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U.S. Energy Corp. Announces Second Quarter 2017 Results; 2017 Mid-Year Reserve Report

DENVER, Aug. 14, 2017 (GLOBE NEWSWIRE) -- U.S. Energy Corp. (NASDAQ:USEG) (“U.S. Energy” or the “Company”) today announced financial and operational results for the quarter ended June 30, 2017, mid-year proved oil & gas reserves, and Revolving Credit Facility (“Credit Facility”) updates.

Highlights

  • Second quarter production of 58,369 BOE increased 17% as compared to the first quarter of 2017.  Daily production averaged 641 BOEPD;
  • Second quarter oil and gas revenue of $2.0 million increased 17% as compared to the first quarter of 2017;
  • Second quarter lease operating expenses of $0.5 million, or $9.18 per BOE, decreased 35% as compared to the first quarter of 2017;
  • Second quarter Adjusted EBITDA of $0.4 million;
  • Total proved reserves of 1,458 MBOE at 6/30/2017;
  • PV-10 of $13.9 million at 6/30/2017;
  • Cash and cash equivalents of $2.0 million at 6/30/2017;
  • Current shares outstanding of 6,134,506; and
  • Extended maturity of Credit Facility to 7/30/2019 and set new financial ratio covenants

Second Quarter 2017 Production

For the second quarter of 2017, U.S. Energy’s total production volumes on a BOE basis increased 17% as compared to the first quarter of 2017. During the second quarter of 2017, U.S. Energy realized a $44.19 average price per Bbl of oil compared to an $42.70 average price per Bbl of oil during the first quarter of 2017.

    2nd Quarter 2017   1st Quarter 2017
Sales Volume (Total)        
Oil (Bbls)   36,004   29,036
Gas (Mcf)   134,187   125,094
Sales volumes (Boe)   58,369   49,885
         
Average Sales Prices        
Oil (Bbl) $ 44.19   $ 42.70
Gas (Mcf) $ 2.99 $ 4.05
Barrel of Oil Equivalent                             $ 34.13 $ 35.02

2017 Mid-Year Reserves

As of June 30, 2017, U.S. Energy had total proved reserves of approximately 1,458 MBoe, all of which are proved developed producing reserves (“PDP”). The proved reserves total had a pre-tax PV10% value of $13.9 million.

            As of 6/30/2017
Proved Developed Oil Reserves (MBbls)     1,234
Proved Undeveloped Oil Reserves (MBbls)     -
Total Proved Oil Reserves (MBbls)     1,234
       
Proved Developed Gas Reserves (MMcf)     1,347
Proved Undeveloped Gas Reserves (MMcf)     -
Total Proved Gas Reserves (MMcf)     1,347
       
Total Proved Reserves (MBoe)     1,458
       
Present Value of Estimated Future Net Revenues Before                
Income Taxes, Discounted at 10% (In thousands)*
   

$
 

13,930

*SEC pricing of $48.95/bbl of oil and $3.01/mcf of gas

Financial Results

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 assignement 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.

Credit Facility Update

On May 2, 2017, the Credit Facility between the Company’s wholly owned subsidiary, Energy One and Wells Fargo Bank N.A. was sold, assigned and transferred to APEG Energy II, L.P. (“APEG”).  On June 28, 2017, the Company and APEG entered into the Fifth Amendment to the Credit Agreement providing for, among other things, an extension of the maturity date to July 19, 2019, new financial coverage ratio covenants and a limited release and waiver with respect to any historical Company non-compliance with any and all financial covenants. As of June 30, 2017, the Company was in compliance with all financial covenants and fully confirming with all requirements under its credit facility. Accordingly, the entire outstanding balance under the Credit Facilty of $6.0 million has been classified as a long-term liability.

