Ed Kovalik wants you to know the importance of petroleum.
“I always remind people that everything in their daily life is made in some way, shape, or form with a petroleum-based product,” he said.
“The computers that we’re using right now to talk to one another, with the makeup that our wives wear, the surfboard my kids use at the beach,” Kobalik added. “They’re fossil fuels and everything, fossil fuels, everything. I think the only thing I’ve ever seen that’s as prolific is corn,”
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Kovalik, chairman and CEO of Houston-based Prairie Operating Co. (ticker: PROP) shared his experiences with Chris Versace, TheStreet Pro portfolio’s lead manager, during the July 16 edition of TheStreet Stocks & Markets Podcast.
“We’re energy-dense form of energy,” he said. “The only competitive form of energy is nuclear. And nuclear is going to take decades to work itself out of the regulatory quagmire that it’s in and get built going to see demand for fossil fuels increase every year.”
Prairie Operating CEO: Fossil fuels important for AI data centers
Fossil fuels play an important role in meeting the ever-growing demands of AI data centers, he said.
Goldman Sachs Research forecast in February that global power demand from data centers will increase 50% by 2027 and by as much as 165% by the end of the decade compared with 2023.
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“Low-energy-dense forms of generation like solar and wind are not going to take over the industry,” Kovalik said.
Kovalik, who came out of the investment banking world, said he fell in love with the industry during the first generation of shale companies that emerged in the early 2000s.
He went on to work in private equity and merchant banking, investing in mostly upstream exploration and production across all the basins in the US.
“We started Prairie two years ago, really with a very focused mission to create a pure play under levered, high growth, DJ basin focused smidcap company,” he said, referring to the Denver-Julesburg Basin centered in eastern Colorado. “And so that was really in response to what we’ve seen over the last decade, which has been a massive amount of consolidation in our industry.”
Today there are far fewer public oil companies, he said, and far fewer small-cap companies, in particular.
“There are no growth-oriented small-cap companies,” Kovalik said. “And so we really wanted to create an investment alternative that looked like that.”
“So, it’s fair to say that you’ve seen the trials, the tribulations, the rewards, throughout economic cycles and what commodity prices have done,” Versace said. “So, you’re well aware of the bigger opportunities and mindful of the risks.”
Commodity price risk: elephant in the room
“Yeah, 100%,” Kovalik said. “In that period of time shale has been through an entire evolution from the first days of drilling to today. From a pure operational technological perspective, a lot of innovation has happened in the industry, where we’re able to drill much better wells than we did 25 years ago.”
M&A is a pillar of the company’s strategy, he said, noting that Prairie Operating recently acquired the assets of Edge Energy for $12.5 million.
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“When we purchased the Bayswater assets, for example, we hedged 85% of that production on a three-year roll-forward basis,” he said. (The $603 million deal closed in February.) “I think we locked in our oil-price hedges at $68 (per barrel) and change and our gas hedges above $4 (per 1,000 cubic feet), and so we’re big believers in taking that risk off as we drill wells, which we’re doing every day.”
“We’ll continue to hedge as we bring those new wells [into] production,” Kovalik said. “And so that’s the biggest risk.”
“We’ve talked a little bit about the oil market, the opportunities with Prairie,” Versace said. “But, for someone who’s new to the story, Ed, what are the one or two risks that you and the rest of the management team continue to focus in on, or [that folks should be] mindful of?”
“The] big elephant in the room is commodity price risk,” Kovalik said. “And you can’t be an oil company without assuming that risk. We hedge for that. So we’re certainly not believers in the idea that people ought to buy Prairie stock as a way to expose themselves to oil prices.”
“You can do that yourself without us…what we do is we try to eliminate that risk to the best of our ability.”
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