Analysis: CRKR XLE

Action Alerts PLUS lead portfolio manager Chris Versace discusses the state of the oil market with Edward Kovalik, chairman and CEO of Prairie Operating Co. (CRKR) .

"Energy is such a fundamental need for humanity," says Kovalik, adding, "It's just cool ... the fact that we can fracture rock and go back into oil fields that had been left for dead."

Formed in 2023, Prairie has a unique business model that offers bottom-line profit leverage as Prairie scales its drilling operations. Kovalik, during the conversation, gives his longer-term outlook on the energy market, one that is underpinned by under-investment in capacity and could lead to a domestic supply crunch in the coming quarters. Prairie is a new, built-from-the-ground-up energy company that doesn't have the typical industry baggage.

Kovalik employs what he learned as a merchant banker focused on the energy market to run the business as what he terms a "fast follower" of the big boys, so it can avoid spending a lot of money figuring out resource plays.

"We look for places where the majors have already spent all of that money to figure out the right completion design, to figure out the right spacing of wells ... and really everything else there is to figure out," said Kovalik, adding that Prairie can then come in behind the big companies and hire the sames consultants and service companies.

He said he operates the company without debt and strives to reinvest all revenue back into the ground to grow the production base very quickly.

"It's a simple business," said Kovalik of the energy business. It's "straightforward manufacturing business."

Investors looking for small-cap energy companies can dig further into Prairie Operating Co., starting with its latest investor relations presentation. The company's strategy speaks to the AAP portfolio's position in the Energy Select Sector SPDR Fund (XLE) . We like Prairie's flexible business model, but the current market cap and trading volume will keep us on the sidelines. As the company moves from permitting to drilling later this year and into 2024, we'll look to revisit it.