Q4 2023 U.S. Energy Corp Earnings Call
Operator: Greetings. Welcome to the US Energy Corporation fourth quarter and full year 2023 results conference call. At this time, all participants are in a listen-only mode.
Greetings and welcome to U S Energy Corporation fourth quarter and full year 2023 results conference call. At this time, all participants are in a listen only mode.
Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Mason McGuire, Director of Corporate Development. Thank you. Thank you, operator. And good morning, everyone.
Mcguire: Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Mr. Mcguire Director of corporate development. Thank you you may begin.
Mcguire: Thank you operator, and good morning, everyone welcome to U S Energy Corp, 's fourth quarter and year end 2023 results Conference call, Brian 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 say, Jack will give a more detailed review of our final.
Mason McGuire: Welcome to US Energy's fourth quarter and year in 2023 results conference. 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 Zajac, will give a more detailed review of our financial results. After the market closed yesterday, US Energy issued a press release summarizing operating and financial results for the year ended December 31st, 2020. This press release, together with accompanying presentation materials, is available in the investor relations section of our website at www.usnrg.com. Today's discussion may contain forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to 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. Additionally, please note that non-GAAP financial measures may be disclosed during this call. A full reconciliation of GAAP to non-GAAP measures is available in our latest quarterly earnings release and conference call. With that, I will turn the call over to Ryan. Thank you, Mason. And good morning, everyone.
Mark L. Zajac: <unk> results.
Mark L. Zajac: After the market closed yesterday U S energy issued a press release summarizing operating and financial results for the year ended December 31, 2023. This press release together with accompanying presentation materials are available in the Investor Relations section of our website at Www Dot U S and Archie Dot com.
Mark L. Zajac: Today's discussion may contain forward looking statements about future business and financial expectations actual results may differ significantly from those projected in today's forward looking statements due to various risks and uncertainties.
The risks described in our periodic reports filed with the Securities and Exchange Commission.
Mark L. Zajac: Except as required by law, we undertake no obligation to update our forward looking statements.
Mark L. Zajac: Further please note that non-GAAP financial measures may be disclosed during this call a full reconciliation of GAAP to non-GAAP measures are available in our latest quarterly earnings release and conference call materials.
Mark L. Zajac: I will turn the call over to Ryan Smith.
Ryan Lewis Smith: Thanks, Jason and good morning, everyone and thank you for joining us today I'm pleased to share with you some of the strong highlights from this year and quarter as well as provide an update on our strategic outlook.
Ryan Lewis Smith: And thank you for joining us. I'm pleased to share with you some of the strong highlights from this year and quarter as well as provide an update on our strategic outlook. Our year-end results reflect the dedication and consistency of our entire team. Mark Zajac, US Enrgy Mark Zajac, US Enrgy Oil production accounted for 63% of our total production, with the remainder consisting of an approximately even split of natural gas and NGO. I'm particularly proud to highlight our substantial achievements in cost management. Our lease operating expense came in at $3.1 million, or $22.38 per BOE, representing a significant reduction compared to both the prior quarter as well as the fourth quarter of 2022.
Ryan Lewis Smith: <unk> results reflect the dedication and consistency of our entire team we achieved annual net daily production greater than 1700 barrels of oil equivalent per day, which takes into affect our fourth quarter asset divestitures, which I will discuss later, marking an increase from the comparable period of 2022.
Ryan Lewis Smith: Oil production accounted for 63% of our gold production with the remainder consisting.
Ryan Lewis Smith: Even split from natural gas and Ngls.
Ryan Lewis Smith: I'm, particularly proud to highlight our substantial achievements and cost management, our lease operating expense came in at $3 1 million or $22 38 per Boe, representing a significant reduction compared to the.
Ryan Lewis Smith: The prior quarter as well as the fourth quarter of 2022.
Ryan Lewis Smith: This impressive reduction underscores our commitment to operational efficiency and was achieved against the continued backdrop of high interest rates, which flows through to everything, including elevated service. That being said, I should mention that while some costs have remained elevated compared to historical levels, we have begun to see cost reductions in certain materials that we often use across our operations. Of significant note, during the fourth quarter, the company closed on approximately $7.3 million in asset divestiture. The assets represented the majority of our non-operated properties and represented roughly 11% of company production. All proceeds from the divestitures went to debt reduction, putting us at our current attractive leverage profile.
Ryan Lewis Smith: This impressive reduction underscores our commitment to operational efficiency that was achieved against the continued backdrop of higher interest rates, which flows through to everybody.
Ryan Lewis Smith: Service costs.
