U.S. Energy Corp. (NASDAQ: USEG) is an independent energy company focused on the lease acquisition and development of oil and gas producing properties in the continental United States. Their business is currently focused in the Williston Basin of North Dakota and South Texas.
U.S. Energy has announced several new developments during the month of October. Investors indicated their approval of the USEG developments by driving the company’s shares from $.75 to $1.28/share (+70%) during the month.
Recent Events
October 5, 2017. The company reached an agreement to substantially reduce its debt. The Company has entered into an Exchange Agreement with APEG Energy II, L.P., an entity controlled by Angelus Private Equity Group, LLC to exchange $4,463,380 of outstanding borrowings under the Company’s Credit Facility, for 5,819,270 new shares of common stock. $0.9 million will remain on the Credit Facility as U.S. Energy’s only remaining debt, and following the close of the transaction, APEG will hold approximately 49.9% of the outstanding Common Stock of U.S. Energy.
October 10, 2017. USEG announced it has entered into a purchase and sale agreement to sell certain non-operated assets in the Williston Basin for the elimination of $4.2 million in outstanding liabilities and $2.0 million in cash. The agreement was unanimously approved by the board of directors of the Company and closed on October 5, 2017, with an effective date of August 1, 2017.
David Veltri, Chairman and CEO of U.S. Energy, stated, “The successful closing of this transaction represents a major milestone for U.S. Energy. We are pleased to have resolved the previously disclosed disputes regarding the divested properties and to have removed the associated overhang that has been detrimental to the Company since 2015. It should also be noted that due to the outstanding liabilities associated with the divested assets, U.S. Energy had not received any revenue from the properties since 2015 and was not forecasted to receive further revenue until 2020.
October 23, 2017. The company announced it will participate in the upcoming horizontal drilling program on its existing acreage position targeting the development of the Georgetown formation in Zavala and Dimmit Counties, Texas. The development program will take place on acreage positions previously developed for shallower horizons. Operations are expected to begin in late October 2017 and the initial well will be drilled as a dual lateral.
U.S. Energy plans to participate in up to 6 horizontal wells on its existing acreage position, and the company’s working interests range from approximately 6%-15% across the entire position. This is the first newly drilled well that U.S. Energy has participated in since early 2015.
Further, the company has proposed a reverse stock split to shareholders on a 1 for 5 basis. Management states the reverse stock split may be necessary to ensure the company shares remain above the NASDAQ $1.00 minimum price.
Company Overview
Denver, Colorado-based US Energy was founded in 1966 and is a diversified natural resource Company with primary interests in oil, gas, and molybdenum. The Company is focused on the lease acquisition and development of oil and gas producing properties in the continental United States. At present, the Company’s business is focused in the Williston Basin of North Dakota and South Texas.
Projects
NORTH DAKOTA
The Company owns interest in 40 Drill Space Units with the Bakken and Three Forks formations as the primary targeted oil zone. The acreage positions are located in western McKenzie county and minor interests in Mountrail County with opportunity to develop additional acreage in the DSU’s. U.S. Energy’s goal and focus is to consolidate these non-operated positions to a smaller footprint to economically develop and operate. Currently U.S. Energy’s interest is operated by Zavanna Energy, Bruin E&P, Petro-Hunt and EOG.
TEXAS
U.S. Energy’s interest in South Texas is focused in the Eagle Ford, Buda, Georgetown, and Austin Chalk formations. The company owns non-operated interest under the approximately 3600 acres in Zavala and Dimmitt counties. The wells and interests are primarily operated by Contango Oil and Gas and CML Exploration.
LOUISIANA
U.S. Energy Corp. has participated in an exploration program in southern Louisiana with PetroQuest. Currently a successful exploration well is producing from the Text-L formation in Terrebone Parish Louisiana.
Q2 Financial Review
Revenues from sales of oil and natural gas for the second quarter of 2017 were $2.0 million compared to $1.7 million for the first quarter of 2017. The 17% quarter over quarter increase in revenue is primarily associated with an increase in production. Revenue from oil production represented 80% of Company revenue during the second quarter of 2017.
Lease operating expenses for the second quarter of 2017 were $0.5 million compared to $0.7 million for the first quarter of 2017. On a per unit basis, lease operating expenses were $9.18 per BOE in the second quarter of 2017 compared to $14.03 per BOE in the first quarter of 2017. This decrease on a per unit basis compared to the first quarter of 2017 was primarily due to the implementation of cost reduction strategies by the operators of our wells. The Company expects to continue realizing the positive effects of cost reduction strategies going forward. General and administrative expenses for the second quarter of 2017 were $1.0 million compared to $1.3 million for the same first quarter in 2017. The quarter over quarter decrease is primarily associated with a reduction in professional fees associated with the assignment and transfer of the Company’s Credit Facility.
Adjusted EBITDA was $0.4 million for the second quarter of 2017, as compared to $(0.5) million for the first quarter of 2017. Net Income (Loss) was $0.3 million for the second quarter of 2017 compared to $(0.7) million for the first quarter of 2017. Adjusted EBITDA is a non-GAAP financial measure. For additional information please refer to the reconciliation of this measure at the end of this news release.
USEG is scheduled to release Q3 results on or about November 13, 2017.
Stock Influences and Risk Factors
Participation in the revenue from the current drilling operations could add to the company’s top line;
The virtual elimination of long term debt should make USEG more financially flexible;
The company has proposed a reverse stock split which could impact investors;
The oil & gas industry is subject to volatile commodity pricing for those products;
Stock Chart
On Wednesday October 25, 2017, in intra-day trading, USEG shares were at $1.23 (-7.52%) on trading volume of 328K shares. The current RSI (14) is 67.94.
USEG shares are trading above their 50-day and 200-day moving averages of $.84 and $.85 respectively.
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