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

U.S. Energy Corp reported its Q1 2025 earnings, revealing a challenging quarter with earnings per share (EPS) of -$0.10, falling short of the forecasted -$0.05. Revenue also missed expectations, coming in at $2.19 million compared to the anticipated $3.79 million. Following the earnings announcement, the company’s stock price showed volatility, initially rising 3.54% in pre-market trading to $1.17, despite a decrease of 0.88% in the previous session, closing at $1.13. According to InvestingPro analysis, the stock appears undervalued at current levels, with analyst price targets ranging from $2.25 to $3.50, suggesting significant upside potential.

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Key Takeaways

• U.S. Energy Corp’s Q1 2025 EPS and revenue missed analyst forecasts.
• The stock price experienced a 3.54% increase in pre-market trading.
• The company focuses on helium and CO2 projects in Montana.
• Cash position remains strong with over $10.5 million and no outstanding debt.
• Strategic initiatives include a new processing plant expected by early 2026.

Company Performance

U.S. Energy Corp’s performance in Q1 2025 highlighted the challenges facing the company as it transitions towards non-hydrocarbon industrial gas production. Revenue fell sharply to $2.2 million from $5.4 million in Q1 2024, primarily due to reduced oil sales, which still comprised over 80% of total revenue. This decline aligns with InvestingPro data showing a 36% year-over-year revenue decline and analysts anticipating further sales decline in the current year. The company’s focus on helium and CO2 projects in Montana marks a strategic shift aimed at capturing growing demand in the semiconductor industry.

Financial Highlights

• Revenue: $2.2 million, down from $5.4 million in Q1 2024
• EPS: -$0.10, below the forecast of -$0.05
• Lease Operating Expense: $1.6 million ($34.23 per BOE)
• Cash Position: Over $10.5 million with no outstanding debt

Earnings vs. Forecast

The company reported an EPS of -$0.10, missing the forecast of -$0.05 by a significant margin. Revenue also fell short, at $2.19 million compared to the expected $3.79 million. This marks a notable deviation from analyst expectations and reflects the company’s ongoing transition challenges.

Market Reaction

Despite the earnings miss, U.S. Energy Corp’s stock price rose 3.54% in pre-market trading to $1.17. This movement contrasts with the previous session’s 0.88% decline. The stock remains near its 52-week low of $0.81, having fallen over 20% in the past six months. InvestingPro data reveals the company maintains a strong balance sheet with more cash than debt, though short-term obligations currently exceed liquid assets, warranting investor attention.

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Outlook & Guidance

Looking ahead, U.S. Energy Corp remains committed to its Montana industrial gas project, with a processing plant expected to be completed by early 2026. The company continues to monetize legacy oil and gas assets while focusing on non-hydrocarbon helium production. With a beta of 0.72, the stock shows lower volatility than the broader market, though InvestingPro analysis indicates the company trades at a high EBITDA multiple of 97.4x, reflecting investors’ focus on future growth potential rather than current earnings.

Executive Commentary

CEO Ryan Smith emphasized the company’s strategic shift, stating, "We are emerging as a differentiated growth-oriented non-hydrocarbon industrial gas company." He also highlighted the company’s strong financial position, noting, "Our strong financial position, clean capital structure, and access to internally generated cash flow provide a foundation that many of our peers lack."

Risks and Challenges

• Volatile oil prices impacting revenue from traditional operations.
• Execution risk associated with new helium and CO2 projects.
• Market competition in the industrial gas sector.
• Potential delays in project timelines affecting future revenue streams.

Q&A

During the earnings call, analysts inquired about the processing plant’s costs and timeline, with executives confirming the expected completion by early 2026. The helium market dynamics were also a focus, with the company affirming steady demand from the semiconductor industry.

Full transcript - US Energy Corp (USEG) Q1 2025:

Conference Operator: Greetings, and welcome to the U. S. Energy Corporation’s First 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.

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

Mason Maguire, Vice President of Finance and Strategy, U.S. Energy Corporation: Thank you, operator, and good morning, everyone. Welcome to U. S. Energy Corp’s First Quarter twenty twenty five Results Conference Call. Brian Smith, our Chief Executive Officer, will provide an overview of our operating results and discuss the company’s strategic outlook.

And our company’s Chief Financial Officer, Mark Zajac, will give a more detailed overview of our financial results. Before this morning’s market opening, U. S. Energy issued a press release summarizing the operating and financial results for the quarter ended 03/31/2025. This press release, together with the accompanying presentation materials, are available in the Investor Relations section of our website at www.usnrg.com.

Today’s discussion may contain forward looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today’s forward looking statements due to 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, Chief Executive Officer, U.S. Energy Corporation: Good morning, everyone, and thank you for joining us today. I’m pleased to walk you through our first quarter results, highlight key milestones and provide a strategic and operational update as we continue executing our growth plan. As we’ve discussed previously, U. S. Energy’s primary focus is the development of our Montana industrial gas project.

