Prairie Operating plummets as Piper Sandler downgrades on dilution warning

[Prairie Pumpjack in Alberta Oil Industry]
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Prairie Operating (NASDAQ:PROP [https://seekingalpha.com/symbol/PROP]) -19.6% in Tuesday's trading as Piper Sandler downgraded the oil and gas exploration company to Neutral from Overweight with a $3 price target, slashed from $9, following "surprisingly poor" Q2 results [https://seekingalpha.com/news/4484619-wizard-world-gaap-eps-of-018-revenue-of-681m] and high dilution associated with the Series F preferred offering that funded the Bayswater acquisition.

Piper analysts led by Mark Lear noted Prairie Operating (NASDAQ:PROP [https://seekingalpha.com/symbol/PROP]) revised FY 2025 production guidance to 24K-26K boe/day which implies a sharper than previously expected ramp into H2, with the company expecting nine TILs to slip into FY 2026.

Prairie Operating (PROP [https://seekingalpha.com/symbol/PROP]) had closed the Bayswater acquisition in Q1, which was anticipated to come with 26K boe/day of production, but Q2 production fell well short despite ongoing operations, saying a big portion of the shortfall was due to third-party offset completions; additionally, well costs of $5.6M were higher than expected, and the analysts estimated the additional cost drives decremental project returns in the current commodity price environment.

The Piper analysts also were surprised by the fully diluted share count reported in Q2, with the series F preferred equity potentially increasing the share count by 7x from Q1 levels, and the company plans to take that instrument out by year-end 2025, but the dilution risk - conversions and 12% interest paid in stock - a 25% takeout premium and risk of completing a high yield offering in the wake of poor execution and deal integration should weigh on the stock.

MORE ON PRAIRIE OPERATING

* Prairie Operating: Wait Until The Dilution Is Gone [https://seekingalpha.com/article/4791750-prairie-operating-wait-until-dilution-gone]
* Prairie Operating's Big Bet Faces Bigger Risks (Rating Downgrade) [https://seekingalpha.com/article/4762085-ratings-downgrade-prairie-operating-big-bet-faces-bigger-risks]
* Seeking Alpha’s Quant Rating on Prairie Operating [https://seekingalpha.com/symbol/PROP/ratings/quant-ratings]