Ryan Lewis Smith: That being said I should mentioned that while some costs have remained elevated compared to historical levels. We have begun to see cost reductions in certain materials that we often use across our operations.
Ryan Lewis Smith: A significant note during the fourth quarter the company closed on approximately $7 $3 million of asset divestitures. The assets represented the majority of our non operated properties and represented roughly 11% of company production.
Ryan Lewis Smith: All proceeds from the divestitures went to debt reduction putting us at our current attractive leverage profile.
Ryan Lewis Smith: As borrowing rates continue to increase throughout the year, and in my belief, a US EG equity valuation that is trading at less than what would be realized through certain asset divestments, the USCG board made the decision to explore monetizing our non-operated properties to pull forward real tangible value. We had good buyer interest across all four or five separate packages that were being offered, ranging from North Dakota to South Texas, and I was extremely happy with the results of the process.
Ryan Lewis Smith: As borrowing rates continue to increase throughout the year and in my belief USCG equity valuation of the stream less will be realized through certain asset divestitures USCG board made the decision to explore monetizing our non operated properties to pull forward real tangible value.
Ryan Lewis Smith: We have good buyer interest across all four of five separate packages that were being offered ranging from North Dakota, South, Texas and I was extremely happy with the results of the process.
Ryan Lewis Smith: Looking ahead, I do believe that our geographically diverse asset base, which does have its challenges to manage, offers up opportunities in the future to take advantage of any company's perceived valuation distance. Unknown Speaker 07.01.01, Moving into 2024, our capital will be spent on maintaining the production profile of our existing assets. Producing outstanding debt, maintaining the company's share repurchase plan, and taking advantage of organically driven operations, while equity valuations and borrowing costs have really made smaller-scale M&A tough. Allocating capital to oil-weighted projects in the company's existing portfolio remains highly challenging. We've had these assets under control for about two years now, and with the first year plus just really figuring out what we have from an asset optimization perspective. Since that These are projects that we are always currently evaluating.
Ryan Lewis Smith: Looking ahead I do believe that our geographically diverse asset base, which does have its challenges to manage offers of opportunities in the future to take advantage of any company perceived valuation disconnect.
Ryan Lewis Smith: Sure.
Ryan Lewis Smith: Moving into 2024, our capital will be spent on maintaining the production profile of our existing asset base, reducing outstanding debt, maintaining the companys share repurchase plan and taking advantage of organically driven opportunities.
Ryan Lewis Smith: While equity valuations and borrowing costs have really made smaller scale M&A tough recently allocated capital to oil weighted projects in the company's existing portfolio remains highly economic.
We've had these assets under control for about two years now and with the first year plus just really figuring out what we have from an asset optimization standpoint since that time, we've really been able to explore an engineer opportunities that we believe can add value in a much more capital accretive way that any third party M&A.
Ryan Lewis Smith: These are projects that we are always currently evaluating and we plan on sharing more on them as they come to fruition throughout the year.
Ryan Lewis Smith: We plan on sharing more on them as they come to fruition. We believe that US Energy stands out from other oil and gas producing companies of our size in this backdrop of both current macro industry dynamics and a relatively stable oil price outlook. Our current assets require minimal capital to maintain a steady production profile, leading to predictable cash flow and allowing us to effectively allocate dollars to maximize our returns on capital. Our approach positions and allows us to weather market fluctuations and capitalize on opportunities, making us well prepared to navigate the always evolving. Our focus at US Energy remains on operational efficiency, balance sheet discipline, and responsible resource management.
Ryan Lewis Smith: We believe that U S energy stands out from other oil and gas producing companies of our size in this backdrop of current macro industry dynamics and a relatively stable oil pricing outlook.
Ryan Lewis Smith: Our current assets required minimal capital to maintain a steady production profile, leading to predictable cash flow and allowing us to effectively allocate dollars to maximize our returns on capital.
Ryan Lewis Smith: Our approach positions and allows us to weather market fluctuations and capitalize on opportunities, making us well prepared to navigate the always evolving energy landscape.
Ryan Lewis Smith: Our focus at U S energy remains on operational efficiency and balance sheet discipline and responsible resource matched underscores our commitment to drive sustainable value creation.
Ryan Lewis Smith: Underscoring our commitment to driving sustainable value creation. As we move forward, we remain dedicated to capitalizing on current market conditions and leveraging our strengths to deliver continued growth and shareholder return. To that end, during the fourth quarter, we continued our previously announced $5 million share repurchase program.
Ryan Lewis Smith: As we move forward, we remain dedicated to capitalizing on current market conditions, leveraging our strengths to deliver continued growth.
