U.S. Energy Corp. (NASDAQ:USEG) Q1 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary presents a positive outlook with debt-free status, share repurchases, and a disciplined capital strategy. The Q&A section, while highlighting some uncertainties in project timelines and helium market dynamics, does not reveal significant negative trends. The company's operational plans and cash position indicate a stable financial health. Given these factors, along with the successful equity offering, the sentiment leans towards a positive market reaction, likely resulting in a stock price increase of 2% to 8% over the next two weeks.

Key Financial Performance

Revenue $2.2 million, down from $5.4 million year-over-year, reflecting the impact of divestitures in the second half of 2024.

Lease Operating Expense $1.6 million or $34.23 per BOE, down from $3.2 million or $29.02 per BOE year-over-year; the overall decrease reflects divestitures since the first quarter of last year, while the increase on a BOE basis is due to the remaining assets in the portfolio.

General and Administrative Expense $1.9 million, including $0.3 million for discrete costs; normalized costs expected to be approximately $1.6 million, an 18% reduction from the same period last year.

Cash Position Over $10.5 million, reflecting net cash proceeds of $10.3 million from a successful equity offering during the first quarter.

Capital Expenditure $2.1 million spent on acquiring acreage and an industrial gas well during the first quarter.

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Operating Highlights

Montana Industrial Gas Project: U.S. Energy’s primary focus is the development of the Montana Industrial Gas project, which is positioned to meet growing market demand and support attractive economics.

New Development Wells: Currently drilling two back-to-back wells targeting helium and CO2 rich Duperow, each budgeted at approximately $1.2 million.

Processing Plant: Construction of a processing plant at Kevin Dome is expected to process approximately 17 million cubic feet of raw gas per day, with an estimated cost of $15 million.

Market Positioning: U.S. Energy is emerging as a differentiated, growth-oriented non-hydrocarbon industrial gas company, with a competitive advantage due to its non-hydrocarbon gas stream.

Carbon Management Initiatives: U.S. Energy controls one of the largest known CO2 deposits in the U.S. and plans to sequester approximately 250,000 metric tons of CO2 annually.

Operational Efficiencies: Normalized quarterly general and administrative costs are expected to be approximately $1.6 million, an 18% reduction from the same period last year.

Divestitures Impact: Revenue decreased to approximately $2.2 million due to divestitures, reflecting a shift in operational focus.

Strategic Shift: The company is focused on building a full-cycle platform from production and processing to long-term carbon storage.

Shareholder Value Creation: In 2025, U.S. Energy repurchased approximately 832,000 shares, representing roughly 2.5% of outstanding float.

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Risk or Challenges

Earnings Miss: U.S. Energy Corp. reported an EPS of $-0.1, missing expectations of $-0.05, indicating potential financial instability.

Commodity Price Volatility: The company noted that commodity prices have pulled back materially this year, affecting earnings across the sector, including their own.

Regulatory Risks: The company is in the process of drafting a monitoring, reporting, and verification (MRV) plan for CO2 sequestration, which may face regulatory scrutiny from the EPA.

Supply Chain Challenges: The company anticipates challenges in infrastructure development and construction of the processing plant, which is expected to cost $15 million and take approximately 40 weeks to complete.

Market Competition: U.S. Energy Corp. faces competitive pressures in the industrial gas sector, particularly as sustainability becomes a key differentiator in the market.

Financial Position Risks: Despite a strong cash position of over $10.5 million, the company must manage its capital allocation carefully to avoid financial strain during its transition to a non-hydrocarbon focus.

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Guidance & Outlook

Montana Industrial Gas Project: U.S. Energy’s primary focus is the development of the Montana Industrial Gas project, which is positioned to meet market demand and support attractive economics.

Upstream Development: Drilled first industrial gas well in Q4 2024; acquired 24,000 net acres in the Kevin Dome structure; currently drilling two new development wells targeting helium and CO2.

Processing Plant Construction: Construction of a processing plant at Kevin Dome is expected to begin after the initial development program in June, with an estimated cost of $15 million.

Carbon Management Initiatives: U.S. Energy controls one of the largest known CO2 deposits in the U.S. and plans to sequester approximately 250,000 metric tons of CO2 annually.

Shareholder Value Creation: Repurchased approximately 832,000 shares in 2025, representing about 2.5% of outstanding float.

Revenue Expectations: Revenue for Q1 2025 was approximately $2.2 million, down from $5.4 million in the same quarter last year due to divestitures.

CapEx: Spent $2.1 million on acquiring acreage and an industrial gas well in Q1 2025.

General and Administrative Costs: Normalized quarterly general and administrative costs are expected to be approximately $1.6 million, an 18% reduction from the same period last year.

Debt Position: As of March 31, 2025, there was no debt outstanding on the $20 million revolving credit facility.

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Shareholder Return Plan

Share Repurchase Program: In 2025, U.S. Energy Corp. repurchased approximately 832,000 shares, representing roughly 2.5% of its outstanding float.

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Key Q&A

Q:The cost of the processing plant, I believe that was higher than expectations of was your complications or higher cost factors involved?

