U.S. Energy Corp. Announces Full Year 2017 and Fourth Quarter Results

 

DENVER, CO – March 28, 2018 — U.S. Energy Corp. (NASDAQCM: USEG) (“U.S. Energy” or the “Company”) today announced financial and operational results for the year and fourth quarter ended December 31, 2017. In addition, the Company announced its estimated proved reserves as of December 31, 2017.

 

Highlights

 

2017 Production of 186,676 BOE, or daily production of 511 BOEPD;
4Q2017 Production of 35,789 BOE, or daily production of 389 BOEPD;
2017 Oil and gas revenue of $6.6 million;
2017 Lease operating expenses of $2.4 million;
Proved Developed Reserves of 824,115 BOE at December 31, 2017;
SEC Pricing pre-tax PV-10 of $9.3 million at December 31, 2017;
Cash and cash equivalents of $3.3 million at 12/31/2017; and
Current shares outstanding of 12,440,927.

 

Fourth Quarter 2017 Transaction Highlights

 

On October 5, 2017, U.S. Energy divested certain Williston Basin non-operated assets in consideration for the elimination of $4.0 million in outstanding liabilities and payment to U.S. Energy of $2.0 million in cash. The divested assets had reserves of 607 BOE and a PV-10 of $5.2 million.

 

On December 29, 2017, U.S. Energy and APEG Energy II, L.P. (“APEG”) closed an exchange agreement pursuant to which APEG exchanged $4,463,380 of outstanding borrowings under the Credit Facility for 5,819,270 new shares of common stock of U.S. Energy. The closing of the transaction was approved by the Company’s shareholders on December 27, 2017.

 

Management Comment

 

David Veltri, U.S. Energy’s Chief Executive Officer, stated, “2017 was a year of tremendous accomplishments for U.S. Energy. Through the refinancing of our credit facility and subsequent debt-for-equity exchange combined with the 4Q2017 asset divestiture, U.S. Energy has drastically improved its balance sheet and liquidity profile. The results of these efforts have finally begun to show up on our 2017 year-end financial statements and we expect to see continued improvements in both our operating margins and profitability going forward. We are pleased by the initial results targeting the Georgetown formation on our South Texas acreage position, and we will continue evaluating near term well participation opportunies on our acreage position in the area. Our growth targets for 2018 remain unchanged and with favorable commodity prices we feel confident about the future. We will look to continue to expand our acreage position in our existing, highly economic areas of North Dakota and South Texas while also looking to grow through significant acquisitions that will allow for a high return and focused development program.”

 

Full Year and Fourth Quarter 2017 Production

 

   4th Quarter 2017   Full Year 2017 
Sales Volume (Total)          
Oil (Bbls)   16,875    111,914 
Gas (Mcf)   113,469    448,571 
Sales volumes (Boe)   35,789    186,676 
           
Average Daily Production (Boe/d)   389    511 
           
Average Sales Prices          
Oil (Bbl)  $54.10   $45.16 
Gas (Mcf)  $3.14   $3.32 
Barrel of Oil Equivalent  $36.07   $35.06 

 

Note: All production associated with the October 2017 asset divestiture is included until the October 3, 2017 closing date where all assets and associated production were transferred to buyer.

 

 
 

 

2017 Year End Reserves

 

As of December 31, 2017, U.S. Energy had total proved reserves of approximately 824,115 Boe, all of which are proved developed producing reserves (“PDP”). The proved reserves total had a pre-tax PV10% value of $9.3 million.

