U.S. Energy Q2 2025 Earnings Call Transcript

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August 12, 2025

Key Takeaways

  • Positive Sentiment: In Q2, U. S. Energy drilled two new industrial gas wells on schedule and within budget, achieving peak rates of around 12.2 Mmcf/d and managing production at ~8 Mmcf/d for near-term cash flow.
  • Positive Sentiment: Ryder Scott’s independent assessment confirmed 444 Bcf of CO₂ and 1.3 Bcf of helium resources in the Montana asset, ranking among the largest deposits of its kind.
  • Positive Sentiment: Construction of the Kievan Dome processing plant is set to break ground after Q3 with sub-$10 million capex, funded internally and via modest debt, and designed to serve both U. S. Energy and third-party producers.
  • Positive Sentiment: Carbon management advanced with multiple Class II injection permits, tests hitting 17 Mmcf/d, ~240 ktpa CO₂ sequestration capacity, and an EPA MRV plan targeting approval by spring 2026 for potential 45Q credits.
  • Negative Sentiment: Q2 revenue dropped to ~$2 million from ~$6 million a year ago due to legacy asset divestitures and lower commodity prices, although these assets remain candidates for further monetization.
AI Generated. May Contain Errors.
Earnings Conference Call
U.S. Energy Q2 2025
00:00 / 00:00

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Operator

Greetings, and welcome to the U. S. Energy Corporation Second Quarter twenty twenty five Results Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

Operator

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mason Maguire, VP of Finance and Strategy. Thank you. You may begin.

Mason McGuire
VP - Finance & Strategy at US Energy

Thank you, operator, and good morning, everyone. Welcome to U. S. Energy Corp. Second Quarter twenty twenty five Results Conference Call.

Mason McGuire
VP - Finance & Strategy at US Energy

Ryan Smith, our Chief Executive Officer, will provide an overview of our operating results and discuss the company's strategic outlook, and our Chief Financial Officer, Mark Zajak, will give a more detailed overview of our financial results. Before this morning's market opening, U. Energy issued a press release summarizing operating and financial results for the quarter ended 06/30/2025. This press release, together with accompanying presentation materials, are available in our Investor Relations section of our website at www.usnrg.com. Today's discussion may contain forward looking statements about the future business and financial expectations.

Mason McGuire
VP - Finance & Strategy at US Energy

Actual results may differ significantly from those projected in today's forward looking statements due to the various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward looking statements. Further, please note that non GAAP financial measures may be disclosed during this call. A full reconciliation of GAAP to non GAAP measurements are available in our latest quarterly earnings release and conference call presentation. With that, I would like to turn the call over to Ryan Smith.

Ryan Smith
President, CEO & Director at US Energy

Good morning, everyone, and thank you for joining us today. I'm pleased to walk you through our second quarter results, highlight key milestones and share a strategic update as we continue advancing U. Energy's transformation and growth. As we've discussed in prior quarters, our primary focus is the development of our Montana based industrial gas project, an asset we believe is uniquely positioned to meet growing demand, deliver strong economics, and achieve meaningful scale in the public markets. This summer, we completed the initial phase of our development program and remain firmly on track to bring operations online.

Ryan Smith
President, CEO & Director at US Energy

This first phase included drilling two new development wells, advancing engineering on an acquired already productive well, flow testing all existing producing wells, reaching a final investment decision on infrastructure, and making significant progress on our carbon management strategy. I will walk you through these in more detail now. Starting with upstream development in the second quarter, we drilled our second and third industrial gas wells targeting the helium and CO2 rich Dupro formation, both within budget. Including the productive well we acquired earlier this year, peak rates reached approximately 12,200,000 cubic feet per day with a premium gas composition of approximately 85% CO2, 5% natural gas, and point 4% helium. To optimize reservoir performance and maximize value, we subsequently managed production in the 8,000,000 cubic feet a day range with similar compositions.