Credit Facililty Covenants           Required Covenant Ratio             U.S. Energy at 6/30/2017*
Current Ratio    Greater than 1.0 to 1.0   5.6 to 1.0
PDP to Secured Debt   Greater than 1.2 to 1.0   2.3 to 1.0

*Represents amounts subject to calculation per Credit Agreement amendment

Update to Hedging Activity

Crude oil price swaps were entered into during the second quarter of 2017 for the remainder of the year. On July 26, 2017, the Company entered into natural gas price swaps for the entirety of 2018.  An overview of outstanding Company hedges is summarized below:

    Begin       End       Quantity
(bbls/d)
      Price  
                         
Crude oil price swaps             7/1/17       12/31/17       300     $ 52.40  

/EIN News/ --

    Begin       End       Quantity
(mcf/d)
      Price  
                         
Natural gas price swaps         1/1/18       12/31/18       500     $ 3.01  

Management Comment

David Veltri, U.S. Energy’s Chief Executive Officer, stated, “U.S. Energy posted its strongest quarter since the beginning of the global commodity price decline.  Production increased 17% quarter over quarter while LOE per barrel decreased 35% over the same time period.  These highly positive outcomes are a direct result of the U.S. Energy team working with the operators of its wells to maximize cash flow from operations through optimizing existing production while remaining focused on implementing cost reduction strategies. We anticipate additional consolidation efforts and acreage trades involving our North Dakota Assets along with upcoming development opportunities on our South Texas projects in the near future.”

Mr. Veltri added, “U.S. Energy is also pleased to be working with its new strategic partner and existing lender, APEG Energy II and its parent, Angelus Capital. Our mutual goal is to position ourselves to capitalize on the significant growth and consolidation opportunities we are currently seeing in the market and expect to see more of going forward. The Company will continue to focus on accretive capital allocation, growing reserves and increasing production to help prepare us for future opportunities and value creation for all shareholders.”

About U.S. Energy Corp.

We are an independent energy company focused on the lease acquisition and development of oil and gas producing properties in the continental United States. Our business is currently focused in the Williston Basin of North Dakota and South Texas. We continue to focus on increasing production, reserves, and cash flow from operations while pro-actively managing our debt levels. More information about U.S. Energy Corp. can be found at www.usnrg.com.

Forward-Looking Statements

This press release may include “forward-looking statements” within the meaning of the securities laws. All statements other than statements of historical facts included herein may constitute forward-looking statements. Forward-looking statements in this document may include statements regarding the Company’s expectations regarding the Company’s operational, exploration and development plans; expectations regarding the nature and amount of the Company’s reserves; and expectations regarding production, revenues, cash flows and recoveries. When used in this press release, the words "will," "potential," "believe," "estimate," "intend," "expect," "may," "should," "anticipate," "could," "plan," "predict," "project," "profile," "model," or their negatives, other similar expressions or the statements that include those words, are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, fluctuations in oil and natural gas prices, uncertainties inherent in estimating quantities of oil and natural gas reserves and projecting future rates of production and timing of development activities, competition, operating risks, acquisition risks, liquidity and capital requirements, the effects of governmental regulation, adverse changes in the market for the Company’s oil and natural gas production, dependence upon third-party vendors, and other risks detailed in the Company’s periodic report filings with the Securities and Exchange Commission.


U.S. ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)
 
   
         June 30, 2017    
        December 31, 2016  
ASSETS                
Current assets:                
Cash and equivalents   $ 1,987       $ 2,518  
Oil and gas sales receivable     641         562  
Discontinued operations - assets of mining segment     114         114  
Assets available for sale     653         653  
Marketable securities     622         946  
Oil price risk derivatives     311         -  
Other current assets     233         96  
                 
Total current assets     4,561         4,889  
                 
Oil and gas properties under full cost method:                
Unevaluated properties and exploratory wells in progress     4,664         4,664  
Evaluated properties     87,919         87,834  
Less accumulated depreciation, depletion and amortization     (83,094 )       (82,640 )
                 
Net oil and gas properties     9,489         9,858  
                 
Other assets:                
Property and equipment, net     1,650         1,864  
Other assets     108         156  
                 
Total other assets     1,758         2,020  
                 
Total assets   $ 15,808       $ 16,767  
                   
LIABILITIES AND SHAREHOLDERS' EQUITY                
Current liabilities:                
Accounts payable and accrued liabilities:                
Payable to major operator   $ 2,667       $ 2,710  
Contingent ownership interests     1,518         1,430  
Other     748         743  
Accrued compensation and benefits     63         49  
Current portion of long-term debt     -         6,000  
                 
Total current liabilities     4,996         10,932  
                 
Noncurrent liabilities:                
Revolving credit facility     6,000         -  
Asset retirement obligations     1,061         1,045  
Warrant liability     510         1,030  
Other liabilities     -         2  
Total noncurrent liabilities     7,571         2,077  
                   
