilities:
Subordinated note warrants – related party	$	316	$	—	$	—	$	316
Series F Preferred Stock embedded derivatives	$	15,853	$	—	$	—	$	15,853
Series F Preferred Stock anniversary warrants	$	90,134	$	—	$	—	$	90,134

Commodity derivative contracts. The fair values of the Company’s derivative instruments are measured on a recurring basis using a discounted cash flow model which considers various inputs such as quoted forward commodity prices, discount rates, and current market and contractual prices and terms for the underlying instruments, as well as other relevant data. These significant inputs are observable in the current market or can be corroborated by observable active market data and are therefore considered Level 2 inputs within the fair value hierarchy. As of June 30, 2026, the fair value of the Company’s commodity derivative contracts was a liability of $31.7 million, of which $17.0 million was considered a current liability. As of December 31, 2025, the fair value of the Company’s commodity derivative contracts was an asset of $53.4 million, $28.8 million of which was considered a current asset.

The Company has several financial instruments which were evaluated for embedded derivatives and bifurcation in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”) at the time of issuance. As a result, the Company reflects these financial instrument liabilities at their fair value on its condensed consolidated balance sheets and reflects the changes in the fair values of the liabilities as gain (loss) on adjustment to fair value – financial instrument liabilities on its condensed consolidated statements of operations. The following table presents the changes in the Company’s financial instruments presented at fair value for the periods indicated:

	June 30, 2026			December 31, 2025
	(In thousands)
Subordinated note warrants – related party, at the beginning of the period	$	316		$	4,159
Gain on adjustment to fair value		(290	)		(3,843	)
Subordinated note warrants – related party, at the end of the period	$	26		$	316
Series F Preferred Stock embedded derivatives, at the beginning of the period	$	15,853		$	—
Embedded derivatives recognized at issuance of Series F Preferred Stock		—			25,479
Redemption of Series F Preferred Stock		7,396			—
Gain on adjustment to fair value		(10,987	)		(9,626	)
Series F Preferred Stock embedded derivatives, at the end of the period	$	12,262		$	15,853
Series F Preferred Stock anniversary warrants, at the beginning of the period	$	90,134		$	—
Issuance of Series F Preferred Stock		—			22,115
Redemption of Series F Preferred Stock		(51,324	)		—
(Gain) loss on adjustment to fair value		(29,319	)		68,019
Series F Preferred Stock anniversary warrants, at the end of the period	$	9,492		$	90,134
Incremental share right liability, at the beginning of the period	$	—		$	—
Issuance of incremental share rights		17,757			—
Gain on adjustment to fair value		(2,493	)		—
Incremental share right, at the end of the period	$	15,264		$	—

The following table presents the face value and fair value of each financial instrument presented at fair value on the Company’s condensed consolidated balance sheets as of the periods presented:

	June 30, 2026				December 31, 2025
	Face Value		Fair Value		Face Value		Fair Value
	(In thousands)
Subordinated note warrants – related party	$	—	$	26	$	—	$	316
Series F Preferred Stock embedded derivatives	$	—	$	12,262	$	—	$	15,853
Series F Preferred Stock anniversary warrants	$	—	$	9,492	$	—	$	90,134
Incremental share right liability	$	—	$	15,264	$	—	$	—

Subordinated Note Warrants. Pursuant to the terms of the Subordinated Note (defined herein), the Company issued to the Noteholders (defined herein) warrants (the “Subordinated Note Warrants”) to purchase up to 1,141,552 shares of Common Stock, vesting in tranches based on the date of repayment of the Subordinated Note. The Company has determined that the Subordinated Note Warrants should be accounted for as a liability pursuant to ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”). In accordance with ASC 815, the Company recorded the Subordinated Note Warrants at fair value and remeasures the fair value each reporting period with changes in fair value recognized in earnings.

The Company engaged a third–party valuation expert to assist in preparing the fair value of the Subordinated Note Warrants as of June 30, 2026 and December 31, 2025. These estimates were derived using a Monte Carlo simulation model and the significant inputs listed below, which are based on unobservable market data and are therefore considered Level 3 inputs within the fair value hierarchy.

	Key Inputs
Subordinated Note Warrants – Monte Carlo Simulation Model	June 30, 2026			December 31, 2025
Time to termination (years)		3.25			3.75
Stock price – as of period indicated	$	0.72		$	1.69
Exercise price	$	8.89		$	8.89
Risk–free rate		4.07	%		3.55	%
Equity volatility rate		75.0	%		85.0	%

As of June 30, 2026, the fair value of the Subordinated Note Warrants was less than $0.1 million compared to $0.3 million as of December 31, 2025, which is presented in other long-term liabilities on the Company’s condensed consolidated balance sheets. The Company recognized the change in fair value of $0.7 million and $0.3 million as a component of the gain (loss) on adjustment to fair value – financial instrument liabilities on its condensed consolidated statements of operations for the three and six months ended June 30, 2026, respectively. Refer to Note 14 – Common Stock Options and Warrants for a further discussion of the Subordinated Note Warrants.