Ryan Lewis Smith: Yes.
Ryan Lewis Smith: To that end during the fourth quarter, we continued our previously announced $5 million share repurchase program.
Ryan Lewis Smith: We restarted our share repurchase activity during December 2023, post the closing of our non-operated divestitures, and since that point, and up until the normal first quarter trading window limitations, we have repurchased nearly half a million shares, or approximately 2% of the company's outstanding shares. We continue to believe that repurchasing our equity at current valuation levels is prudent and one of, if not the best, allocations of free cash flow along with as high of a rate of return opportunity as I currently see in the market. In summary, 2023 and the fourth quarter were strong in terms of production, cost control, and the results of capital allocation decisions made earlier in the year. These achievements set the stage for our growth initiatives while positioning us to take advantage of oil prices that help generate steady, high-margin cash flows.
Ryan Lewis Smith: We restarted our share repurchase activity during December 2023 post the closing of our non operated divestitures and since that point and up until the normal first quarter trading window limitations, we have repurchased nearly half a million shares or approximately 2% of the company's outstanding shares.
Ryan Lewis Smith: We continue to believe that repurchasing our equity at current valuation levels, it's prudent and one of if not the best allocation of free cash flow along with as high of a rate of return opportunity because I currently see in the marketplace.
Ryan Lewis Smith: In summary, 2023 in the fourth quarter was strong in terms of production cost control and the results of capital allocation decisions made earlier in the year.
Ryan Lewis Smith: These achievements set the stage for our growth initiatives, while positioning us to take advantage of oil prices that helped generate steady high margin cash flow.
Ryan Lewis Smith: Company's goal remains to continue expanding our scale through both being selectively advantageous in the M&A market, while also growing our assets with initiatives to complement our core operating areas.
Ryan Lewis Smith: The Company's goal remains to continue expanding our scale through both being selectively advantageous in the M&A market while also growing our assets with initiatives to complement our core operating. By increasing our scale and maintaining our shareholder returns initiatives, we believe we can unlock greater equity value for all of our shareholders. Now I would like to introduce Mark Zajac, our Chief Financial Officer, who will provide a detailed update on the financial results. Thank you, Ryan. Hello, everyone.
Ryan Lewis Smith: Increasing our scale and maintaining our shareholder returns initiatives. We believe we can unlock greater equity value for all of our shareholders.
Ryan Lewis Smith: Now I would like to introduce Mark <unk>, our Chief Financial Officer, who will provide a detailed update on the financial results for the quarter.
Mark L. Zajac: Thank you Ryan Hello, everyone, let's delve into the financial details for the fourth quarter and year end of 2023.
Total oil and gas sales for the quarter amounted to $7 $3 million approximately reflecting a decrease from $10 4 million in the same period last year.
Mark L. Zajac: Let's delve into the financial details for the fourth quarter and year end of 2023. Total oil and gas sales for the quarter amounted to $7.3 million, approximately, reflecting a decrease from $10.4 million in the same period last year. This decline was attributed to a 21% reduction in volumes and a 10% reduction in realized price.
Mark L. Zajac: This decline was attributed to a 21% reduction in volumes and a 10% reduction in realized prices. It is important to note that this quarter's production was significantly impacted by the non operated divestments made during the quarter.
Mark L. Zajac: Sales from oil production contributed 88% of our total revenue for the quarter demonstrating our continued focus on optimizing our oil assets are.
Mark L. Zajac: Our lease operating expense for the fourth quarter was approximately $3 1 million equivalent to $22.38 a Boe.
Mark L. Zajac: It is important to note that this quarter's production was significantly impacted by the non-operative divestments made during the quarter. However, sales from oil production contributed 88% of our total revenue for the quarter, demonstrating our continued focus on optimizing our oil assets. Our lease operating expense for the fourth quarter was approximately $3.1 million, equivalent to $22.38 a BOE, indicating an impressive 28% reduction in total lease operating expense compared to the fourth quarter of 2022. This reduction can be attributed to fewer one-time workovers and the divestment of higher-cost non-operated assets during. Severance and ad valorem taxes for the fourth quarter of 2023 totaled As a percentage of total oil and natural gas sales revenue, these taxes accounted for approximately 6% during the quarter.
Mark L. Zajac: Indicating an impressive 28% reduction in total lease operating expense compared to the fourth quarter of 2022.
Mark L. Zajac: This reduction can be attributed to a fewer one time workovers and the divestment of higher cost non operated assets during the recent quarter.