 

   As of 12/31/2017   As of 12/31/2016 
Proved Developed Oil Reserves (Bbls)   676,030    657,280 
Proved Undeveloped Oil Reserves (Bbls)   -    - 
Total Proved Oil Reserves (Bbls)   676,030    657,280 
           
Proved Developed Gas Reserves (Mcf)   888,507    1,379,163 
Proved Undeveloped Gas Reserves (Mcf)   -    - 
Total Proved Gas Reserves (Mcf)   888,507    1,379,163 
           
Total Proved Reserves (Boe)   824,115    887,142 
           
Present Value of Estimated Future Net Revenues Before Income Taxes, Discounted at 10% (In thousands)*  $9,253   $6,747 

 

*SEC pricing of $47.01/bbl of oil and $2.98/mcf of gas which includes adjustments for differentials

 

Operations Update

 

CML Beeler Ranch #1H: The CML Beeler Ranch #1H was spud in the fourth quarter 2017 and came on line in January 2018. The well is located in our Zavala county leasehold in South Texas and is a dual lateral with each lateral comprising approximately 10,000 feet of open hole completion within the Georgetown formation. The completion resulted in an initial 24-hour max IP rate of 1,046 barrels of oil and 1,085 mcf of natural gas and a 30-day average IP of 708 barrels of oil and 850 mcf of natural gas. U.S. Energy has an approximate 7% WI in this well. The total drill and complete cost of the well was $3.4 million. Additional wells are being planned in 2018 by the operator which could include our acreage and participation.

 

Full Year 2017 Financial Results

 

Revenues from sales of oil and natural gas during 2017 were $6.6 million compared to $5.7 million during 2016. The year over year increase in revenue is primarily due to the sustained increase in oil prices over the second half of 2017. Revenue from oil production represented 77% of Company revenue during 2017.

 

Lease operating expenses for 2017 were $2.4 million compared to $1.9 million for 2016. This increase was primarily attributed to workover costs associated with bringing producing wells back online due to improved economic returns driven by increased commodity prices.

 

General and administrative cash expenses for 2017 were $3.0 million compared to $2.7 million for 2016. The year over year increase is primarily associated with professional fees incurred during negotiations with our legacy credit facility lender over the first half of 2017.

 

Adjusted EBITDA was ($0.3) million for 2017 as compared to $0.0 million for 2016. Net Loss was $1.4 million for 2017 compared to $14.1 million for 2016. 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

 

As of December 31, 2017, the Company was in compliance with all financial covenants and fully conforming with all requirements under its credit facility.

 

Credit Facility Covenants  Required Covenant Ratio  U.S. Energy at 12/31/2017
Current Ratio  Greater than 1.0 to 1.0  3.7 to 1.0
PDP to Secured Debt*  Greater than 1.2 to 1.0  9.9 to 1.0

 

*Represents outstanding indebtedness of $0.9 million under the Credit Facility at 12/31/17.

**U.S. Energy had a $0.6 million balance held under “current portion of long term debt” on the Company’s balance sheet at December 31, 2017 which was associated with the debt-for-equity exchange. This amount was paid in the first quarter of 2018.

 

 
 

 

Update to Hedging Activity

 

U.S. Energy hedges portions of its expected production volumes to increase the predictability of its cash flow and to help maintain a strong financial position. As of December 31, 2017, U.S. Energy had an unrealized loss on commodity price derivatives of $0.2 million. The following table summarizes U.S. Energy’s open crude oil and natural gas derivative contracts scheduled to settle after December 31, 2017.

 

  

 

Action

  Begin  End 

Quantity

(bbls/d)

   Price 
                   
Crude oil price swaps  Bought  1/1/18  6/30/18   150    52.20 

 

  

 

Action

  Begin  End 

Quantity

(mcf/d)

   Price 
                   
Natural gas price swaps  Bought  1/1/18  12/31/18   2,500    3.01 
Natural gas price swaps  Sold  1/1/18  12/31/18   2,000    2.98 

 

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.

 

Corporate Contact:

 

U.S. Energy Corp.