Series F Preferred Stock. On March 24, 2025, the Company entered into a securities purchase agreement (the “Series F Preferred Securities Purchase Agreement”) with an investor (the “Series F Preferred Stockholder”), pursuant to which the Series F Preferred Stockholder agreed to purchase for an aggregate of $148.3 million (i) 148,250 shares of Series F Preferred Stock, with a stated value of $1,000 per share (the “Stated Value”), convertible into shares of Common Stock and (ii) upon the one–year anniversary of the issue date of the Series F Preferred Stock, which was subsequently extended to August 7, 2026 and further extended to August 31, 2026 (“Series F Preferred Stock Anniversary Warrant Issuance Date”), subject to the satisfaction of certain conditions, warrants to purchase shares of Common Stock (the “Series F Preferred Stock Anniversary Warrants”) (collectively, the “Series F Preferred Offering”). Refer to Note 18 – Subsequent Events for a discussion of the extensions of the Series F Preferred Stock Anniversary Warrant Issuance Date which occurred subsequent to June 30, 2026. On March 26, 2025, the Series F Preferred Stock Offering closed, and the Company issued the Series F Preferred Stock to the Series F Preferred Stockholder.

The Company has determined that the Series F Preferred Stock should be classified as mezzanine equity because it is currently redeemable at the Series F Preferred Stockholder’s option. Additionally, the Company determined that certain features of the Series F Preferred Stock require bifurcation and separate accounting as embedded derivatives. Therefore, in accordance with ASC 815, the Company has recorded the embedded derivatives associated with the Series F Preferred Stock at fair value and remeasures the fair value each reporting period with changes in fair value recognized in earnings.

The Company engaged a third-party valuation expert to assist in preparing the fair value of the Series F Preferred Stock embedded derivatives as of the dates below. These estimates were derived using a Monte Carlo simulation model and the significant inputs listed below, which are based on unobservable market data and are therefore considered Level 3 inputs within the fair value hierarchy.

	Key Inputs
Series F Preferred Stock Embedded Derivatives – Monte Carlo Simulation Model	June 30, 2026			April 8, 2026			December 31, 2025
Time to termination (years)		3.24			3.47			3.16
Stock price – as of period indicated	$	0.72		$	2.10		$	1.69
Conversion rate		202.02			202.02			202.02
Stated dividend rate		12.0	%		12.0	%		12.0	%
Transaction discount		28.2	%		30.2	%		32.5	%
Risk-free rate		4.07	%		3.74	%		3.50	%
Preferred equity volatility rate		45.0	%		54.0	%		54.0	%

On April 8, 2026, the Company and the Series F Preferred Stockholder entered into a letter agreement (the “First Series F Preferred Stock Letter Agreement”), pursuant to which, among other things, the Company repurchased 13,727 shares of Series F Preferred Stock from the Series F Preferred Stockholder for an aggregate purchase price of $19.0 million payable in cash, plus all accrued but unpaid dividends on such shares of Series F Preferred Stock through and including the date upon which such shares of Series F Preferred Stock were repurchased (which accrued and unpaid dividends were paid in the form of the Company’s Common Stock issued to the Series F Preferred Stockholder in an amount equal to all such accrued but unpaid dividends, divided by the Market Stock Payment Price (as defined in the Prairie Operating Co. Certificate of Designation of Preferences, Rights and Limitations of Series F Convertible Preferred Stock (the “Series F Preferred Stock Certificate of Designation”) as of the date of the First Series F Letter Agreement, rounded up to the next whole share) (the “Series F Preferred Stock Repurchase Price”).

Additionally, the First Series F Preferred Stock Letter Agreement amended the definition of the Market Stock Payment Price used in calculating the Alterative Conversion Rate to be based upon the average of the two lowest daily volume-weighted average per share trading prices of the Company’s Common Stock during any five consecutive trading-day period that occurred within the 35 trading-day period ending on the date of such calculation (in lieu of the five trading-day period previously set forth in the Series F Preferred Stock Certificate of Designation). The parties further agreed that the Cash Sweep Amount set forth in the Series F Preferred Stock Certificate of Designation shall mean (a) with respect to any Cash Sweep Financing (as defined in the Series F Preferred Stock Certificate of Designation), 50% of the net proceeds from such financing and (b) with respect to any Distributable Free Cash Flow Action (as defined in the Series F Preferred Stock Certificate of Designation), 25% of the amount of such dividend, distribution, prepayment, or investment, as applicable. The Company may request to settle the Cash Sweep Amount in Common Shares.

