—conference. I am pleased to welcome CEO Greg Patton from Prairie Operating Company to join us today. I am Jeff Robertson, Managing Director for Natural Resources here at Water Tower. Before we begin, I would like to note that Prairie's safe harbor disclosures regarding forward-looking statements can be found under the Investors tab of the company's homepage. Also, investors can submit questions through the conference portal, which we will seek to address in the follow-up management series report, and investors can also indicate, submit indications of interest in meeting with management in the portal, and our team will work to coordinate those. Prairie is a relatively new company, having closed a transformative Bayswater acquisition of assets in Colorado's DJ Basin in March of 2025 for about $600 million. The company was organized to pursue an acquisition and development growth model in the DJ Basin.
In the wake of the acquisition, management put the technical and financial architecture in place to manage the scale that the acquisition provided. Prairie's full year 2026 production guidance is 23,000-25,000 BOE /d , and management estimates that the current asset base, their current acreage position, could support about 600 future development wells. Greg, thank you for taking the time to join us today.
Thank you, Jeff. Happy to be here. Look forward to our time together.
Greg, can you provide a little bit of background on Prairie and why the company chose to build an asset base in the DJ Basin or focus on the DJ Basin?
Sure. Happy to, Jeff. As we date back to the inception of the company, roughly three years ago, the formation of the public E&P company occurred December of 2024. As that occurred, the company and its founders were looking for an aggregation of assets. As they looked in the Permian, as they looked in the Bakken, and multiple other basins around the continental onshore United States, there was obvious pressure for pricing, in terms of buying sticks, in terms of buying assets, in terms of buying future development locations. As the founders aggregated their thoughts, as they reviewed packages that were available on the market at that point in time, ultimately the general consensus was that the DJ was a highly accretive, developmental zone, that had additional inventory available for acquisition. They utilized that to their advantage.
As we look at the inception of Prairie, there's been nine acquisitions to date. The original acquisition we call the Genesis acquisition. It was in between the Northeast extension and the Hereford field. Ultimately, that was utilized to build the inception of what Prairie is today and the E&P company, publicly traded on Nasdaq, as we stand today. Not overly scientific in terms of how the original position was formed. A lot more science and geology has gone into future acquisitions and development zones here within the DJ. However, it was predominantly the economics that drove the location, and the desire to be in an area that had development and had availability for future expansion. That's why we landed in the DJ from its inception.
DJ covers a pretty big geographic footprint in northeastern Colorado. Greg, can you talk a little bit about the parts of the DJ Basin where Prairie is interested and why you selected the acreage, or why you pursued the Bayswater acquisition the way you did?
Yeah, as we think about the larger DJ Basin there's outskirts to it. There's the Northeast extension, the Hereford field, Watkins to the south. As you get west of the DJ, you bridge over the mountains and into the Piceance Basin. As we think about the DJ, everyone thinks Colorado, and as we think about specifically, we're focused on oil-rich windows. So that drives us to the eastern plains of Colorado and into the core of the DJ. Predominantly, we're focused on the northeast extension, the Hereford and the Greater Wattenberg fields, which are more of your northeastern drive, in terms of where our assets are located. As we think about where we aggregated those nine acquisitions I talked about, it was predominantly in and around infrastructure availability, geological formations and zones that we're comfortable with, and areas that we could build contiguous acreage blocks.
Because obviously cost is a driver. Time adds cost as you're driving, as you're moving, reallocating, moving to different areas with your drilling rig. We wanted to have a very contiguous block. We're focused on those three northeastern areas, all in and around the northeastern part of the Greater Wattenberg, and then the Northeast extension and Hereford fields.
As you indicated, Prairie is a relatively new company, having formed I think in 2004, but with a team that draws from a lot of different operators that have worked the DJ Basin. Are there best practices that you all can implement from the different experiences of the people that have come together at Prairie?