Mark L. Zajac: Severance and AD valorem taxes for the fourth quarter of 2023 totaled approximately 0.5 million, reflecting a decline from 0.7 million in the same period last year as a percentage of total oil and natural gas sales revenue. These taxes accounted for approximately 6% during the quarter.
Mark L. Zajac: Cash general and administrative expenses reached approximately $2 2 million for the fourth quarter of 2023 compared to roughly $2 4 million in a similar period of 2022. This decrease of aggregate expenses was primarily attributed to higher professional fees incurred in 2022 prior to hydrating, several accounting and finance positions.
Mark L. Zajac: Turning to our net financial performance the company reported a net loss of $19 8 million in the fourth quarter of 2023.
Mark L. Zajac: The fourth quarter loss was largely attributed to an oil and gas impairment expense of $20 2 million driven by impact of lower SEC pricing on the company's reserve report.
Mark L. Zajac: Our adjusted EBITDA, excluding the impact of hedges stood at $1 4 million in the fourth quarter of 2023 compared to $2 7 million in the same period last year influenced most notably by the decline in commodity prices and production from the prior period.
Mark L. Zajac: Cash, General Administrative Expenses reached approximately $2.2 million for the fourth quarter of 2023, compared to roughly $2.4 million in a similar period of 2022. This decrease in aggregate expenses was primarily attributed to higher professional fees incurred in 2022 prior to high-grading several accounting and finance functions. Turning to our net financial performance, the company reported a net loss of $19.8 million in the fourth quarter of 2023. The fourth quarter loss is largely attributed to an oil and gas impairment expense of $20.2 million, driven by the impact of lower SEC pricing on the company's reserve of oil.
Mark L. Zajac: Let's briefly touch upon our balance sheet.
As of December 31, 2023, the company held outstanding debt of $5 million on a $20 million revolving credit facility, our cash position stood at $3 4 million.
Mark L. Zajac: We plan to continue allocating a portion of free cash flow to debt reduction and maintain the flexibility to react to market conditions on that front.
Mark L. Zajac: In conclusion, we are pleased with our operating performance and the financial results that enable us to support the company's initiatives in a way that maintains full balance sheet integrity and leading the charge to ensure the company is reporting processes to maintain our high standard of excellence and we feel confident in our ability to support any growth initiatives, we may entertain going forward.
Speaker Change: Thank you for your participation. This morning, we are now ready to take your questions.
Speaker Change: Thank you if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Mark L. Zajac: Our adjusted EBITDA, excluding the impact of hedges, stood at $1.4 million in the fourth quarter of 2023, compared to $2.7 million in the same period last year, influenced most notably by the decline in commodity prices and production from the prior period. Now, let's briefly touch on our balance sheet. As of December 31, 2023, the company held outstanding debt of $5 million on a $20 million revolving credit facility, and our cash position stood at $3.4 million.
Speaker Change: Our first question is from Charles Meade with Johnson Rice. Please proceed.
Charles Arthur Meade: Good morning, Ryan you and the whole U S C G team.
Charles Arthur Meade: Alright, Carl Thanks for calling.
Charles Arthur Meade: Running it in your prepared comments I want to go back and make sure I heard you correctly and I'm interpreting that the right way I think I heard you say you're right.
Operator: We plan to continue allocating a portion of free cash flow to debt reduction and maintain the flexibility to react to market conditions on that front. In conclusion, we are pleased with our operating performance and the financial results that enable us to support the company's initiatives in a way that maintains a full balance sheet. I'm leading the charge to ensure the company's reporting processes maintain a high standard of excellence, and we feel confident in our ability to support any growth initiatives we may entertain going forward. Thank you for your participation this morning; we are now ready to take your questions. Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.
Charles Arthur Meade: Recall, you, saying that.
Charles Arthur Meade: You feel like you have.
Charles Arthur Meade: Investment opportunities are.
Growth opportunities or growth initiatives inside your portfolio that are better that are you know a higher returns than that any outside M&A opportunities was it was that was that did it did I hear and interpret that correctly and wonder if you could.
Charles Arthur Meade: Elaborate to the extent that that you're able to right now and what those growth initiatives you kind of organic growth initiatives are.
Speaker Change: Yeah of course, but a good question and there's kind of a lot of a lot of layers to that question. So I'll I'll pick out a few of them and if I don't answer all of them. Just please let me know so from a.
Charles Arthur Meade: And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star number two. Our first question is from Charles Meade with Johnson Race. Please proceed. Good morning Ryan, you and the whole US EG team. Good morning, Carls.
Speaker Change: And this also could go into type of a catalyst type of type of answer as well.
Speaker Change: <unk>.