The partial redemption of the Series F Preferred Stock and the amendments to the Series F Preferred Stock Certificate of Designation increased the fair value of the Series F Preferred Stock embedded derivative to $18.6 million, resulting in a deemed dividend of $7.4 million, which is presented in the remeasurement of Series F Preferred Stock line item on the condensed consolidated statements of operations for the three and six months ended June 30, 2026.

As of June 30, 2026, the fair value of the Series F Preferred Stock embedded derivatives was $12.3 million compared to $15.9 million as of December 31, 2025, which is presented on the Company’s condensed consolidated balance sheets as a liability. Unrelated to the redemption, the Company recognized $10.9 million and $11.0 million as changes in fair value presented as components of gain (loss) on adjustment to fair value – financial instrument liabilities on its consolidated statements of operations for the three and six months ended June 30, 2026, respectively. For the three and six months ended June 30, 2025, the Company recognized $18.1 million and $18.2 million, respectively, as changes in fair value presented as components of gain (loss) on adjustment to fair value – financial instrument liabilities on its consolidated statements of operations. Refer to Note 12 – Mezzanine Equity for a further discussion of the Series F Preferred Stock.

Series F Preferred Stock Anniversary Warrants. As discussed above, subject to the satisfaction of certain conditions, the Series F Preferred Stockholder will receive warrants to purchase shares of Common Stock.

The Company has determined that the Series F Preferred Stock Anniversary Warrants are not considered indexed to the Company’s own stock because the potential number of Common Stock shares to be issued upon the exercise of such warrants will vary based on the amount of Series F Preferred Stock outstanding on the Series F Preferred Stock Anniversary Warrant Issuance Date. As such, the Company has determined that the Series F Preferred Stock Anniversary Warrants should be accounted for as liabilities pursuant to ASC 480. In accordance with ASC 815, the Company recorded the Series F Preferred Stock Anniversary Warrants at fair value and remeasures the fair value each reporting period with changes in fair value recognized in earnings.

The Company engaged a third-party valuation expert to assist in preparing the fair value of the Series F Preferred Stock Anniversary Warrants as of the dates below. These estimates were derived using a Monte Carlo simulation model and the significant inputs listed below, which are based on unobservable market data and are therefore considered Level 3 inputs within the fair value hierarchy.

	Key Inputs
Series F Preferred Stock Anniversary Warrants – Monte Carlo Simulation Model	June 30, 2026			June 10, 2026			April 8, 2026			December 31, 2025
Time to termination (years)		4.74			4.79			4.96			5.23
Stock price – as of period indicated	$	0.72		$	0.84		$	2.10		$	1.69
Exercise price	$	1.89		$	1.89		$	1.89		$	2.05
Future value of one Series F Preferred Stock Warrant share	$	0.33		$	0.42		$	1.53		$	0.31
Risk-free rate		4.10	%		4.17	%		3.84	%		3.69	%
Equity volatility rate		80.0	%		80.0	%		90.0	%		85.0	%

On March 25, 2026, the Company and the Series F Preferred Stockholder entered into an Amendment to the Securities Purchase Agreement and Form of Anniversary Warrant (the “First Series F Preferred Stock Warrant Amendment”), which, among other things, extended the issuance date of the Series F Preferred Stock Anniversary Warrants from March 26, 2026 to April 7, 2026. These amendments decreased the fair value of the Series F Preferred Anniversary Warrants to $35.5 million, resulting in a deemed dividend of $51.3 million, which is presented in the remeasurement of Series F Preferred Stock line item on the condensed consolidated statements of operations for the three and six months ended June 30, 2026.

On April 6, 2026, the Company and the Series F Preferred Stockholder entered into an Amendment and Restatement of Amendment to Securities Purchase Agreement and Form of Anniversary Warrant (the “Second Series F Preferred Stock Warrant Amendment”). Among other things, the Second Series F Preferred Stock Warrant Amendment amended and restated the First Series F Preferred Stock Warrant Amendment to extend the issuance date of the Series F Preferred Stock Anniversary Warrants from April 7, 2026 to April 9, 2026.

On April 8, 2026, the Company entered the First Series F Preferred Stock Letter Agreement, pursuant to which, among other things, the parties further extended the issuance date of the Series F Preferred Stock Anniversary Warrants from April 9, 2026 to July 8, 2026 and reduced the number of Common Stock shares issuable upon exercise of the Series F Preferred Stock Anniversary Warrants from (1) a number of shares equal to the quotient of (i) 125% of the Stated Value of all Series F Preferred Stock held on the original issuance date of the Series F Preferred Stock (the “Original Issuance Date”), divided by (ii) the average of the 10 daily volume–weighted average per share trading prices of the Company’s Common Stock during the 10 trading-days prior to Original Issuance Date, to (2) a number of shares equal to the quotient of (i) 75% of the Stated Value of all Series F Preferred Stock held on July 8, 2026, divided by (ii) the average of the 10 daily volume–weighted average per share trading prices of the Company’s Common Stock during the 10 trading-days prior to the Series F Preferred Stock Anniversary Warrant Issuance Date.