Commitments and contingencies (Note 7)                
Shareholders' equity:                
Preferred stock, par value $0.01 per share. Authorized 100,000 shares,
   50,000 shares of series A Convertible Preferred Stock outstanding as of    
   June 30, 2017 and December 31, 2016; liquidation preference of $2,375
   as of June 30, 2017.
    1         1  
Common stock, $0.01 par value; unlimited shares authorized; 6,134,506
   and 5,834,568 shares issued and outstanding, respectively
    61         61  
Additional paid-in capital     127,787         127,576  
Accumulated deficit     (124,229 )       (123,825 )
Other comprehensive loss     (379 )       (55 )
                 
Total shareholders' equity     3,241         3,758  
                 
Total liabilities and shareholders' equity   $ 15,808       $ 16,767  


U.S. ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)
 
   
    Three Months Ended     Six Months Ended  
    June 30:     June 30:  
    2017     2016     2017     2016  
                         
Revenue:                                
Oil   $ 1,591     $ 1,677       $ 2,830     $ 2,541  
Natural gas and liquids     401       319         909       521  
                                   
Total revenue     1,992       1,996         3,739       3,062  
                                   
Operating expenses:                                
Oil and gas operations:                                
Production costs     803       1,434         1,856       2,464  
Depreciation, depletion and amortization     202       864         473       1,646  
Impairment of oil and gas properties     -       2,611         -       9,568  
General and administrative:                                
Compensation and benefits, including director
and contract employees
    178       172         354       311  
Stock-based compensation     106       34         212       68  
Professional services     571       541         1,350       768  
Insurance, rent and other     136       16         237       183  
                                   
Total operating expenses     1,996       5,672         4,482       15,008  
                                   
Operating loss     (4 )     (3,676 )       (743 )     (11,946 )
                                 
Other income (expense):                                
Realized gain (loss) on oil price risk derivatives     100       380         100       1,262  
Unrealized gain (loss) on oil price risk derivatives     311       (887 )       311       (1,460 )
Gain on sale of assets     1       100         1       100  
Rental and other income (loss)     (131 )     (48 )       (347 )     (79 )
Warrant fair value adjustment     180               520          
Interest expense     (121 )     (75 )       (246 )     (247 )
                                   
Total other income (expense)     340       (530 )       339       (424 )
                                 
Income (loss) from continuing operations     336       (4,206 )       (404 )     (12,370 )
                                 
Discontinued operations                                
Discontinued operations     -       (10 )       -       (2,448 )
                                 
Loss from discontinued operations     -       (10 )       -       (2,448 )
                                 
Net income (loss)     336       (4,216 )       (404 )     (14,818 )
                                 
Change in fair value of marketable equity
securities
    (238 )     927         (324 )     927  
                                 
Comprehensive profit (loss)   $ 98     $ (3,289 )     $ (728 )   $ (13,891 )
                                   
Profit (loss) from continuing operations applicable
to common shareholders:
                               
Profit (loss) from continuing operations   $ 98     $ (4,206 )     $ (728 )   $ (12,370 )
Accrued dividends related to Series A Convertible Preferred Stock       (71 )     (62)         (140 )     (96 )
                                   
Profit (loss) from continuing operations
applicable to common shareholders
  $ 27     $ (4,268 )     $ (868 )   $ (12,466 )
                                   
Profit (loss) per share-                                
Basic:                                
Continuing operations   $ 0.05     $ (0.90 )     $ (0.09 )   $ (2.63 )
Discontinued operations     -       -         -       (0.52 )
                                   
Total   $ 0.05     $ (0.90 )     $ (0.09 )   $ (3.15 )
                                 
Diluted:                                
Continuing operations   $ 0.05     $ (0.90 )     $ (0.09 )   $ (2.63 )
Discontinued operations     -       -         -       (0.52 )
                                   
Total   $ 0.05     $ (0.90 )     $ (0.09 )   $ (3.15 )
                                   
Weighted average shares outstanding:                                
Basic     5,834,568       4,705,000         5,834,568       4,705,000  
  Diluted:     6,626,344       4,705,000         5,834,568       4,705,000  


   


U.S. ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS    
(Unaudited)