Speaker Change: It's no secret borrowing costs are high equity valuations aren't great and on a smaller scale M&A like relative to U S energy.
Ryan Lewis Smith: Thanks for calling. Ryan, in your prepared comments, I want to go back and make sure I heard you correctly and I'm interpreting it the right way. I think I heard you say, or I seem to recall you saying that, "You feel like you have investment opportunities or growth opportunities or growth initiatives inside your portfolio that are better, that are, you know, higher returns than any outside M&A opportunities." Was that, did I hear and interpret that correctly? And I wonder if you can, you know, elaborate to the extent that you're able to right now on what those growth initiatives, you know, kind of organic growth initiatives are. Yeah, of course. A good question. And you know, there's kind of a lot of layers to that question. So I'll, I'll pick out a few of them. And if I don't answer all of them, just please let me know.
Speaker Change: That makes some of the acquisitions asset level acquisition risk reward basis tough and as we look.
Speaker Change: At running the company both on a day to day basis, and then a long term value creation basis, I think on the day to day basis, where you know it comes down to.
Speaker Change: Oh greatly simplify it but.
Speaker Change: Take your existing assets keep production flat, maybe a little bit of up into the right and.
Speaker Change: Fund that out of cash flow.
Speaker Change: At a small enough.
Speaker Change: And of that cash flow that you can still keep your repurchase program going and you still keep that reduction going.
Speaker Change: And so when it comes to the I'll call it.
Speaker Change: Bringing on production or bringing on barrels.
Speaker Change:
Speaker Change: From a cost of capital perspective from a risk reward perspective from a likelihood of getting it done perspective I think.
Speaker Change: We have those opportunities in our existing portfolio.
Speaker Change:
Speaker Change: That again in this macro oil and gas environment or a much higher rate of return.
Ryan Lewis Smith: So from a, and this also could go into type of a catalyst type of type of answer as well, you know, it's no secret, barring costs are high, equity valuations aren't great. And on a smaller scale M&A, like relative to US Energy, that makes some of the, you know, acquisitions, asset level acquisitions, risk reward basis tough. And, you know, as we look at, you know, running the company both on a day to day basis, and then a long term value creation basis, I think on the day to day basis, where you know, it comes down to I'll greatly simplify it, but you know, take your existing assets, keep production flat, maybe a little bit up into the right, and, fund that out of cash flow, at a small enough portion of that cash flow that you know, you can still keep your repurchase program going and you still keep debt reduction going.
Speaker Change: Then obviously since we own it in areas that we feel.
Speaker Change: Feel much more comfortable about that.
Speaker Change: Even acquiring an asset and doing extremely thorough diligence on it.
These assets now for.
Speaker Change: A little over two years.
Speaker Change: And we.
Speaker Change: We spent a long time, we have assets from almost the Canadian border to the southern border and everywhere in between really getting our arms around it.
Speaker Change: Seeing where.
Speaker Change: Productive capital could be spent.
Speaker Change: And where capital should not be spent going forward and we made discoveries on both sides of that aisle. So we've really spent I would say the majority of 2023, the first half starting to.
Speaker Change: Really engineer.
Speaker Change: Potential internal opportunities and you know the assets that we already have in our portfolio and with the rates increasing.
Speaker Change: Which flowed through to M&A slowing down flowed through to borrowing cost increasing we really pivoted mid year from an acquisition acquisition mindset to a divestiture mindset.
Ryan Lewis Smith: And so when it comes to, I'll call it, you know, bringing on production or bringing on barrels, from a cost of capital perspective, from a risk-reward perspective, from a likelihood of getting it done perspective, I think we have those opportunities in our existing portfolio that, again, in this macro oil and gas environment, have a much higher rate of return. And then, obviously, since we own it in areas that we feel much more comfortable about that, you know, even acquiring an asset and doing extremely thorough diligence on it. You know, we've had these assets now for a little over two years. And We spent a long time, you know; we have assets from almost the Canadian border to the southern border and everywhere in between really getting our arms around it, seeing where.
Speaker Change: And spent the second half of last year setting up and then executing.
Speaker Change: Our divestiture program so.
Speaker Change: A long answer on it on a day to day basis, I think we have more internally than what I see in the market.
Speaker Change:
Speaker Change: I'll talk about more on that on our next quarter call because a lot of that that we're going to start doing is going to take place.
Speaker Change: In April and May and it's not a big secret I won't go into what areas were working on just just quite yet because there's a lot that goes into that.
Speaker Change:
Speaker Change: But its work that basically new is new technology, New engineering can go back and look at the assets that the previous owners, whether it's the direct previous owners or even before that on areas that they liked the geology is good and maybe just for whatever reason, whether it was capital or whether it was.