Absolutely, Jeff. I mean, safety is first and foremost. As we think about being best in class around costs, that doesn't eliminate the fact that safety's number one. As we think about the practices that we've been able to put in place here, we've grown from roughly 14 employees as we started acquiring assets, to roughly 70 employees today. In that growth, expertises have been added in and amongst the different sectors of operations, engineering, geology, accounting, et cetera, and so forth. We've been blessed to be able to take advantage of some of the consolidation that has happened in this basin, that you've seen completed by SM, by Chevron, earlier on by Civitas and others.
We've been able to really pick a unique team that's diverse, comes from all of those different companies. There's an aggregation of employees here from roughly seven different companies across the DJ Basin. We're excited to have them. It's allowed us to build out those expertises that are needed in and amongst the windows that are most predominant to us. Again, safety first and foremost, operational effective and efficiency number two, and then really putting a lot of effort into our procurement, accounting, and reconciliation processes to ensure that we continue to drive those best returns to our shareholders, our stakeholders, and to our working interest partners.
Colorado has a pretty stringent regulatory environment for the oil and gas industry. How does Prairie navigate the various state regulations that affect what you all are able to do and when you are able to do it?
Great question. As we think back, my association with the DJ stems from early 2014 onward. As we think about the development of the DJ, we think about some of the political issues that Colorado has exhibited, has put in place, and has caused issues in and amongst the oil and gas community. The thing I can tell you after going through that period of time and the rulemakings that really started with Proposition 112 in 2018, moving forward through the late 2020s and into 2021, ultimately, many of those rulemakings are now rules. As we look at the process in which we have to follow to get a permit, to operate underneath that permit, and to continue to grow and expand on a go-forward basis, many of what was unknowns are now knowns, and it really just comes down to a matter of time.
Putting in place the experts necessary to build out that permit to work with the ECMC, the CPW, the CDPHE, and all the other acronyms that have been put in place to govern safe operation of oil and gas in Colorado. Ultimately, we believe that we have, and many of our other offset operators have, the same ability to continue to get permits, and to have those permits in hand within a timely fashion to be able to keep the drill bit turning to the right and to continue developing, again, in a safe and efficient manner in correspondence with the rules that are required by the state.
Does Prairie have much acreage that is in areas where there is conflict with population or population growth? Is that part of the strategy of the company to deliberately target the more rural parts of the basin?
There was definitely an origination to that strategy as the acreage position was put together, i.e., the name Prairie. Ultimately, disinterested other parties are hard to come by in Colorado. Colorado's a continuing expanding state, and we do our very best to operate in and amongst our communities. We have great relationships with our communities, which is first and foremost to be able to make that effective and efficient. As we look at that structure on a go-forward basis, we do target areas that are more rural. Number one, just by design. Number two, by ease of operatorship. However, we have the team in place, and we do have some acreage, not a significant amount, but we have some acreage that is encompassed or surrounded by residential or rural residential, more likely. As we continue to develop on a go-forward basis, it's not something we shy away from.
We really look for the geology, where the best economics are, what's available. We build and underwrite to that accordingly. But ultimately, if you have the choice of identical geologies, identical returns, and one is populated and the other is not, of course, we would go towards the unpopulated areas, assuming infrastructure is available and the cost realization and returns are the same for our shareholders and stakeholders.
You mentioned permits. How much permit visibility does Prairie have as you look at the development program over the next couple of years? Just from a standpoint today, how long does it take to permit a new pad?
As we think about our permit inventory, we carry a two to three- year rolling permit inventory in front of us. That's our goal. It comes down into the low twos. It moves back up into the low threes on a regular basis as we drill and complete, as pads come online, and as we're waiting for new permits to be put in place. Permits take anywhere between six and 18 months, depending on some of the things we talked about before in terms of where you're operating, what your offsets are, how populated the area density is it in a disproportionate impacted community, and a bunch of other aspects that do play into the time and affect the number of municipalities you have to work with in terms of how long that permit takes. In generality, it's in and around that year marker.
As we think about a permit taking a year to get and having a three-year life, your permit planning process is really a four-year cycle, a year to get it, three years to have it before it expires, and you have to re-permit. That is why we try to keep that two to three -year rolling inventory ahead of us, which allows for time for new permits to come on sub that two -year marker, and allows us to continue to develop and not be delayed by waiting for permits.
