Earnings call transcript: US Energy Q2 2025 results miss forecasts, stock dips

U.S. Energy Corporation (USEG) reported its Q2 2025 earnings, revealing a significant miss on both earnings per share (EPS) and revenue compared to analyst expectations. The company posted an EPS of -$0.19, falling short of the forecasted -$0.06, marking a surprise of 216.67%. Revenue came in at $2.21 million, below the anticipated $2.63 million, representing a revenue surprise of -15.97%. In reaction, the company’s stock dropped 2.52% in pre-market trading to $1.16. With a market capitalization of $39.4 million and an overall "WEAK" financial health score according to InvestingPro, the company faces significant challenges ahead. InvestingPro analysis indicates the stock is currently fairly valued based on multiple factors and proprietary algorithms.

Key Takeaways

• U.S. Energy’s Q2 revenue dropped significantly from the previous year, falling to $2 million from $6 million.
• The company maintains a strong cash position with over $6.7 million and no outstanding debt.
• Stock price fell 2.52% in pre-market trading following the earnings miss.
• The company is focusing on its Montana industrial gas project, aiming for significant growth by 2026.

Company Performance

U.S. Energy’s performance in Q2 2025 reflects a challenging period, with revenue dropping from $6 million the previous year to $2 million, contributing to a substantial revenue decline of 40.6% over the last twelve months. The company’s focus on oil, which comprised over 90% of its revenue, did not offset the decline. Despite these challenges, U.S. Energy maintains a robust cash position and no debt, thanks to a successful equity offering that generated $10.3 million in net proceeds. InvestingPro data reveals the company is quickly burning through cash, with a negative free cash flow yield of -24%. Subscribers to InvestingPro can access 7 additional key insights about USEG’s financial position and growth prospects.

Financial Highlights

• Revenue: $2 million, down from $6 million YoY
• Earnings per share: -$0.19, missing the forecast of -$0.06
• Cash position: Over $6.7 million
• Lease operating expense: $1.6 million ($32.14 per BOE)

Earnings vs. Forecast

U.S. Energy’s Q2 2025 EPS of -$0.19 was significantly below the forecasted -$0.06, with a surprise percentage of 216.67%. The revenue of $2.21 million also missed the forecast of $2.63 million, representing a negative surprise of 15.97%. This marks a substantial deviation from expectations, reflecting the company’s current operational challenges.

Market Reaction

Following the earnings announcement, U.S. Energy’s stock fell 2.52% in pre-market trading, reaching $1.16. This movement places the stock closer to its 52-week low of $0.865, indicating investor concern over the earnings miss and future prospects. The stock has declined 39.3% over the past six months, with a beta of 0.48 suggesting lower volatility compared to the broader market. InvestingPro analysis shows the company trading at a high EBITDA multiple of 220.6x, reflecting significant premium compared to industry peers. A comprehensive Pro Research Report, available to InvestingPro subscribers, provides detailed analysis of USEG’s valuation metrics and peer comparison.

Outlook & Guidance

Looking ahead, U.S. Energy is targeting growth through its Montana industrial gas project. The company aims to secure helium off-take agreements by the end of 2025 and is exploring opportunities in CO2 sequestration and enhanced oil recovery. U.S. Energy is positioning 2026 as a breakout year, with plans to finalize a commercial resource report post-processing facility development. Analyst consensus maintains a bullish outlook with price targets ranging from $2.00 to $3.50, suggesting significant upside potential. However, InvestingPro data indicates analysts anticipate continued sales decline and negative profitability for the current year.

Executive Commentary

CEO Ryan Smith emphasized U.S. Energy’s growth potential, stating, "US Energy is emerging as a differentiated and growth-oriented industrial gas company." He expressed optimism about future developments, noting, "We’re set up for 2026 to be a stellar year for US Energy as we get this project off the ground and online."

Risks and Challenges

• Declining revenue from oil could impact future financial stability.
• Execution risks associated with the Montana industrial gas project.
• Potential delays in securing helium off-take agreements.
• Market volatility affecting stock price and investor sentiment.

Q&A

During the earnings call, analysts inquired about the validation of resource reports with Ryder Scott and variations in helium concentration. Discussions also covered processing plant design considerations and potential off-take agreements, highlighting the company’s strategic focus on monetization and growth opportunities.

Full transcript - US Energy Corp (USEG) Q2 2025:

Conference 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.

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 Maguire, VP of Finance and Strategy, U.S. Energy Corporation: Thank you, operator, and good morning, everyone. Welcome to U. S. Energy Corp. Second Quarter twenty twenty five Results Conference Call.

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.

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, 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 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.

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.

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.

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.

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.

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.

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.

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.

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 Zajak, Chief Financial Officer, U.S. Energy Corporation: 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.

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.

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.

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.

Conference 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, Analyst, Johnson Rice: Yes, good morning, Ryan and Mark.

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

Charles Meade, Analyst, Johnson Rice: 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, Chief Executive Officer, U.S. Energy Corporation: 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.

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.

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, Analyst, Johnson Rice: 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.

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, Chief Executive Officer, U.S. Energy Corporation: 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.

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.

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.

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.

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, Analyst, Johnson Rice: Got it. That is a great detail and a good summary. Thank you, Ryan.

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

Tom Kerr, Analyst, Sachs: Good morning, guys.

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

Tom Kerr, Analyst, Sachs: 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, Chief Executive Officer, U.S. Energy Corporation: 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.

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.

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, Analyst, Sachs: 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, Chief Executive Officer, U.S. Energy Corporation: 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, Analyst, Sachs: What

Ryan Smith, Chief Executive Officer, U.S. Energy Corporation: 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, Analyst, Sachs: 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, Chief Executive Officer, U.S. Energy Corporation: I think there’s a few changes.

Ryan Smith, Chief Executive Officer, U.S. Energy Corporation: 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.

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.

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, Analyst, Sachs: 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.

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, Chief Executive Officer, U.S. Energy Corporation: 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.

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, Analyst, Sachs: Got it. Thanks. That’s all I have for today. Thank you.

Ryan Smith, Chief Executive Officer, U.S. Energy Corporation: Thanks, Tom.

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

Ryan Smith, Chief Executive Officer, U.S. Energy Corporation: 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.

Conference 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.

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