Ryan Lewis Smith: Where productive capital could be spent and where it should not be spent going forward. And you know, we made discoveries on both sides of that aisle. So we've really spent, you know, I would say the majority of 2023, the first half starting to really, you know, engineer potential internal opportunities and, you know, the assets that we already have in our portfolio. And with the rates increasing, which, you know, flowed through to M&A slowing down, flowed through to borrowing costs increasing, we really pivoted mid-year from an acquisition mindset to a divestiture mindset, and So a long answer: on a day to day basis, I think we have more internally than what I see in the market. I'll talk about more on that on our next quarter call because a lot of that that we're going to start doing is going to take place in April and May. And, you know, it's not a big secret.
Speaker Change: Technology some of that upside wasn't exploited in the past. So we feel confident that we have a pretty thorough portfolio of opportunities.
Speaker Change: Opportunities that can.
Speaker Change: Get us where we need to go on a day to day basis again, I define that by hitting those three categories of <unk>.
Speaker Change: Production moderate production growth shareholder returns.
Speaker Change: And debt reduction through the existing assets that we have in our portfolio.
Got it well get it 80 80, plus dollar oil a lot of a lot of stuff will work.
Speaker Change: Right I wanted to just to you've made a lot of comments about the you know the a.
Speaker Change: The markets just wondering can we go out that directly you you you know from my seat.
Speaker Change: Either that the the big deals equity equity are still happening.
Ryan Lewis Smith: I won't go into what areas we're working on quite yet because there's a lot that goes into that. But it's work that basically new eyes, new technology, new engineering can go back and look at the assets that the previous owners, whether it's the direct previous owners or, you know, even before that on, you know, areas that they liked the geology was good. And maybe just for whatever reason, whether it was capital or whether it was technology, some of that upside wasn't exploited in the past. So we feel confident that we have a pretty thorough portfolio. Opportunities that can, you know, get us where we need to go on a day-to-day basis. Again, I define that by hitting those three categories of production, moderate production growth, shareholder returns, and debt reduction through the existing assets that we have in our portfolio. I got it.
Speaker Change: But that's kind of the cash deals in the a and D.
Speaker Change: Seem to have slowed down mostly because there's there's it looks like that that's you know.
Theres no. This the sellers buyers have moved down what they're what they're willing to pay.
Speaker Change: And and sellers haven't I I'm I'm curious is that is that the way it seems to you or maybe just elaborate a little bit more on on the character of the aid of the kind of the smaller scale A&D opportunity set right now.
Speaker Change: Yeah, as Youre exactly right and I'll I'll elaborate but you hit it spot on right like the bigger deals out there, which I know youre not saying they are but those really.
Speaker Change: It really are applicable to the mid and small cap and lower.
Speaker Change: Universe. So you guys are still the bigger guys, who still have healthy equity valuations.
Ryan Lewis Smith: Well, look at 80, 80 plus dollar oil; a lot of a lot of stuff will work. Um, right. I wanted you just to, you've made a lot of comments about the, you know, the A and D markets; I just want to kind of go at that directly, you know, from my seat, you know, that the, the big deals, equity, are still happening. But kind of the cash deals in the A and D seem to have slowed down. You know that there's no such thing as a good deal; the sellers have moved down what they're willing to pay, and the buyers haven't. I'm curious, is that the way it seems to you? Or maybe just elaborate a little bit more on the character of the smaller-scale A&E opportunity set. Yeah, you're exactly right.
Speaker Change: C stock for stock deals you see proposed hostile stock for stock deals.
Speaker Change: And those are for all the same reasons that people have always done those right to scale up cut costs.
Speaker Change: Okay get bigger on the smaller.
Speaker Change: Syed I think it's it's totally related to the things you said in addition to.
Speaker Change: The public equity valuations are depressed at these.
Speaker Change: The size of companies in this industry and whenever a public to private which used to be you know a larger multiple transaction now you are forcing the private to take on the public discount right out of the gate and in every single.
Speaker Change: Situation that I've seen bar none.
Speaker Change: Private company no big surprises, marking their book at a significantly high.
Ryan Lewis Smith: And I'll elaborate, but you hit it spot on, right? Like the bigger deals out there, which I know you're not saying they are, but those really aren't applicable to the mid and small cap and lower universe. So you know, guys that are still the bigger guys who still have healthy equity valuations that you see, stock for stock deals, you see proposed hostile stock for stock deals. And those are for all the same reasons that people have always done those right to scale up, cut costs, get bigger. On the smaller side, you know, I think it's totally related to the things you said, in addition to, you know, the public equity valuations are depressed in these and this industry.