A:So no, there wasn’t. I guess the whole time as we’ve looked at all the infrastructure build-out and then the wells that are going to supply that plant and what we think the production of those wells is going to be — it’s always kind of been a moving target of size of the plant, what we think the production is going to be and kind of what is that key economic fulcrum of processing dollars, rate of return, CO2 that we process and then CO2 that we believe that we can inject. And I know you know this, but as many, many parts go into that plant, it’s not like a one size fit all type of costs. There’s different kind of compressors, different kind of horsepower requirements, different kind of power requirements, et cetera. And now that we’ve kind of moved forward our project with a very high degree of confidence on what all of those inputs are going to be, that $17 million a day type of plant kind of checks all of those boxes for us. There’s some lead time on some of those parts. So I think that, that CapEx number is fair. I think it’s conservative. I think that, that is a full sticker price with what we know right here and now. Are there ways that price can come down on some of these incremental parts that go into that plant? There is, and we’ll work on that. So I think that there’s some possibility for that number to come in a little bit lower than that 15%, but I think that’s a number that we’re comfortable with budgeting for right now.

Q:The completion, we’re still looking at the first quarter of 2026. Could it be bleed into the second quarter of 2026?

A:I think it’s a weather thing really when it gets on there. I mean, when I was counting my weeks on my calendar from when we plan on starting, I think it came out to a March type of date. So it could be the end of the very first quarter, it could be the very beginning of the second quarter. I think right now, just some in the air modeling, we’re using April 1, just as a clean date, but there could be a two or three week swag there kind of either way.

Q:Can you kind of give us a big picture update on the helium markets or helium end markets pricing, demand, contract terms or anything significant change in that area?

A:So I don’t think a whole lot has changed in terms of a few parts to that question. I mean the end user base is the same. You have all types of different industries. I would say the largest and the biggest growth forecast industry is semiconductors and chips, and that’s the one that’s exponentially going forward. The more we move those over here as well, in a way, the helium markets are kind of a long-dated linked to semiconductors. On pricing, it’s remained steady. It’s come down a little bit from the super peak of a couple of years ago. I think what we’re seeing right now in the market for gas is helium is around, I think, on the low end, $400 per Mcf in terms of offtake agreements that are currently out in the market, I think liquefied helium as it’s a more specified use in the medical world, in the chip world goes for a much higher price, sometimes 2 times to 3 times that. We model, of course, that lower gases number. And then on the length of offtake, it ranges. The most typical that I see now is kind of a two to a five year number. Some people would be willing to go to like a 10 year type of number, which I don’t think we’re interested in just because if you look back at helium prices, the one thing that screams off the graph is that there’s huge spikes in price. It seems like every 18 months or less. So as we start looking at these agreements. I think that baseline number per Mcf is the number that we move through now. I think there’s upside to that number. And then on an expected offtake, I would like to keep them shorter rather than longer for optionality. And the fact that these industries are not going to stop using this, it’s only going to keep growing. So again, I think right now, we see about $400 per Mcf and two to five year offtake agreements that are ample out there in the market.

Q:Review of Unclear Management Responses

A:Management's response to the question about the completion timeline for the processing plant was somewhat vague, indicating a range of possible dates without a definitive answer. Additionally, while discussing the helium market, management provided a general overview but did not specify any recent significant changes or detailed data on contract terms.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

USEG Transcript

U.S. Energy Corp. (USEG) Q2 2025 Earnings Call Transcript

Unknown8-12

The earnings call highlighted a significant revenue decline due to divestitures, increasing lease operating expenses per BOE, and a reduced cash position. The Q&A session revealed concerns about lower-than-expected helium concentrations and delays in processing plant development. While management expressed optimism about CO2 sequestration and EOR usage, the lack of clear timelines for merchant CO2 sales and processing plant construction, combined with dependency on the Montana project, presents risks. These factors, along with market volatility exposure, suggest a negative stock price movement over the next two weeks.

U.S. Energy Corp. (NASDAQ:USEG) Q1 2025 Earnings Call Transcript

Positive5-13

Earnings call transcript: US Energy Corp’s Q1 2025 results miss forecasts

Unknown5-12

The earnings call reveals several concerns: significant revenue decline due to divestitures, competitive pressures in helium markets, and potential regulatory and supply chain challenges. Despite a debt-free status and share repurchases, the financial outlook is weak with reduced revenue and unclear growth in helium markets. The Q&A section highlights management's lack of clarity on market conditions. These factors suggest a negative sentiment, likely leading to a stock price decline in the coming weeks.

US Energy (USEG) Q1 2025 Earnings Call Transcript

Positive5-12

The earnings call and Q&A session reveal strong financial health with no debt and a significant cash position, alongside a successful equity offering. The company has made strategic advancements in its Montana project and carbon sequestration initiative. Although there are concerns about costs related to the processing plant and vague timelines, the overall sentiment is positive due to disciplined financial management, a share repurchase program, and a focus on long-term growth. The helium market outlook supports growth, further boosting sentiment. The positive factors outweigh the minor uncertainties, suggesting a likely stock price increase.

USEG Report

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