We believe this platform is ideally positioned to meet growing market demand, support attractive economics, and deliver the scale necessary to drive relevance in the public markets. While Montana’s winter limits certain field activity, we have now launched the most significant phase of our initial development program. This includes workovers and flow testing of existing wells, drilling two new development wells, advancing our infrastructure planning to the point of final investment decision, and making substantial progress in our carbon management initiatives. I’ll touch on each area individually. Starting with upstream development, in Q4 twenty twenty four, we drilled our first industrial gas well.

Since then, we’ve been analyzing the results to refine our development approach. In January, we acquired 24,000 net acres in what we believe is the core of the Cuban Dome structure along with an existing well showing significant concentrations of non hydrocarbon helium. We’re currently drilling two back to back wells targeting the helium and CO2 rich Dubro formation with each well budgeted at approximately $1,200,000 We anticipate these wells will validate the scale and quality of our resource with one expected to be designated as a class two injection well for permanent CO2 storage. It’s important to emphasize the uniqueness of our upstream Kievan Dome position. Most US helium production today is tied to hydrocarbons.

In contrast, our project is based on a non hydrocarbon gas stream giving it a significantly lower environmental footprint. That distinction represents a competitive advantage, especially as sustainability continues to be a differentiating market factor. Turning to infrastructure, upon completing our initial development program in June, we will begin construction of our processing plant at Ki Bin Dome. This facility will separate upstream gas into helium and CO2 streams and it’s expected to process approximately 17,000,000 cubic feet of raw gas per day comprised of approximately 80% to 85% CO2 and 05% to 1% helium. The estimated $15,000,000 plant is expected to be completed in roughly forty weeks and funded through our current balance sheet and modest strategic use of debt.

Beyond our own needs, we’ve seen opportunities to provide solutions to undercapitalized producers in the region. By controlling the majority of the basin’s gaseous helium supply, we believe we are well positioned to unlock multiple sources of value. Lastly, I would like to touch on US Energy’s carbon management front. US Energy controls one of the largest known CO2 deposits in The United States. To monetize the helium within this gas stream, we must process it and permanently sequester the CO2.

Fortunately, the Kevan Dome’s geology is exceptionally well suited for carbon storage. We already hold multiple class two injection permits and expect to receive more this upcoming June. Recently, we completed successful injection tests at two disposal wells injecting around 17,000,000 cubic feet per day. Once our processing plant is operational, we anticipate sequestering approximately 250,000 metric tons of CO2 annually. We’ve begun drafting our Monitoring, Reporting and Verification MRV plan and expect to submit it to the EPA in July.

Additionally and in the near term, we also plan to evaluate merchant CO2 sales particularly given the coastal supply shortages. We’re highly optimistic about what lies ahead. This asset represents a transformational opportunity for U. S. Energy and positions us as a first mover in the industrial gas sector with a resource and geographic location that cannot be replicated.

Our strategy is focused on building a full cycle platform from production and processing to long term carbon storage while maintaining a disciplined capital allocation approach. The data we’ve collected to date supports a highly economic development path, both at the wellhead and infrastructure levels. Our capital plan remains measured and achievable with initial phases funded by our strong balance sheet and supported by a thoughtful capital strategy. Turning briefly to our legacy oil and gas assets, as you know commodity prices have pulled back materially this year, which has affected earnings across the sector including ours. While these assets are no longer our core focus, they still carry meaningful value.

Following our successful monetization program in 2024, which helped eliminate debt and build a substantial cash position, we remain opportunistic in pursuing value maximizing divestitures of non core oil and gas assets. As we move through 2025, we will continue to execute a disciplined strategy, investing in our Core Montana project while monetizing legacy hydrocarbon assets where appropriate. This approach will establish 2025 as a pivotable year in U. S. Energy’s transformation, underpinned by access to the non dilutive or low dilutive capital, a key differentiator in today’s market.

We believe U. S. Energy stands apart as we have a scalable economically attractive development platform backed by legacy assets that hold meaningful value with minimal reinvestment. This enables us to reinvest in the high return industrial gas opportunities while insulating the business from commodity price volatility. On the capital return front, we remain committed to shareholder value creation and so far in 2025, we’ve repurchased approximately 832,000 shares representing roughly 2.5% of our outstanding float.

In addition, management has continued to increase its ownership reflecting our strong conviction that our shares remain undervalued and represent a compelling use of our capital. In closing, US Energy is emerging as a differentiated growth oriented non hydrocarbon industrial gas company with operational exposure across upstream production, infrastructure, and carbon management. Our strong financial position, clean capital structure, and access to internally generated cash flow provide a foundation that many of our peers lack. As we continue to execute on our strategy, we believe we are unlocking a scalable and high margin growth platform that will create lasting shareholder value. With that, I’ll now turn the call over to our CFO, Mark Zajak, who will provide an update on our financial results for the quarter.