Ryan Smith

Chief Financial Officer

(303) 993-3200

www.usnrg.com

 

 
 

 

U.S. ENERGY CORP..
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   2017   2016 
ASSETS          
Current assets:          
Cash and equivalents  $3,277   $2,518 
Oil and gas sales receivable   687    562 
Discontinued operations - assets of mining segment   114    114 
Assets available for sale   653    653 
Marketable securities   876    947 
Refundable deposits   250    - 
Other current assets   61    95 
           
Total current assets   5,918    4,889 
           
Oil and gas properties under full cost method:          
Unevaluated properties and exploratory wells in progress   4,664    4,664 
Evaluated properties   86,313    87,834 
Less accumulated depreciation, depletion and amortization   (83,362)   (82,640)
           
Net oil and gas properties   7,615    9,858 
           
Other assets:          
Property and equipment, net   1,717    1,864 
Other assets   66    156 
           
Total other assets   1,783    2,020 
           
Total assets  $15,316   $16,767 
           
LIABILITIES AND SHAREHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable and accrued liabilities:          
Payable to major operator  $-   $2,710 
Contingent ownership interests   -    1,430 
Other   707    743 
 Related party payable   50    - 
Accrued compensation and benefits   64    49 
Current portion of long-term debt   600    6,000 
Liabilities from derivative contracts   161    - 
           
Total current liabilities   1,582    10,932 
           
Noncurrent liabilities:          
Long-term debt, less current portion   937    - 
Asset retirement obligations   913    1,045 
Warrant liability   1,200    1,030 
Other liabilities   22    2 
Total noncurrent liabilities   3,072    2,077 
          
Commitments, contingencies, and related party transactions (Note 10) Shareholders’ equity:          
Preferred stock, par value $0.01 per share. Authorized 100,000 shares, 50,000 shares of series A Convertible Preferred Stock in 2017 and 2016; liquidation preference of $2,527 as of December 31, 2017.   1    1 
Common stock, $0.01 par value; unlimited shares authorized; 11,820,057 and 6,134,506 shares issued and outstanding, respectively   118    61 
Additional paid-in capital   136,631    127,576 
Accumulated deficit   (125,185)   (123,825)
Other comprehensive loss   (903)   (55)
           
Total shareholders’ equity   10,662    3,758 
           
Total liabilities and shareholders’ equity  $15,316   $16,767 

 

 
 

 

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

(Unaudited)

 

   2017   2016   2015 
             
Revenue:               
Oil  $5,054   $4,689   $9,047 
Natural gas and liquids   1,491    1,057    1,249 
                
Total revenue   6,545    5,746    10,296 
                
Operating expenses:               
Oil and gas operations:               
Production costs   3,402    2,728    7,352 
Depreciation, depletion and amortization   753    2,529    8,412 
Impairment of oil and gas properties   -    9,568    57,676 
General and administrative:               
Compensation and benefits, including directors and contract employees   741    640    2,602 
Stock-based compensation   323    213    948 
Employee severance costs   -    3    504 
Professional fees, insurance and other   2,314    1,994    1,866 
                
Total operating expenses   7,533    17,675    79,360 
                
Operating Loss   (988)   (11,929)   (69,064)
                
Other income (expense):               
Realized gain (loss) on commodity price risk derivatives   135    1,440    (75)
Unrealized gain (loss) on commodity price risk derivatives   (161)   (1,634)   1,634 
Gain on sale of assets   3    102    121 
Gain on sale of oil and gas properties   4,318    -    - 
Loss on debt for equity conversion   (4,440)   -    - 
Gain (loss) on investments   777    750    (68)
Rental and other income (loss)   (321)   (169)   431 
Warrant revaluation gain (loss)   (170)   210    - 
Interest expense   (513)   (442)   (263)
Total other income (expense)   (372)   257    1,780 
                
Loss from continuing operations   (1,360)   (11,672)   (67,284)
                
Discontinued operations:               
Discontinued operations   -    (2,448)   (2,992)
Impairment loss on discontinued operations   -    -    (22,620)
                
Loss from discontinued operations   -    (2,448)   (25,612)
                
Net loss   (1,360)   (14,120)   (92,896)
                
Change in fair value of marketable equity securities, net of tax   (848)   (55)   56 
                
Comprehensive loss  $(2,208)  $(14,175)  $(92,840)
                