Ryan Smith
President, CEO & Director at US Energy

With three producing industrial gas wells and two injection wells, we are well positioned for near term cash flow generation. These results validate the quality and scale of our resource, further reinforced by our independent resource report. Following drilling, we engaged Ryder Scott to prepare a volumetric resource assessment of our Montana asset. The report confirmed net contingent resources of four forty four billion cubic feet of CO2 and 1,300,000,000 cubic feet of helium, among the largest known deposits of its kind. We expect to release a commercial resource report once processing facility development plans are finalized.

Ryan Smith
President, CEO & Director at US Energy

It's worth emphasizing the unique competitive positioning of the Kievan Dome. While most US helium production is tied to heavy hydrocarbon gas streams, our project is sourced from a limited hydrocarbon stream, delivering a lower environmental footprint and aligning with growing market demand for sustainable solutions. With the initial development program concluding in September, we will break ground on our Ki Bin Dome processing plant. This facility will separate our upstream gas into helium, natural gas, and CO2 streams, each with the zone monetization pathway. We expect construction costs of under $10,000,000 funded by our existing balance sheet and a modest strategic use of debt.

Ryan Smith
President, CEO & Director at US Energy

Importantly, this infrastructure will not only serve our operations, but will also provide a platform to support undercapitalized producers in the region. With control over the majority of the basin's helium supply, we see multiple opportunities to expand our value capture. Lastly, would like to touch on US Energy's carbon management front. US Energy controls one of the largest CO2 deposits in The US with geology ideally suited for both permanent storage and enhanced oil recovery. Our proximity to the Cutbank oil field, just 15 miles away, offers a unique and lucrative integration opportunity between CO2 supply and hydrocarbon recovery.

Ryan Smith
President, CEO & Director at US Energy

We already hold multiple class two injection permits with additional approvals expected in August. Recent injection testing at two disposal wells achieved sustained rates of over 17,000,000 cubic feet a day, supporting a sequestration capacity of approximately 240,000 metric tons of CO2 annually. We've also initiated our EPA monitoring reporting and verification plan, targeting submission this September and approval by spring twenty twenty six, positioning us to potentially access federal carbon credits under section 45 q. We are highly optimistic about the road ahead. Kievan Dome represents a first mover opportunity in the industrial gas sector and one that cannot be replicated.

Ryan Smith
President, CEO & Director at US Energy

Our vision is to build a full cycle platform that spans upstream production, midstream processing, and long term carbon management while maintaining strict capital discipline. The data collected to date supports a highly economic development path, both at the wellhead and infrastructure levels. Initial phases have modest funding requirements with a clear and measured capital plan designed to scale returns over time. Turning briefly to our legacy oil and gas portfolio, lower commodity prices have weighed on earnings across the sector, including ours. While these assets are no longer our primary focus, they do remain valuable.

Ryan Smith
President, CEO & Director at US Energy

Our 2024 monetization program eliminated debt and strengthened liquidity, and we remain opportunistic in pursuing value maximizing divestitures. As we progress through 2025, our strategy remains clear. Invest in our core Montana industrial gas project, monetize non core legacy assets where appropriate, and maintain capital discipline to position 2026 as a breakout year in our transformation. We believe US Energy stands apart with a scalable high margin development platform supported by legacy assets that require require minimal reinvestment. This structure allows us to pursue high return growth in industrial gases while reducing exposure to commodity volatility.

Ryan Smith
President, CEO & Director at US Energy

In short, US Energy is emerging as a differentiated and growth oriented industrial gas company with exposure across upstream, midstream and carbon management. Our strong financial position and clean capital structure give us a competitive advantage and we believe the strategy we're executing today will deliver sustainable long term shareholder value. With that, I'll now turn the call over to our Chief Financial Officer, Mark Zajac, who will provide an update on our financial results for the quarter.

Mark Zajac
CFO at US Energy

Thank you, Ryan. Hello everyone. Let's delve into the financial details for the 2025. Our operating results reflect the cumulative impact of our divestitures since the 2023. Revenue was approximately $2,000,000 down from $6,000,000 same quarter last year, reflecting the impact of divestitures in the 2024.

