Name: Prairie Operating Co. Fair Value Disclosure
Creator: Prairie Operating Co.
License: https://creativecommons.org/publicdomain/mark/1.0/

Note 6 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 820, 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 consolidated balance sheets approximate fair value because of their short–term nature. Additionally, the carrying value of the Company’s 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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes the Company’s assets and liabilities which were measured at fair value on a recurring basis as of the years indicated and their classification within the fair value hierarchy:

	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 convertible preferred stock embedded derivatives	$	15,853	$	—	$	—	$	15,853
Series F convertible preferred stock warrants	$	90,134	$	—	$	—	$	90,134

	Fair Value Measurement as of December 31, 2024
	Total		Level 1		Level 2		Level 3
	(In thousands)
Liabilities:
Commodity derivative contracts	$	4,395	$	—	$	4,395	$	—
SEPA	$	790	$	—	$	—	$	790
Senior convertible note	$	12,555	$	—	$	—	$	12,555
Subordinated note – related party	$	4,609	$	—	$	4,609	$	—
Subordinated note warrants – related party	$	4,159	$	—	$	—	$	4,159

Commodity derivative contracts. The fair values of the Company’s derivative instruments are measured on a recurring basis using a third–party industry–standard pricing model that considers various inputs such as quoted forward commodity prices, discount rates, volatility factors, and current market and contractual prices 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 December 31, 2025, the fair value of the Company’s commodity derivative contracts is an asset of $53.4 million, $28.8 million of which is considered a current asset. As of December 31, 2024, the fair value of the Company’s commodity derivative contracts is a liability of $4.4 million, $2.4 million of which is considered a current liability.

The Company has several financial instruments which were evaluated for embedded derivatives and bifurcation in accordance with ASC 815 at the time of issuance. As a result, the Company reflects these financial instrument liabilities at their fair value on its consolidated balance sheet and reflects the changes in the fair values of the liabilities as loss on adjustment to fair value – embedded derivatives, debt, and warrants on its consolidated statements of operations. The following table presents the changes in the Company’s financial instruments presented at fair value for the years indicated:

	December 31, 2025			December 31, 2024
	(In thousands)
SEPA, at the beginning of the period	$	790		$	—
(Gain) loss on adjustment to fair value		(790	)		790
SEPA, at the end of the period	$	—		$	790

Senior convertible note, at the beginning of the period	$	12,555		$	—
Borrowing		—			14,250
Repayments		—			(3,748	)
Conversions		(18,057	)		—
Loss on adjustment to fair value		5,502			2,053
Senior convertible note, at the end of the period	$	—		$	12,555

Subordinated note – related party, at the beginning of the period	$	4,609		$	—
Borrowing		—			5,000
Repayments		(3,214	)		(1,786	)
Loss on issuance of debt		—			281
Loss on adjustment to fair value		63			1,114
Subordinated note – related party, at the end of the period	$	1,458		$	4,609

Subordinated note warrants – related party, at the beginning of the period	$	4,159		$	—
Loss on issuance of debt		—			2,758
(Gain) loss on adjustment to fair value		(3,843	)		1,401
Subordinated note warrants – related party, at the end of the period	$	316		$	4,159

Series F Preferred Stock embedded derivatives, at the beginning of the period	$	—		$	—
Embedded derivatives recognized at issuance of Series F Preferred Stock		25,479			—
Gain on adjustment to fair value		(9,626	)		—
Series F Preferred Stock embedded derivatives, at the end of the period	$	15,853		$	—

Series F Preferred Stock Warrants, at the beginning of the period	$	—		$	—
Issuance of Series F Preferred Stock		22,115			—
Loss on adjustment to fair value		68,019			—
Series F Preferred Stock Warrants, at the end of the period	$	90,134		$	—

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

	December 31, 2025				December 31, 2024
	Face Value		Fair Value		Face Value		Fair Value
	(In thousands)
SEPA	$	—	$	—	$	—	$	790
Senior convertible note	$	—	$	—	$	11,252	$	12,555
Subordinated note – related party	$	1,458	$	1,458	$	3,214	$	4,609
Subordinated note warrants – related party	$	—	$	316	$	—	$	4,159
Series F Preferred Stock embedded derivatives	$	—	$	15,853	$	—	$	—
Series F Preferred Stock Warrants	$	—	$	90,134	$	—	$	—

Standby Equity Purchase Agreement. On September 30, 2024, the Company entered into a Standby Equity Purchase Agreement (the “SEPA”) with Yorkville, whereby, subject to certain conditions, the Company has the right, but not the obligation, to sell to Yorkville shares up to $40.0 million shares of Common Stock, at any time and in the amount as specified in the Company’s request (“Advance Notice”), during the commitment period commencing on September 30, 2024 (the “SEPA Effective Date”) and terminating on September 30, 2026. The Company determined that the SEPA represents a derivative instrument pursuant to ASC 815, which should be recorded at fair value at inception and remeasured at fair value each reporting period with changes in the fair value recognized in earnings. The Company engaged a third–party valuation expert to assist in preparing the fair value of the SEPA as of December 31, 2024. These estimates were derived using a Monte Carlo simulation model and significant inputs which were based on unobservable market data and are therefore considered Level 3 inputs within the fair value hierarchy.

