U.S. Energy Corp. Q4 FY2024 earnings call

• Progress in Montana project: Drilled first industrial gas well, analyzed results, acquired ~24,000 net acres in Montana, now controls ~160,000 net acres in Kevin Dome. Plan to work over two wells and drill two additional wells in 2025, aiming for operational results by end of second quarter.
• Carbon sequestration: Making progress on operational and regulatory fronts, aiming to leverage federal incentives.
• Legacy assets: Sold South Texas assets for $6 million and certain East Texas properties for $6.8 million in 2024, eliminating debt and providing capital for Montana development.
• Share repurchase: Repurchased approximately 1.7 million shares in 2024, representing ~4% of outstanding shares. Executive team increased personal holdings.
• Balance sheet: Ended 2024 debt-free with zero outstanding borrowings on credit facility.

Total oil and gas sales for the fourth quarter of 2024 were $4.2 million, a decrease from $7.3 million in the same period last year. Oil sales contributed 85% of total revenue for the quarter. Lease operating expense for the fourth quarter was approximately $1.8 million ($20.58 per Boe vs. $22.38 per Boe in the prior year). Production taxes totaled approximately $0.3 million (6% of total oil and gas sales revenue). Cash, general and administrative expense was $1.7 million for the fourth quarter, a 23% reduction from the prior year. The company reported a net loss of $12 million in the fourth quarter of 2024 compared to $19.8 million in the prior year. Adjusted EBITDA stood at $0.4 million in the fourth quarter of 2024 compared to $1.6 million in the same period last year. As of 12/31/2024, there was no debt outstanding on the $20 million revolving credit facility, and the cash position was over $7.7 million.

• 2025 will be active with workover operations on two wells and drilling of two additional wells in Montana starting in April and June respectively, aiming for operational results by end of second quarter.
• Anticipate moving into manufacturing phase of gas processing plant once well development is complete.
• Expect to secure offtake agreements in the second half of 2025, targeting bespoke end users for higher prices.
• Confident in current position to drive sustained growth and create long-term value for shareholders.

Q: Beyond initial development activities planned for the first half of 2025, what is the expected timeline for reaching commercial production from the industrial gas assets?

A: Ryan Smith stated they believe commercial production from the CO2-based zone could be in 2026, taking into account weather and plant development timelines.

Q: What data points from the new completions and drills will inform the plant size?

A: Ryan Smith mentioned flow rates, full gas composition, reservoir characteristics, and tying wells together to fine-tune production and gas stream details.

Q: Are there cost differences between wells targeting CO2 vs. nitrogen zones?

A: CO2 wells cost a bit more due to corrosive nature of CO2, but back-to-back drilling and workover reduces aggregate cost, with each well potentially coming in around $1.5 million.

Q: What does the MRV report involve and what does it enable?

A: MRV is a federal-level report that enables benefit from federal tax incentives, involving state-level Class II/VI permits and data accumulation for sequestration, taking 7-8 months to complete.