The DJ Basin is characterized by stacked pays with multiple reservoir targets. How does Prairie approach the whole pad development concept in the area that you work?
The DJ Basin is a prolific stack pay zone. As you think about the core and the heart of the heart of the DJ, you have everywhere from A, B, and C bench Niobrara and Codell. The basin started around other formations, whether that be the Greenhorn or the J Sand, et cetera. We are focused on the Niobrara predominantly across our acreage position. Some of our position has Codell, some of our position does not have Codell. As we think about what is the ideal development zone for our acreage, we generally are developing in multiple horizons, that being multiple benches of the Niobrara and where available the Codell. Generally speaking, the acreage that Prairie holds today does not hold all four benches of Niobrara and the Codell in many locations.
Our future development is predominantly focused on one to two benches in the Niobrara and the Codell. Meanwhile, we do operate areas of our historic acreage, and our historical production was acquired from Bayswater, that has all five locations. As we think about that across the Niobrara and the Codell, we operate across all zones, but our future development is a little bit more limited. Not less prolific, but just limited, and we have put the geological work and the geophysical work into identifying those locations and ensuring that we are developing the core and the heart of the acreage that we have.
I think the Wattenberg Field was discovered in the late 1960s and developed on and off since then. Is there much geologic risk or reservoir risk left across your acreage footprint that you are still trying to understand?
We would tell you not. Obviously, it is exploration and development. As we drill wells and complete wells, we have areas that we have had better than expected results, and we have had areas that are less than expected results. Some of that still comes down to science. Some of that still comes down to well bore orientation, frack design, et cetera and so forth, and may not be so much reservoir dependent. We continue to get smarter day in and day out. We do take the extra level of work and precaution, as we are looking at new horizons, as we are expanding our acreage positions to ensure that we have enough of that data to ensure a smart decision is made, and that we are doing it with returns in mind, and not just trying to go after an acreage grab.
The company's current capital program includes one rig and one frack spread. How do you manage or think about managing capital efficiency with a one rig, one frack crew type of program?
The rig can outpace the frack crew today, in the DJ, which is different than other basins in the continental onshore United States. But in the DJ, the rig can outpace the frack crew. The rig can drill between 55 and 60 well bores per rig per year, depending on lateral length. That is an average 2 mi lateral length. The frack crew completes roughly 10% less than that a year, so it is always chasing the rig. As we think about the optimized development plan, ultimately we think about it as slightly less than one rig, and slightly less than one frack crew. That keeps a 5%-10% growth rate built into our production forecast. It allows us to be cash flow positive.
It allowed us to continue to build the business, get implemented, have the staffing necessary across not just our development, our drilling and completions program, but also our production. Because optimizing 500 + well bores is a robust job and task, and we've wanted to ensure that those well bores that support our drilling program are producing to their best ability. Slightly less than one rig and one frack crew is where I'd tell you that we're targeted. Again, for that 10% or less growth rate, which is really optimizing our cash flows.
The pad development creates volatility in a production profile as new wells are brought on and existing wells are shut in to allow for new completions. Greg, how do you think about the ups and downs of pad development and how you schedule your pads for drilling completion to affect the overall production profile of the company?
Obviously, Jeff, if we all had our perfect crystal ball, we would never be shutting in wells, and we'd be drilling all new locations. However, here, in the DJ, especially in the Wattenberg, that's not readily accessible to us on a consistent basis. Where we can achieve that, we obviously strive to achieve that. However, shutting in wells is a practice we're all accustomed to and we deal with on a regular recurring basis. Sometimes those offsets fracked by other companies actually shut us in as well. We do our best to mitigate that from our own operating standpoint, developing in locations that we don't shut in our own production as much as possible. When we do, we try to ensure that that well bore is at an optimal time in its life cycle. Generally not at initial flow back and shutting it in right again.