Mark Zajac
CFO at US Energy

Oil comprised over 90% of the revenue this quarter, reflecting our focus on optimizing our remaining oil assets. Lease operating expense for this quarter was $1,600,000 or $32.14 a BOE compared to $3,100,000 or $27.69 per BOE in the same quarter last year. The overall decrease reflects our divestitures since first quarter last year and on a BOE basis the increase is a function of the assets remaining in our portfolio. Cash, general and administrative expense was $1,700,000 for the 2025, which is in line with our run rate expectations quarterly. We have made significant improvements to our organization and structured the team around our industrial gas development.

Mark Zajac
CFO at US Energy

As for our balance sheet, as of 06/30/2025, there was no debt outstanding on our $20,000,000 revolving credit facility and our cash position stood at over $6,700,000 reflecting the net proceeds of $10,300,000 generated from our successful equity offering during the first quarter. This was offset by $4,600,000 of industrial gas acquisition and capital expenditures. We have agreed on terms on the renewal of our credit agreement extending it to 05/31/2029. We are completing customary closing activities now and expect to execute the amendment in the coming days. The renewed agreement includes covenant waivers for the 2026 as we achieve profitability on our industrial gas operations.

Mark Zajac
CFO at US Energy

Overall, our operating performance and financial results reflect our recent divestitures as well as the company's new initiatives. We continue to maintain balance sheet discipline and integrity. My objectives continue to ensure that the company's reporting processes maintain a high standard of excellence and we feel confident in our ability to support the growth initiatives we currently have underway. Thank you for your participation this morning. We are now ready to take your questions.

Operator

Thank you. We will now conduct a question and answer session. The first question comes from Charles Meade with Johnson Rice. Please proceed.

Charles Meade
Research Analyst & Member at Johnson Rice & Company L.L.C.

Yes, good morning, Ryan and Mark.

Ryan Smith
President, CEO & Director at US Energy

Hey, good morning, Charles.

Charles Meade
Research Analyst & Member at Johnson Rice & Company L.L.C.

Hey, Ryan, I wanted you used the word in your press release about the resource report, guess, you used the word pleased. I wanted to ask a little more detail there. Was there anything in that, so you use the word please, it's good. But was there anything in there that surprised you, either to the upside or downside, whether it be the total resource that they came up with or the concentrations or if you just give us the kind of inside baseball on how that process rolled out to get to that final numbers that you gave us.

Ryan Smith
President, CEO & Director at US Energy

Yeah, no, good question. So I am pleased with it. I would say, not surprised because those numbers, again, when you're dealing with the quantum billions of cubic feet, rounding errors can be pretty big numbers. But since we started this process, I don't know, eighteen months ago or so and progressed it, we we believe that the the resource, both helium, both CO two, you know, there's a there's a a 5% or so nat gas cut in that in that stream, which we we didn't have in the in the resource report. But we we believe from the very beginning that that the numbers here were were were very large.

Ryan Smith
President, CEO & Director at US Energy

And, you know, that's that's why we went after the project. So, having Ryder Scott, which, you for my money is as good and reputable as any reserve firm in the world, verify that and get a formal big company third party stamp of approval for what we already believed internally, it was very, I'll use the word again, very pleasing. It wasn't surprising because we thought it was there. And you know, as we start our core development across the structure, and again, just looking at our maps, which we've we've have on our website, etcetera, We think there's there's more upside to go. This is kind of our initial core development area.

Ryan Smith
President, CEO & Director at US Energy

So I think there's upside to those numbers as we continue to to move outward off that structure. But no, I'm pleased with it. I'm very happy with it. It shows the immense running room of what we have as we continue to develop this going forward across multiple streams of that gas stream.

Charles Meade
Research Analyst & Member at Johnson Rice & Company L.L.C.

Got it. And that's a good segue to my follow-up question. I recognize it's early, but the question's on the commercial off take agreements. And you talked a little bit about some CO2 going to the cut bank field for EOR and 45Q. But can you give us a sense of what are your goals for different off take streams, whether it's the CO2 or the helium or I guess natural gas is really a rounding error, so that's not important.

Charles Meade
Research Analyst & Member at Johnson Rice & Company L.L.C.

But what are your goals for those different streams and what's a timeframe that we should be thinking about for some kind of a resolution or some additional information on your commercial off take arrangements?