Mark Zajac, Chief Financial Officer, U.S. Energy Corporation: Thank you, Ryan. Hello everyone. Let’s delve into the financial details for the first quarter of twenty twenty five. Our operating results reflect the cumulative impact of our divestitures since the fourth quarter of twenty twenty three. Revenue was approximately $2,200,000 down from $5,400,000 in the same quarter last year reflecting the impact of divestitures in the second half of twenty twenty four.

Oil comprised over 80% of the revenue this quarter reflecting our focus on optimizing our remaining oil assets. Our lease operating expense for the quarter was $1,600,000 or $34.23 a BOE compared to $3,200,000 or $29.2 per BOE in the same quarter last year. The overall decrease reflects our divestiture since the first quarter last year and on a BOE basis the increase is a function of our assets remaining in our portfolio. Cash, general and administrative expense was $1,900,000 for the first quarter of twenty twenty five and included approximately $300,000 for discrete costs such as transaction costs and contractor utilization to integrate our acquired assets. Normalized quarterly general and administrative costs are expected to be approximately $1,600,000 or an 18% reduction from the same period last year.

As for our balance sheet, as of 03/31/2025 there was no debt outstanding on our twenty million dollars revolving credit facility and our cash position stood at over $10,500,000 reflecting the net cash proceeds of $10,300,000 generated from our successful equity offering during the first quarter. We also are in talks to renew and extend our credit agreement, which we expect to be completed in the second quarter of twenty twenty five. In terms of a shift in CapEx, during the first quarter we closed on a Montana acquisition and spent $2,100,000 acquiring acreage as well as an industrial gas well with production potential adjacent to our recently acquired WaveTech acreage. 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 integrity and my objective continues to be to ensure that the company’s reporting process maintains 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.

Conference Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Our first question comes from the line of Tom Carr with Zacks Small Cap Research. Please proceed with your question.

Tom Carr, Analyst, Zacks Small Cap Research: Good morning, guys.

Ryan Smith, Chief Executive Officer, U.S. Energy Corporation: Hey, good morning, Tom.

Tom Carr, Analyst, Zacks Small Cap Research: The cost of the processing plant, I believe that was higher than expectations. Was there complications or higher cost factors involved?

Ryan Smith, Chief Executive Officer, U.S. Energy Corporation: So no, there wasn’t. I guess the whole time is 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 many, many parts go into, that plant, it’s not like a one size fit all type of cost. There’s different kind of compressors, different kind of horsepower requirements, different kind of power requirements, etcetera.

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 17,000,000 a day type plant kind of checks all of those boxes for us. There’s some lead time on some of those parts. So I think 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 could 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.

Tom Carr, Analyst, Zacks Small Cap Research: Alright. No. Sounds good. And then the completion, we’re still looking at the first quarter of twenty twenty six. Could it be bleed into the second quarter of twenty twenty six?

Ryan Smith, Chief Executive Officer, U.S. Energy Corporation: I think it’s a weather thing really on when it when it gets on there. I mean, when I was, you know, 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.

Tom Carr, Analyst, Zacks Small Cap Research: Got it. Okay. One last question. Can you kinda 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?

Ryan Smith, Chief Executive Officer, U.S. Energy Corporation: So I don’t a whole lot has changed in terms of a few parts of 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, You know, in a way, the helium markets are kind of a long dated link 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 gaseous helium is around, I think on the low end $400 per Mcf. In terms of off take agreements that are currently out in the market, I think liquefied helium as it’s it’s a more, specified use in the in the medical world, in the chip world goes for a much higher price.

Sometimes, you know, two to two to three x that. You know, we model, of course, that lower gaseous number. And then on the length of off take, 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 ten year type of number, which I don’t think we’re interested in just because if you look back at helium prices, one thing that screams off the graph is that there’s huge spikes in price.

It seems like every eighteen months or less. So as we start looking at these agreements, I think that baseline number per MCF is the number that we model through now. I think there’s upside to that number. And then on an expected off take, I would like to keep them shorter rather than longer for optionality. And the the fact that these industries are not going to stop using this, it’s only going to keep growing.

So again, I I think right right now we see about $400 per MCF and, you know, two to five year offtake agreements that are ample out there in the market.

Tom Carr, Analyst, Zacks Small Cap Research: Great. Thanks for the update. I’ll get back in the queue.

Conference Operator: We have reached the end of the question and answer session. I would now turn the floor back over to management for closing remarks.

Ryan Smith, Chief Executive Officer, U.S. Energy Corporation: Yes, thank you all for joining us this morning. We’re excited about what we’re working on. We’ve extremely de risked our project year to date. Our existing development program that we started a few weeks ago and are continuing today through early June is going in the expected direction that we planned for, that we hope for, really setting the stage for us to launch and grow this initiative and reach scale within the next twelve months from where we are now. So we’re very excited about what we’re working on and look forward to giving more updates as we continue to progress forward.

Conference Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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