Speaker Change: Higher number than what you know.
Speaker Change: The small and micro cap public guys get marked at every single day.
Speaker Change:
Speaker Change: Borrowing costs.
Speaker Change: It's a lot tougher to underwrite these things.
Speaker Change: Nine or significantly greater than 9% as it was.
Speaker Change: 3% for the last several years and then on the seller appetite.
Speaker Change: Appetite, we absolutely see it and even though oil properties our oil properties. They still have a lot of gas in them.
Speaker Change: And where gas has gone really drives that kind of incremental.
Speaker Change: Incremental value for some of these sellers and.
Speaker Change: It just doesn't make sense from a risk reward basis for our company.
Ryan Lewis Smith: And whenever a public to private transaction, which used to be, you know, a larger multiple transacts, now you're forcing the private company to take on the public discount right out of the gate, and in every single situation that I've seen, bar none, the private company, no big surprise, marks their book at a significantly higher number than what, you know, the small and micro cap public guys get marked at every single day. Borrowing costs, you know; it's a lot tougher to underwrite these things.
Speaker Change: Our size.
Speaker Change: To underwrite optimistic commodity price projections going forward.
Speaker Change: And I'll, even add a fourth one on.
Speaker Change: Again, no secret that the regulatory environment, while I would say from a media perspective, it's gotten a little bit better it's still very serious it's still very tough <unk>.
Speaker Change: States are still coming.
Speaker Change: Coming down and monitoring.
Speaker Change:
Speaker Change: Company's activities and companies very small producing wells and P&A obligations way more than they ever have in U S energy stays on top of that very much but a lot of these smaller deals historically have always had a a significant P&I component shut in component that came along.
Ryan Lewis Smith: 9% or significantly greater than 9% as it was, 3% for the last several years. And then on the seller's appetite, we absolutely see it. And even though oil properties or oil properties, they still have a lot of gas in them.
Ryan Lewis Smith: And where gas is gone really drives that kind of incremental value for some of these sellers, and It just doesn't make sense from a risk-reward basis for a company our size to, you know, underwrite optimistic commodity price projections going forward. And I'll even add a fourth one. Again, no secret, the regulatory environment, while I would say from a media perspective, it's gotten a little bit better. It's still very serious. It's still very tough.
Speaker Change: With them and there was always some tricks that people and companies will do to kind of kick that can down the road I think you still see people doing that now.
Speaker Change: But that game that game is ending it's not if it's when so it's really become as much of a part of the transaction calculus.
Speaker Change: As the other three items that I mentioned.
Speaker Change: Thank you for all that out of detail Ryan.
Ryan Lewis Smith: Of course.
Ryan Lewis Smith: Our next question is from Tim Moore with E S and please proceed.
Ryan Lewis Smith: States are still coming down and monitoring companies, activities, and companies, very small producing wells, and P&A obligations way more than they ever have. And US Energy stays on top of that very much.
Ryan Lewis Smith: Thanks.
Tim Moore: We really appreciate that asset growth initiatives colors, you wrap up the optimization effort there and.
Tim Moore: Geographically it makes sense, whether it would it take so long, but any other comments, maybe you can give us a sneak peek on the strategic alternatives review commentary, Ryan and we assume theyre going to be mostly oil weighted assets.
Ryan Lewis Smith: But a lot of these smaller deals historically have always had a significant P&A component and shut-in component that came along with them. And there were always some tricks that people and companies would do to kind of kick that can down the road. I think you still see people doing that now.
Ryan Lewis Smith: Yeah. So.
Speaker Change: Good good question.
Ryan Lewis Smith: I think as you know as the board and management look at.
Ryan Lewis Smith: You know strategic alternatives right like it's always curious to nasty word historically, especially oil and gas business, but.
Ryan Lewis Smith: But that game is ending. It's not if, it's when. So it's really become as much of a part of the transaction calculus as the other three items that I mentioned.
Ryan Lewis Smith: Where we're sitting and where we were sitting when we announced it I believe it was in November.
Tim Moore: Thank you for all that added detail, Ryan. Our next question is from Tim Moore with EF Hutton. Please proceed.
Ryan Lewis Smith: As.
Ryan Lewis Smith: A de Levered balance sheet, and what I call significant balance sheet value that is not.