Ryan Smith
President, CEO & Director at US Energy

Yeah. No. Good question. So there's a few parts to that question. I think from a high level, you have your gaseous helium, you have your CO2, which can really be kind of a three pronged monetization via permanent sequestration, EOR use and via merchant retail market sales.

Ryan Smith
President, CEO & Director at US Energy

Probably an obvious comment, but I would like to control the offtakes as much as possible. And what I mean by that is with the recent big beautiful bill passage and the value for CO2 EOR use equaling permanent sequestration use, the fact that our Montana assets going back literally one hundred years ago to Chevron Unical owning them was always targeted for CO2 tertiary flood. And, you know, economics are always a little bit stretched, based on oil prices and the expense of CO2. And now that that expense has turned into an extremely significant revenue stream, we started looking at the EOR uses for the CO2 a whole lot more. One, because of the economics, two, because we're on both sides of the table and negotiating that use.

Ryan Smith
President, CEO & Director at US Energy

So that gives us a very doable economic use for that CO2. I think on the and as well as the permanent sequestration side, right? Like we don't need to get third party approvals for that because we're agreeing to both sides of that because we own all the assets. I think on the helium side, I'll say, I think we enter into something by the end of the year. I'll caveat that by saying we're probably in a position to be able to do it now.

Ryan Smith
President, CEO & Director at US Energy

We have some stuff in front of us. You know, the the the off take Helium agreement market is is pretty opaque. And when you go to market with something and you're not a massive company, the counterparties know that and, you know, we'll we'll we'll reflect that in price. So I think between now and the end of the year, you know, we'll we'll kinda pick our spot, but you'll see something on that front as well. And then kind of, you know, sprinkles on the ice cream would be us being able to sell merchant retail c o two into the West Coast markets.

Ryan Smith
President, CEO & Director at US Energy

I can't give a time frame on that just because it's you deal with very specific parties, but that's something that that we're working on actively as well. So I think, like, in summary, you'll see intercompany agreements on sequestration and EOR use for the CO two in the relatively near term. Helium offtake, which would basically be offtake agreements with the owner of helium liquefaction equipment by the end of the year and proactively merchant CO2 sales into the retail market. TBD, but something we're working on actively.

Charles Meade
Research Analyst & Member at Johnson Rice & Company L.L.C.

Got it. That is a great detail and a good summary. Thank you, Ryan.

Operator

The next question comes from Tom Kerr with Sachs. Please proceed.

Tom Kerr
Senior Research Analyst at Zacks Small Cap Research

Good morning, guys.

Ryan Smith
President, CEO & Director at US Energy

Hey, Tom. Good morning.

Tom Kerr
Senior Research Analyst at Zacks Small Cap Research

The helium concentration on the drilled wells, I think in the Texas at 0.47, but we had always talked about 0.6 in the last several quarters. Was there anything there or what happened there?

Ryan Smith
President, CEO & Director at US Energy

Yeah, I mean, it's less than our initial well that we acquired and did more work on. And I would love to have like a very dignified reason answer for you. I think the honest answer is when you're dealing with basis points on a gas stream, sometimes it comes in more, sometimes it comes in less. And, the numbers were what kind of what they were, right? We think that if we drill another well to get the overall volumes up a little bit more, we have some ideas and some locations to where we think that that composition is a little bit, higher than what some of our our subsequent wells are produced in.

Ryan Smith
President, CEO & Director at US Energy

But, again, we go after the areas we think are prolific enough to defend processing economics, etcetera. We always expected some variation potentially to the upside, potentially to the downside. Unfortunately, it was a little bit to the downside. I would say that those numbers are still highly economic for us as part of our full cycle program. But they they kinda are what they are.

Ryan Smith
President, CEO & Director at US Energy

So I I don't know if that's the what the answer you're looking for, but I think that's that's what I got.

Tom Kerr
Senior Research Analyst at Zacks Small Cap Research

Yeah. You just answered my second question, which is still economically viable level, you know, in terms of economics and cash flow, that sort of stuff. Yeah.