Generally, not in that two to three year window when it's producing its best and offset fracs can affect it more predominantly. However, we rely upon our geology and our engineering team to really look at that well bore's efficiency and effectiveness to really correlate, does it make sense, and is this the right point in time to shut in that well? Again, as I mentioned, sometimes we don't have the ability to dictate that because it's an offset operator, and they'll frack into us, and we have to either frack protect our well bores and/or shut in, and we deal with that on a recurring basis, and it's just part of the nature of operating here in the DJ. But to the best of our ability, we time and schedule new development, overlaying existing development with effectiveness and efficiency in mind.
Do you get any notifications from offset operators when they're about to complete wells, or is it more just you watch what's going on in the field?
No, absolutely. We have great operators here in the DJ. We have a network of like-kind and like-minded individuals who do collaborate and coordinate on a regular basis to ensure that as offset operators are getting close or about to frack or even drill for that matter, they do notify. There is ample time for planning. It's not like a 12-month period, but there is advanced planning network that goes into place, and we do work with each other effectively to be most dynamic around the lowest amount of shut-in time as possible. We do that collaboratively amongst the operators. It's a great network to have here in the DJ, and we work well together to try to enhance and optimize as much as we can.
Greg, how do you work with midstream providers to ensure that since you're developing on pads, the midstream infrastructure's in place when you all expect it will be needed?
Great question. A lot of our acreage was originally based and founded around accessibility to infrastructure. As you think about the permits and the requirements necessary for new permits here in the DJ, having pipe is an enhancement and an opportunity that we take advantage of, not just to be best in class operator, but also to work with the state and some of their roles and prerogatives, to help us mitigate, essentially offset admittance. Having that infrastructure is necessary. As we think about the acreage positions we've put together, as we think about the acreage we continue to expand to, infrastructure is definitely in mind, whether that be connecting to saltwater disposal opportunities, the gas providers in the basin have been great to work with, whether that be Williams or DCP Phillips or Summit.
Ultimately, we have great relationships with all of them and it is a non-flaring state, so gas is required in all circumstances. Oil and saltwater disposal, to the best of our abilities we put in place, is gathering. But ultimately there are trucking opportunities. Where economics or you are a little bit too far of a step out, we do work with the state, and we do get approvals to be able to truck those other hydrocarbons and disposal products as necessary. But generally speaking, we try to move our hydrocarbons on through stream pipe and have done a good job expanding our development core areas with the infrastructure companies to allow for that opportunity.
You said earlier that Prairie has closed, I believe it was nine acquisitions since formation. How does the company plan to continue to be a consolidator in the DJ?
First and foremost, we think about opportunities to continue to develop, expand, with our current inventory and assets before we are looking to just acquire to acquire, as I mentioned earlier. However, as we look at scale, being a public company, we think that those things go hand in hand and are required. As we look to continue to expand, there are other private operators here in the basin that would be ideal targets, potentially to provide a liquidity event to their shareholders and stakeholders, that they could utilize our public currency to take advantage of. Additionally, our organic leasing program has been prolific. We have been very successful with it, continuing to bolt on small incremental acquisitions or acreage blocks that we have been able to aggregate and put together to form new DSUs.
We will use an aggregation of all aspects, acquisition, merger, as well as organic leasing to continue to grow our development and profile of inventory. We are very happy with what we have been able to achieve to date, and it will be very similar to that type of methodology on a go-forward basis.
We understand that Prairie's capital structure is a little bit complex at this point, or challenged. What are your plans to simplify the capital structure?
Plans and being able to execute upon those plans are two different things. We have obviously been active in the market to continue to refine our capital structure. Fixing it all at once has been challenging for us, although we continue to do that and strive towards a full resolution of a more refined and simplistic capital structure. Ideally speaking, Jeff, we'd love to see common stock, a standard RBL, maybe an unsecured high yield product at some point in time. To do that, we know we have to clean up the preferred structures that are in place, and clean up some of the warrants that are in place. We continue to work with new participants. We continue to look for refinancing solutions. We do that every day.
That's our first and foremost priority as we think about how to gain the most value to our shareholders and stakeholders on an ongoing basis. Some of that just takes time. We continue to strive towards that resolution of a resolved capital structure. We're still happy with the incremental steps that we've made to date to have the pref diminish in its value or its face that's outstanding, to be able to continue to create cash flow, as we've grown the entity to pay down the RBL. Ultimately, we continue to strive towards a more fulsome solution. We've been doing that evidently for many months, and we'll continue to do that and see additional value and accretion to our capital structure as we pursue that events and activities on a go forward basis.
