Acquisitions and Merger

6 Months Ended

Jun. 30, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

Acquisitions and Merger

Note 4 – Acquisitions and Merger

NRO Acquisition

On January 11, 2024, the Company entered into an asset purchase agreement (the “NRO Agreement”) with Nickel Road Development LLC, Nickel Road Operating, LLC, (“NRO”) and Prairie Operating Co., LLC to acquire certain assets owned by NRO (the “Central Weld Assets”) 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 $9.0 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 closing date and August 15, 2024. Portions of the Deposit are subject to earlier release under certain circumstances.

The outside date for the closing of the NRO Acquisition is August 15, 2024, with an economic effective date of February 1, 2024. The Company expects to fund the transaction through a combination of public or private issuance of equity, cash on hand, proceeds from existing warrant exercises or short-term debt. The Company expects to close the NRO Acquisition in August 2024. However, there can be no assurances that the funding required to close can be attained on or before August 15, 2024 or that the Company will be able to close the NRO Acquisition on or before August 15, 2024, or at all. If we are unable to close the NRO Acquisition by August 15, 2024, or to extend the outside date, NRO could terminate the Agreement.

Genesis Bolt–on Acquisition

On February 5, 2024, the Company acquired a 1,280–acre drillable spacing unit and eight proved undeveloped drilling locations in the DJ Basin (the “Genesis Bolt–on Assets”) from a private seller for $0.9 million. These assets offset the other oil and gas assets held by the Company in northern Weld County, Colorado.

Initial Genesis Asset Acquisitions

Upon closing of the Merger, the Company consummated the purchase of oil and gas leases from Exok, Inc. (“Exok”), including all of Exok’s right, title, and interest in, to and under certain undeveloped oil and gas leases located in Weld County, Colorado, together with certain other associated assets, data, and records, for $3.0 million (the “Exok Transaction”).

On August 15, 2023, Prairie LLC exercised the option it acquired in the Exok Transaction and purchased additional oil and gas leases from Exok, consisting of approximately 20,328 net mineral acres in, on and under approximately 32,695 gross acres (the “Exok Option Purchase”) for total consideration of $25.3 million. The total consideration consisted of $18.0 million in cash to Exok, which was funded with the Series E PIPE (as defined herein), and equity consideration to certain affiliates of Exok consisting of (i) 670,499 shares of common stock, and (ii) warrants providing the right to purchase 670,499 shares of common stock at $7.43 per share (the “Exok Warrants”). Refer to Note 13 – Common Stock Options and Warrants for a discussion of the Exok Warrants.

Merger with Creek Road Miners, Inc.

Under the terms of the Merger, the Company issued 2,297,668 shares of common stock to the members of Prairie LLC in exchange for all of the membership interests of Prairie LLC. Additionally, and as a condition of the Merger, 4,423 shares of Series D Preferred Stock (as defined herein) were issued to holders of the 12% amended and restated senior secured convertible debentures (collectively, the “AR Debentures”), refer to Note 8 – Long–term Debt for a discussion of the AR Debentures.

The purchase price was calculated based on the fair value of the common stock that the Company’s stockholders, immediately prior to the Merger, owned after the Merger, and the fair value of the Series D Preferred Stock issued to the holders of the AR Debentures. Since there was no active trading market for the membership interests of Prairie LLC, the fair value of the Company’s common stock represented a more reliable measure of the fair value of consideration transferred in the Merger. The Company’s common stock was based upon a quoted price in an active market, which is considered a Level 1 fair value input. The fair value of the 4,423 shares of Series D Preferred Stock was determined using a valuation model with unobservable inputs, which are considered Level 3 inputs on the fair value hierarchy.

The following table presents the total purchase price on May 3, 2023, the closing date of the Merger:

Number of shares of common stock of the combined company owned by the Company’s stockholders immediately prior to the merger (1)		3,860,898
Multiplied by the fair value per share of common stock (2)	$	2.57
Fair value of the Company’s pre–Merger common stock		9,928,262
Number of shares of Series D Preferred Stock issued to effectuate the Merger		4,423
Multiplied by the fair value per share (3)	$	725.57
Fair value of Series D Preferred Stock issued as consideration		3,209,196
Prairie LLC Transaction costs (4)		2,032,696
Purchase price	$	15,170,154

(1)	Represents the historical shares of the common stock outstanding immediately prior to the Closing of the Merger on May 3, 2023.
(2)	Based on the last reported sale price of the common stock on OTC Capital Markets on May 3, 2023, the closing date of the Merger.
(3)	Fair value calculated as described above on May 3, 2023.
(4)	Prairie LLC transaction costs consist primarily of legal expenses incurred by Prairie LLC. The transaction costs have been reflected as an increase in the purchase price.

The purchase price for the Merger was allocated to the net assets acquired on the basis of their relative fair values. The fair values of the current assets acquired and current liabilities (excluding the convertible debentures) assumed in the Merger were determined to approximate carrying value due to their short–term nature. The fair value of the mining equipment was determined using estimated replacement values of the same or similar equipment and, as such, are considered Level 3 inputs in the fair value hierarchy. The fair value of the secured convertible debentures were calculated as described above. The fair value of the share issuance liability was calculated based on the quoted price of the Company’s common stock and, as such, is considered a Level 1 measurement on the fair value hierarchy.

The following table presents the allocation of the purchase price to the net assets acquired on May 3, 2023, the closing date of the Merger:

Purchase Price Allocation:	May 3, 2023
Cash and cash equivalents	$	42,360
Accounts receivable		8,014
Prepaid expenses		63,795
Mining equipment (1)		18,140,874
Deposits on mining equipment		2,928,138
Accounts payable and accrued expenses		(3,352,389	)
Secured convertible debentures		(1,981,000	)
SBA loan payable		(150,000	)
Share issuance liability		(529,638	)
Net assets acquired	$	15,170,154

⁽¹⁾ In accordance with GAAP for asset acquisitions, the excess purchase price over the fair value of the acquired assets and liabilities was ascribed to the property and equipment acquired.