On June 10, 2026, the Company and the Series F Preferred Stockholder entered into another letter agreement (the “Second Series F Preferred Stock Letter Agreement”). Pursuant to the Second Series F Preferred Stock Letter Agreement, among other things, the parties further extended the issuance date of the Series F Preferred Stock Anniversary Warrants to August 7, 2026, which date was subsequently extended to August 31, 2026 (refer to Note 18 – Subsequent Events for a discussion of the extensions of the Series F Preferred Stock Anniversary Warrant Issuance Date which occurred subsequent to June 30, 2026), and reduced the number of Common Stock shares issuable upon exercise of the Series F Preferred Stock Anniversary Warrants to a number of shares equal to the quotient of (i) 65% of the Stated Value of all Series F Preferred Stock held on the Series F Preferred Stock Anniversary Warrant Issuance Date, divided by (ii) the average of the 10 daily volume-weighted average per share trading prices of the Company’s Common Stock during the 10 trading-days prior to the Series F Preferred Stock Anniversary Warrant Issuance Date. These modifications further decreased the fair value of the Series F Preferred Anniversary Warrants to $11.7 million, resulting in a change of fair value of $2.2 million, which is presented as a component of gain (loss) on adjustment to fair value – financial instrument liabilities on the consolidated statements of operations for the three and six months ended June 30, 2026.

As of June 30, 2026, the fair value of the Series F Preferred Stock Anniversary Warrants was $9.5 million compared to $90.1 million as of December 31, 2025, which is presented on the Company’s condensed consolidated balance sheets as a liability. Unrelated to the redemption of the Series F Preferred Stock and modification of the Series F Preferred Stock Anniversary Warrants, the Company recognized $2.2 million and $27.1 million as changes in fair value presented as components of gain (loss) on adjustment to fair value – financial instrument liabilities on its consolidated statements of operations for the three and six months ended June 30, 2026, respectively. For the three and six months ended June 30, 2025, the Company recognized a $21.6 million change in fair value as a component of gain (loss) on adjustment to fair value – financial instrument liabilities on its consolidated statements of operations.

Refer to Note 12 – Mezzanine Equity and Note 14 – Common Stock Options and Warrants for a further discussion of the Series F Preferred Stock Anniversary Warrants.

Incremental Share Right Liability. Pursuant to the Second Series F Preferred Stock Letter Agreement, the Company agreed, among other things, with respect to the remaining shares of the Series F Preferred Stock held by the Series F Preferred Stockholder, to allow the Series F Preferred Stockholder to convert such shares into an incremental amount of additional shares of the Company’s Common Stock in an aggregate amount not to exceed 21,156,339 shares of Common Stock and otherwise pursuant to and in accordance with the Series F Preferred Stock Certificate of Designation (the “Incremental Share Rights”). The Incremental Share Rights can be converted at any time and at any price. As such, the Company has determined that the Incremental Share Rights should be accounted for as a liability pursuant to ASC 480. In accordance with ASC 815, the Company recorded the Incremental Share Rights at fair value and will remeasure the fair value each reporting period with changes in fair value recognized in earnings.

The Company used the closing share price on the date of measurement to determine the fair value of the Incremental Share Rights liability, which is an observable input reflecting unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date and is therefore considered a Level 1 input within the fair value hierarchy.

As of June 30, 2026, the fair value of the Incremental Share Rights was $15.3 million, which is presented on the Company’s condensed consolidated balance sheet as a liability, compared to the issuance fair value of $17.8 million. The Company recognized the $2.5 million change as a component of gain (loss) on adjustment to fair value – financial instrument liabilities on its consolidated statements of operations for the three and six months ended June 30, 2026.

Assets and Liabilities Measured at Fair Value on a Non–Recurring Basis

Acquisition assets and liabilities. The fair values of assets acquired and liabilities assumed in an acquisition are measured on a non–recurring basis on the acquisition date. If the assets acquired and liabilities assumed are current and short–term in nature, the Company uses their approximate carrying values as their fair values, which is considered a Level 1 input in the fair value hierarchy. If the assets acquired are not short–term in nature, then the fair value is determined using the estimated replacement values of the same or similar assets and, as such, are considered Level 3 inputs in the fair value hierarchy. Refer to Note 3 – Acquisitions for a further discussion of the Company’s acquisitions.