Pursuant to the Prairie Operating Co. Certificate of Designation of Preferences, Rights and Limitations of Series F Convertible Preferred Stock (the “Series F Certificate of Designation”), the Company may only request an Advance Notice on the SEPA if the Series F Preferred Stock is fully converted or redeemed. As such, the Company has determined that the fair value of the SEPA as of December 31, 2025 is $0 million, resulting in a gain of $0.8 million, which is presented as part of loss on adjustment to fair value – embedded derivatives, debt, and warrants on the Company’s consolidated statement of operations for the year ended December 31, 2025. Refer to Note 10 – Debt for a further discussion of the SEPA and Note 13 – Mezzanine Equity for a discussion of the Series F Preferred Stock.

Senior Convertible Note. On September 30, 2024, the Company issued the Senior Convertible Note to Yorkville, with an interest rate of 8.00% and a maturity date of September 30, 2025. The Company determined that certain features of the Senior Convertible Note required bifurcation and separate accounting as embedded derivatives. As such, the Company elected the fair value option to account for the Senior Convertible Note; therefore, in accordance with ASC 815, the Company recorded the Senior Convertible Note at fair value and remeasured 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 Senior Convertible Note as of December 31, 2024. These estimates were derived using a Monte Carlo simulation model and significant inputs which were based on unobservable market data and are therefore considered Level 3 inputs within the fair value hierarchy.

Convertible Note – Monte Carlo Simulation Model	Key Inputs
Stock price – as of December 31, 2024	$	6.92
Risk–free rate		4.11	%
Equity volatility rate		90.0	%
Market yield – as of December 31, 2024		14.6	%

The Senior Convertible Note was fully converted throughout the first quarter of 2025. As a result, the Company recognized a loss on adjustment to fair value – embedded derivatives, debt, and warrants of $5.5 million on its consolidated statement of operations for the year ended December 31, 2025. Refer to Note 10 – Debt for a further discussion of the Senior Convertible Note.

Subordinated Promissory Note. On September 30, 2024, the Company entered into a subordinated promissory note (the “Subordinated Note”) with First Idea Ventures LLC and The Hideaway Entertainment LLC (together, the “Noteholders”), in a principal amount of $5.0 million, which has a maturity of March 17, 2027. The Noteholders were entitled to a minimum return on capital of up to 2.0x upon the repayment, prepayment or acceleration of the obligations, or the occurrence of certain other triggering events under the Subordinated Note. The Company had determined that certain features of the Subordinated Note required bifurcation and separate accounting as embedded derivatives. As such, the Company had elected the fair value option to account for the Subordinated Note; therefore, in accordance with ASC 815, the Company recorded the Subordinated Note at fair value and remeasured the fair value each reporting period with changes in fair value recognized in earnings.

On March 26, 2025, in connection with the closing and financing of the Bayswater Acquisition, the Company paid $3.2 million of the outstanding balance under the Subordinated Note. Pursuant to the terms of the payoff letter, the Company and the Noteholders agreed that the remaining $1.5 million outstanding balance on the Subordinated Note would be converted to principal, will accrue interest at a rate of 15% of per annum, and all principal and other amounts owed (other than interest) pursuant to the Subordinated Note will not be redeemable for any reason while any of the Company’s Series F Preferred Stock remain outstanding. Therefore, the Company determined that changes to the Subordinated Note included in the payoff letter qualify as an extinguishment of debt and therefore elected to forgo the previous fair value option election. As such, the Company now presents the Subordinated Note at its face value of $1.5 million as of December 31, 2025. Refer to Note 10 – Debt for a further discussion of the Subordinated Note.

The Company engaged a third–party valuation expert to assist in preparing the fair value of the Subordinated Note as of December 31, 2024. These estimates were derived using a credit default valuation model using significant inputs which were considered unobservable inputs because they were corroborated by market data and are therefore considered Level 2 inputs within the fair value hierarchy. As discussed above, the Company did not fair value the Subordinated Notes as of December 31, 2025.