Loss from continuing operations   (1,360)   (11,672)   (67,284)
Accrued dividends related to Series A Convertible Preferred Stock   (514)   (232)   - 
Loss from continuing operations applicable to common shareholders   (1,874)   (11,904)   (67,284)
                
Loss per share- basic and diluted               
Continuing operations  $(0.23)  $(2.50)  $(14.38)
Discontinued operations   -    (0.51)   (5.48)
                
Total  $(0.23)  $(3.01)  $(19.86)
                
Weighted average shares outstanding               
Basic and diluted   5,899,802    4,768,013    4,677,500 

 

 
 

 

U.S. ENERGY CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015

(In Thousands)

 

   2017   2016   2015 
             
Cash flows from operating activities:               
Net loss  $(1,360)  $(14,120)  $(92,896)
Loss from discontinued operations   -    2,448    25,612 
Loss from continuing operations   (1,360)   (11,672)   (67,284)
Adjustments to reconcile loss from continuing operations to net cash provided by / (used in) operating activities:               
Depreciation, depletion, accretion, and amortization   890    2,529    8,557 
Debt amortization   -    -    - 
Impairment of oil and gas properties   -    9,568    57,676 
Change in fair value of oil price risk derivative   161    1,634    (1,634)
Interest change in Major Operator   (141)   (1,476)   - 
Gain on sale of oil and gas properties   (4,318)   -    - 
Loss on conversion of debt to equity   4,440    -    - 
Gain on sale of assets   (3)   (102)   (121)
Stock-based compensation and services   323    213    948 
(Gain)/loss on Warrants   170    (210)   - 
(Gain) on receipt of marketable securities   (777)   (750)   - 
Other   73    378    (110)
Changes in operating assets and liabilities:               
Decrease (increase) in:               
Oil and gas sales receivable   (125)   580    2,034 
Other assets   (159)   86    63 
Increase (decrease) in:               
Accounts payable   (77)   (1,050)   1,126 
Oil and gas operator overpayment   -    -    1,429 
Accrued compensation and benefits   11    (1,133)   (188)
Other liabilities   -    -    8 
                
Net cash provided by / (used in) operating activities   (892)   (1,405)   2,504 
                
Cash flows from investing activities:               
Capital expenditures   (299)   (194)   (3,620)
Proceeds from sale of oil and gas properties and other   2,000    -    264 
Proceeds from settlement of property litigation   -    -    1,500 
Net change in restricted investments   -    -    1,291 
                
Net cash provided by / (used) in investing activities:   1,701    (193)   (565)
                
Cash flows from financing activities:               
Issuance of common stock   (27)   1,317    - 
Redemption of common stock   -    (3)   (29)
Payments for debt issuance costs   (23)   (103)   (125)
                
Net cash provided by / (used in) financing activities   (50)   1,211    (154)
                
Discontinued operations:               
Net cash used in operating activities   -    (448)   (2,440)
Net cash used in investing activities   -    -    (1)
                
Net cash used in discontinued operations   -    (448)   (2,441)
                
Net increase (decrease) in cash and equivalents   759    (836)   (656)
                
Cash and equivalents, beginning of year   2,518    3,354    4,010 
                
Cash and equivalents, end of year  $3,277   $2,518   $3,354 

 

 
 

 

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:

 

   2017   2016   2015 
             
Loss from continuing operations (GAAP)  $(1,360)  $(11,672)  $(67,284)
Impairment of oil and gas properties   -    9,568    57,676 
Depreciation, depletion and amortization   753    2,529    8,412 
(Gain)/loss on investments   (777)   (750)   68 
Stock-based compensation   323    213    948 
Employee severance costs   -    3    504 
(Gain)/loss on sale of assets   3    (102)   (121)
Gain on sale of oil and gas property   (4,318)   -    - 
Loss on conversion of debt to equity   4,440    -    - 
(Gain)/loss on warrant revaluation   170    (210)   - 
Interest expense   513    442    263 
Adjusted EBITDAX (Non-GAAP)  $(253)  $21   $466 

 

 
 

 

 

 

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