Ryan Smith
President, CEO & Director at US Energy

Absolutely. Right. Like, we we we look at it starting off each economic driver kind of in its own silo and and standing, on own two feet, right? Like we don't want to have an uneconomic process in one pocket and then depend on the other pocket to defend activity. So the helium concentrations on our current flows, and so much of it depends on processing and infrastructure, and that goes into the planning as well, right? Like the size and etcetera.

Tom Kerr
Senior Research Analyst at Zacks Small Cap Research

What

Ryan Smith
President, CEO & Director at US Energy

works for us and then layering on, I'll call it revenues and incentives from CO2 sequestration, EOR usage, really juices those economics very extensively on top of what we already have on the helium side.

Tom Kerr
Senior Research Analyst at Zacks Small Cap Research

Got it. Alright. That makes sense. Thanks. And then just on the, processing plant, any sort of changes in the complications of developing that or cost levels or since changes since we last last talked?

Ryan Smith
President, CEO & Director at US Energy

I think there's a few changes.

Ryan Smith
President, CEO & Director at US Energy

I I won't we're we're still going through, I'll say, a a few design options right now. And the reason for that isn't for difficulty. It's really the incentives on the recent bill evening out EOR and sequestration dollars really kind of, you know, change the proverbial calculus for us. I mean, we have an extensive EOR asset in Montana. It's very large.

Ryan Smith
President, CEO & Director at US Energy

It's very close. The geography couldn't be any better. And some of the equipment and processes to call it strip out helium, sell helium, strip out nat gas, sell nat gas, get the CO two to a level where it's getting used for EOR purposes is actually a little more simple and a little bit cheaper than what we were originally planning for. So, you know, obvious comment, if there's something that we can do that results in the same economics and do it at a cheaper cost, we're we're gonna pursue that route. So, that's probably the main reason why we haven't started on the plant.

Ryan Smith
President, CEO & Director at US Energy

We're fine tuning our economic model, our strategy, construction planning, and exactly the lowest cost within reason that we can spend on the processing infrastructure side to access these multiple value chains as soon as possible.

Tom Kerr
Senior Research Analyst at Zacks Small Cap Research

Got it. All right. Thanks for the color on that. Last question, the financial one on the cash SG and A slightly elevated because of some business development in Montana. I think you still stabilized.

Tom Kerr
Senior Research Analyst at Zacks Small Cap Research

Does that mean we're gonna see that level probably the next two quarters of 1,700,000? Or or does that drift down because you don't have some of those Montana costs in there?

Ryan Smith
President, CEO & Director at US Energy

I think it's the latter. It should it should drift down. You know, we've spent, I'd I'd say, a fair amount of capital getting the project off the ground. And again, we're not a huge company. So one time hits show up a lot more than they would with other larger entities.

Ryan Smith
President, CEO & Director at US Energy

Consultants, both internal and third party, a fair amount of legal work just on the landowner right away, you know, other other ancillary charges, getting permits, getting disposal permits, all of that stuff. It's it's added up over the last couple of quarters. And it'll continue to some extent just as we keep pushing stuff forward. But it it it definitely should lessen here here in the very, very near term. It's it's probably already started to lessen a little bit as we go forward.

Tom Kerr
Senior Research Analyst at Zacks Small Cap Research

Got it. Thanks. That's all I have for today. Thank you.

Ryan Smith
President, CEO & Director at US Energy

Thanks, Tom.

Operator

Thank you. At this time, I would like to turn the call back over to management for closing comments.

Ryan Smith
President, CEO & Director at US Energy

Great. I appreciate everybody for joining this morning and listening to what we have going on. We're excited about our project. We continue to move it forward. We're set up for 2026 to be a a stellar year for US Energy as we get this project off the ground and online. I appreciate your time. Thank you.

Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

Analysts
    • Mason McGuire
      VP - Finance & Strategy at US Energy
    • Ryan Smith
      President, CEO & Director at US Energy
    • Mark Zajac
      CFO at US Energy
    • Charles Meade
      Research Analyst & Member at Johnson Rice & Company L.L.C.
    • Tom Kerr
      Senior Research Analyst at Zacks Small Cap Research
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