The RBL includes hedging requirements like most, I think all of them do, especially for smaller companies. How does the hedging requirements shape your thoughts around the structure and the duration of Prairie's hedge book?
As you mentioned, a lot of RBLs require hedging. As we think about the inception of the company, as we think about funding a significant portion of the PDP with the RBL upon the Bayswater acquisition, ultimately, we are cognitive of the fact that, again, back to the capital structure, we need more equity involved into the company. But we are happy with the RBL participants we have today and the support they have provided us to allow to continue to grow. Directly corresponding to your hedge question, all of us love hedges. As we exited the year and we were looking at the month of January, our publicly displayed hedge book was a net asset to the company, and very valuable.
As we sit here today with the strait being shut in and uncertainty in oil prices and diesel cresting over $6 a gallon at the pumps, we look at our hedge book as a liability. It is the age-old issue of hedges where they can be highly beneficial or highly detrimental. Unfortunately, with the RBL in place, the hedges are required. While our returns are still locked in, the multiplier on those returns are limited at this moment in time.
As we gain a more ordinary cap structure on a go-forward basis, we would look at probably a different profile on our hedges. But at this point in time, we have what was required in place, and the returns that are being generated with those hedges in place are still good. We have to look at it compartmentally like that. The global geopolitical situation could change dramatically again overnight. We could be back in a net asset position.
Just to wrap up on the capital structure, Greg, what do you think the appropriate capital structure going forward for a company Prairie's size and with the growth ambitions that you have looks like?
I'll circle back to what I said previously, which is really, it's simplistic. Simplicity is necessary. Complexity creates a lot of confusion in the market and makes it hard to be investable. While our net asset values are some of the highest we've ever had, based off the team's ability to put together good acquisitions and organic leasing and develop into windows, and create value in our proved reserves, ultimately, the stock price is at some of the lowest we've seen. You have to embrace every aspect of being a public operator when you look at dynamically what the company's been able to achieve, growth oriented and asset wise. The next step is definitely refining the returns to our shareholders and our stakeholders. As we look at the ideal structure, it's simple.
It's common stock, RBL, maybe some unsecured at some point in time when we're large enough to support it. If we had our crystal ball and we had our perfect life choice, it would be a significant amount of equity coupled with an appropriate amount of RBL debt that creates a leverage profile that's sustainable for the future.
I'd like to bring us to a close on value. As of June 30, 2026, the PV-10 of Prairie's proved reserves was almost $1.5 billion. From your perspective, Greg, how do you reconcile the value of Prairie's proved reserves against an enterprise value, which is about $550 million if you put the pref in at liquidation preference?
The pref is absolutely detrimental to a lot of things, and it has to do with what is the share count, what is the actual denominator? As you mentioned, the liquidation preference is how you're calculating it. As we look at how that correlates, it's still a lot of additional value that is being absorbed by the pref holder. Ultimately, that is the choice the company made in order to close the acquisition. As I mentioned earlier, resolving that is highly accretive to our shareholders. Not having the full dilutive amount in a liquidation preference aspect take hold will help the stock trade better.
Understanding what that could be is a difficult aspect, and so having more absoluteness to what the total shares outstanding, what the total debt is, will make calculations a lot easier to be able to correlate what the enterprise value is against what our net asset value is. As we look at that on a go-forward basis, we continue to hope to enhance that. We have had a good track record to date enhancing that over the 18 months of operating these assets that we have had, and we are excited to continue that on a go-forward basis.
I think we will leave it there for today, Greg, and look forward to continuing to watch Prairie's progress.
Thanks for the time, Jeff. Appreciate being here and we look forward to connecting again in the future.
Thank you. For our participants, I would like to remind you that you can submit questions in the conference portal along with meeting requests, and we will work toward coordinating those. Once again, Greg, thank you for the time.
Thanks, Jeff.