U.S. Energy Corp. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Montana Project Progress: Completed the first industrial gas well in late October, evaluating results and planning to drill a second well in early 2025. Costs for the initial well were below projections, with expected cost decreases for future drilling.
• Legacy Assets: Sold South Texas properties in July for ~$6.5 million. Net daily production reached 1,149 barrels of oil equivalent per day, with oil accounting for 58% of third quarter production.
• Share Repurchase: Intensified the share repurchase program, with ~886,000 shares repurchased at an average price of $1.17 per share, representing 3% of outstanding shares.
• Balance Sheet: Ended the quarter with zero debt on the credit facility and a cash position of $1.2 million.
• Strategy: Focus on growing the industrial gas platform, strategically monetizing legacy assets, allocating capital to the Montana project, and maintaining balance sheet discipline.

Segment Performance

• Legacy Oil and Gas Assets: Total oil and gas sales for the third quarter were approximately $5 million, a decrease from $8.7 million in the same period last year. Oil contributed 88% of total revenue. Lease operating expense was approximately $3 million, equivalent to $28.95 per BOE. Severance and ad valorem taxes totaled ~$0.3 million. Cash, general and administrative expenses were $1.6 million, a 27% decrease from the prior year. The net loss was $2.2 million, an improvement of $6.6 million from the third quarter of 2023, with adjusted EBITDA at $1.1 million.
• Montana Industrial Gas Project: Completed the first industrial gas well in late October, with evaluation of results ongoing. Plans to drill a second well in early 2025. Initial well came in below projected drilling costs, with expectations of cost reductions in future drilling. This project is positioned as a value driver and foundational step for an industrial gas platform.

Guidance

• 2025 is expected to be transformative, with continued work on the Montana project, strategic capital allocation, and potential M&A in the industrial gas space.
• Anticipate full cycle production to sales from the Montana project by early fourth quarter 2025, dependent on plant commissioning.
• Plan to continue the share repurchase activity.

Risks

• Market fluctuations that could impact revenue and valuations.
• Delays in plant construction or drilling activities affecting the timeline for production and sales.
• Challenges in securing offtake agreements for helium, which could impact revenue projections.

Question and Answer

• Q: Remind investors of helium assets online timeline and what's needed.

A: The goal is to get a processing plant in place. Timelines involve drilling 3-5 wells, laying light gathering lines, and commissioning the plant, aiming for full cycle production to sales by early fourth quarter 2025.

• Q: M&A focus, pure-play industrial gas or hold legacy assets.

A: Aim to build an industrial gas platform, divest legacy E&P assets advantageously, and acquire industrial gas-related assets.

• Q: Timeline for helium concentration data and reserve report.

A: Next data points expected in early December/January, with the reserve report from Ryder Scott forthcoming around the same time.

• Q: Helium program revenue/EBITDA outlook.

A: Estimate first plant EBITDA in the $5M-$6M range annually, pending offtake agreement and plant size.

• Q: Helium well costs.

A: First well cost ~$1.8M, expecting costs to decrease by over 30% for subsequent wells.

• Q: Helium pricing outlook.

A: Model ~$400-$450/ton, with potential upside via direct offtake to end users.

• Q: Oil and gas PV10.

A: Around $51 million currently