March 28, 2018

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

DENVER, March 28, 2018 (GLOBE NEWSWIRE) -- U.S. Energy Corp. (NASDAQ: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.

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    (194)   (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 
Corporate Contact:



U.S. Energy Corp.

Ryan Smith

Chief Financial Officer

(303) 993-3200

www.usnrg.com

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Source: U.S. Energy Corp.

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