Subordinated Note – Credit Default Valuation	Key Inputs
Quarterly default rate		5.234	%
Moody’s Investor debt recovery rate – Senior convertible note		54.80	%
Moody’s Investor debt recovery rate – Subordinated note		37.60	%
Risk–free rate		4.18 % – 4.79	%
Discount factor		0.903

Subordinated Note Warrants. As discussed in Note 10 – Debt below, pursuant to the terms of the Subordinated Note, the Company issued to the Noteholders 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 will remeasure 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 December 31, 2025 and 2024. These estimates were derived using a Monte Carlo simulation model using 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
	December 31,
Subordinated Note Warrants – Monte Carlo Simulation Model	2025				2024
Time to termination (years)		3.75			4.75
Stock price – as of period indicated	$	1.69		$	6.92
Exercise price	$	8.89		$	8.89
Risk–free rate		3.55	%		4.27	%
Equity volatility rate		85.0	%		75.0	%

As of December 31, 2025, the fair value of the Subordinated Note Warrants was $0.3 million compared to $4.2 million as of December 31, 2024. The Company recognized the changes in fair value of $3.9 million as components of the loss on adjustment to fair value – embedded derivatives, debt, and warrants on its consolidated statements of operations for the year ended December 31, 2025, respectively. Refer to Note 15 – 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 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) warrants to purchase shares of Common Stock, subject to the satisfaction of certain conditions (the “Series F Preferred Stock Warrants”) (collectively, the “Series F Preferred Offering”). On March 26, 2025, the Series F Preferred 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 will remeasure 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 December 31, 2025. These estimates were derived using a Monte Carlo simulation model using the significant inputs listed below, which are based on unobservable market data and are therefore considered Level 3 inputs within the fair value hierarchy.

Series F Preferred Stock Embedded Derivatives – Monte Carlo Simulation Model	Key Inputs
Time to termination (years)		3.16
Stock price – as of December 31, 2025	$	1.69
Conversion rate		202.02
Stated dividend rate		12.0	%
Transaction discount		32.5	%
Risk–free rate		3.50	%
Preferred equity volatility rate		54.0	%

As of December 31, 2025, the fair value of the Series F Preferred Stock embedded derivatives was $15.9 million compared to $25.5 million at the time of issuance which is presented on the Company’s consolidated balance sheet as a liability with a corresponding amount recognized as Series F Preferred Stock in mezzanine equity. The Company recognized the change in fair value as a component of the loss on adjustment to fair value – embedded derivatives, debt, and warrants on its consolidated statements of operations for the year ended December 31, 2025. Refer to Note 13 – Mezzanine Equity for a further discussion of the Series F Preferred Stock.

Series F Preferred Stock 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. 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 “Series F Preferred Stock Warrant Amendment”), which, among other things, changes the issuance of the Series F Preferred Stock Warrants from the first anniversary of the issuance date of the Series F Preferred Stock to April 7, 2026. The Company has determined that the Series F Preferred Stock Warrants are not considered indexed to the Company’s own stock because the potential number of common shares to be issued upon the exercise of such warrants will vary based on the amount of Series F Preferred Stock outstanding on April 7, 2026. As such, the Company has determined that the Series F Preferred Stock Warrants should be accounted for as liabilities pursuant to ASC 480. In accordance with ASC 815, the Company recorded the Series F Preferred Stock Warrants at fair value and will remeasure 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 Warrants as of December 31, 2025. These estimates were derived using a Monte Carlo simulation model using the significant inputs listed below, which are based on unobservable market data and are therefore considered Level 3 inputs within the fair value hierarchy.

Series F Preferred Stock Warrants – Monte Carlo Simulation Model	Key Inputs
Time to termination (years)		5.23
Stock price – as of December 31, 2025	$	1.69
Exercise price	$	2.047
Future value of one Series F Preferred Stock Warrant share	$	0.31
Risk–free rate		3.69	%
Equity volatility rate		85.0	%

As of December 31, 2025, the fair value of the Series F Preferred Stock Warrants was $90.1 million compared to $22.1 million at the time of issuance which is presented on the Company’s consolidated balance sheet as a liability with a corresponding amount recognized as Series F Preferred Stock in mezzanine equity. The Company recognized the change in fair value of $68.0 million as a component of loss on adjustment to fair value – embedded derivatives, debt, and warrants on its consolidated statements of operations for year ended December 31, 2025. Refer to Note 15 – Common Stock Options and Warrants for a further discussion of the Series F Preferred Stock Warrants.

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

Acquisition–related 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 2 – Acquisitions for a further discussion of the Company’s acquisitions.

Historical Timeline

Fiscal Year	Filed
2025	Mar 31, 2026	Showing above
2024	Mar 6, 2025

2023	Mar 19, 2024

About Fair Value Disclosures

Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.

Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.

Prairie Operating Co. Fair Value Disclosure

Historical Timeline

About Fair Value Disclosures

Other Available Disclosures