 
         2017         2016  
             
Cash flows from operating activities:                
Net loss   $ (404 )     $ (14,818 )
Loss from discontinued operations     -         2,448  
Loss from continuing operations     (404 )       (12,370 )
Adjustments to reconcile loss from continuing operations to net
cash used in operating activities:
               
Depreciation and depletion     674         1,718  
Debt amortization     27            
Impairment of oil and gas properties     -         9,568  
Change in fair value of oil price risk derivative     (311 )       1,460  
Stock-based compensation and services     212         68  
Warrant fair value adjustment     (520 )       -  
Other     (8 )       52  
Changes in operating assets and liabilities:                
Decrease (increase) in:                
Oil and gas sales receivable     (79 )       309  
Other assets     (138 )       (160 )
Increase (decrease) in:                
Accounts payable and accrued liabilities     -         (948 )
Accrued compensation and benefits     14         (1,131 )
                   
Net cash used in operating activities     (533 )       (1,434 )
                 
Cash flows from investing activities:                
Capital expenditures     (22 )       (86 )
  Proceeds from asset sale     24         -  
                   
Net cash used in investing activities:     2         (86 )
                 
Cash flows from financing activities:                
Proceeds from issuance of preferred stock     -         1  
Payments for debt issuance costs     -         (24 )
Cash payment for fractional shares in reverse stock split     -         (3 )
      -            
Net cash provided by financing activities     -         (26 )
                 
Discontinued operations:                
Net cash used in discontinued operations     -         (448 )
                   
Net decrease in cash and equivalents     (531 )       (1,994 )
                 
Cash and equivalents, beginning of period     2,518         3,354  
                   
Cash and equivalents, end of period   $ 1,987       $ 1,360  
                   
Non-cash investing and financing activities:                
Issuance of preferred stock in disposition of mining segment     -       $ 1,999  
                   
Elimination of asset retirement obligations in disposition of
mining segment
              204  
                   
Unrealized gain on marketable equity securities               927  
                   
Net additions to oil and gas properties through asset retirement
obligations
    -         1  
                   

In addition to reporting net income (loss) as defined under GAAP, we also present net earnings before interest, income taxes, depletion, depreciation, and amortization, accretion of discount on asset retirement obligations, impairment of oil and natural gas properties, warrant revaluation (gains) and expenses, net gain (loss) from mark-to-market on commodity derivatives, cash settlements received (paid), standby rig expenses and non-cash expenses relating to share based payments recognized under ASC Topic 718 (“Adjusted EBITDA”), which is a non-GAAP performance measure. Adjusted EBITDA consists of net earnings after adjustment for those items described in the table below. Adjusted EBITDA does not represent, and should not be considered an alternative to GAAP measurements, such as net income (loss) (its most directly comparable GAAP measure), and our calculations thereof may not be comparable to similarly titled measures reported by other companies. By eliminating the items described below, we believe the measure is useful in evaluating its fundamental core operating performance. We also believe that Adjusted EBITDA is useful to investors because similar measures are frequently used by securities analysts, investors, and other interested parties in their evaluation of companies in similar industries. Our management uses Adjusted EBITDA to manage our business, including in preparing our annual operating budget and financial projections. Our management does not view Adjusted EBITDA in isolation and also uses other measurements, such as net income (loss) and revenues to measure operating performance. The following table provides a reconciliation of net loss to Adjusted EBITDA for the periods presented:


    Three Months Ended       Six Months Ended  
    June 30,     June 30,  
        2017        2016           2017         2016  
                         
Income (loss) from continuing operations

(GAAP)
  $ 336     $ (4,206 )   $ (404     $ (12,370 )
Impairment of oil and gas properties     -       2,611       -         9,568  
Depreciation, depletion and amortization:                                
Oil and gas operations     202       864       473         1,646  
Other             36               72  
Unrealized (gain) loss on oil price risk derivatives         (311     887       (311       1,460  
Stock-based compensation     106       34       212         68  
Gain on sale of assets     (1 )     (100 )     (1 )       100  
Rental and other income (expense), net     131       48       347         79  
Warrant Fair Value Adjustment (gain) loss     (180 )             (520          
Interest expense     121       69       246         247  
                                   
Adjusted EBITDAX (Non-GAAP)   $ 404     $ 243     $ 42       $ 870  

 

Corporate Contact:

U.S. Energy Corp. 
Ryan Smith
Chief Financial Officer
(303) 993-3200
www.usnrg.com

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