Ryan Lewis Smith: Thanks, um, you know, we really appreciate that asset growth initiatives color as you wrap up the optimization effort there. And geographically, it makes sense why that would take so long. But, um, any other comments maybe you can give us a sneak peek at the strategic alternatives review commentary, Ryan, and we assume they're going to be mostly oil-weighted assets. Yeah, so, uh, good question. Um, I think as the board and management look at Unknown Executive, Ignacio Bernaldez, Ryan Smith, Mason McGuire, Mark Zajac, US Enrgy, flowing through to equity valuations. I know we're not the only Small Microcap Oil & Gas Company that represents that, but I do think, you know, we're one of the larger examples out there. So, you know, I think how we look at it is, you know. My job and why I focus on it day to day. We have a very good team here that handles our day to day operations in the field. Accounting, etc.
Ryan Lewis Smith: Flowing through to equity valuations I know, we're not the only <unk>.
Ryan Lewis Smith: <unk> Microcap oil and gas company that that represents that but I do think we're one of the larger.
Ryan Lewis Smith: Examples out there so I think how we look at it is.
Ryan Lewis Smith: No.
My job and when I focus on day to day, we have a very good team here that handles our day to day operations in the field.
Ryan Lewis Smith: Accounting et cetera, but it's it's really finding the right I'll say project or transaction or initiative that.
Ryan Lewis Smith: Transfers, what I think is extremely significant balance sheet value at this company.
Ryan Lewis Smith: Yeah.
Ryan Lewis Smith: And have it flow through to something that.
Ryan Lewis Smith: It helps expand our equity valuation right now, it's a very obvious comment, but it's it's a tricky thing to do especially in the oil and gas space.
Ryan Lewis Smith: For the last few years, so I think it can take several forms.
Ryan Lewis Smith: As I think you mentioned on your oil projects, we're always going to probably.
Trend towards oil and looking at M&A.
Ryan Lewis Smith: M&A transactions I thought if we understand it more and it doesn't seem to be as volatile as gas I know, it's easy to say sitting here now.
Ryan Lewis Smith: But it's really finding the right project or transaction or initiative that transfers what I think is an extremely significant balance sheet value at this company and have it flow through to something that Unknown Executive, Ignacio Bernaldez, Ryan Smith, Mason McGuire, Mark Zajac, US Enrgy, I think you mentioned on your oil projects, we're always going to probably [inaudible] you know, all options are on the table for us We have a very concentrated shareholder base; a lot of their shareholders sit on our board. And, you know, the goal of the company is to make the stock price go up, as simple as that sounds. So I think, you know, in terms of the strategic alternatives, you know, everything, everything is on the table.
Ryan Lewis Smith: But I do think that Tim we're at a size now we're in evaluation now to where.
Ryan Lewis Smith: All options are on the table for US right. We have a very concentrated shareholder base what are their shareholders sit on our board and the goal of the company is to make the stock price go up as simplistic as that sounds.
Ryan Lewis Smith: So I think in terms of as to the strategic Alts everything everything is on the table.
Ryan Lewis Smith:
Ryan Lewis Smith: Of course, we're going to you know.
Ryan Lewis Smith: Transact and venture into areas that we already know well, we're an oil and gas company. So I'll, let you put those those two together but.
Ryan Lewis Smith: It's still just as active as it was.
Ryan Lewis Smith:
Ryan Lewis Smith: And.
Ryan Lewis Smith: When there is something that comes out of that process, we will.
Ryan Lewis Smith: We will announce it at that time, but no it's still an ongoing process.
Ryan Lewis Smith: Of course, we're going to, you know, transact and and venture into areas that we already know well, and you know, we're an oil and gas company. So, you know, I'll let you put those two together, but it's still just as active as it was. And, you know, when there is something that comes out of that process, we will, will announce it at that time. But no, it's still an ongoing process. We look at it the same way as we did when we announced it back in November. Good. That's helpful.
Ryan Lewis Smith: Yeah, we look at it the same way as we did when we announced it back in November.
Speaker Change: Okay. No that's helpful and now we're looking forward tomorrow on that front for.
Speaker Change: Lease operating expenses decreased nicely as you mentioned to $22 be OE now with average something like 25 in the first nine months of the year how much lower do you think you can squeeze that out is there more potential there.
Speaker Change: I mean, I think on an absolute basis theres, a little bit of potential like some costs have come down there is still historically high but.
Speaker Change: And again I'm talking in recent times in the graph here, but like steel and the associated pipe et cetera that we use very often prices are starting to trend down labor costs and availability have started to trend down a little bit. It started it feels like it's starting to.
Ryan Lewis Smith: Now we're looking forward to more on that front. Yeah, for lease operating expenses, you know, that decreased nicely, as you mentioned, to $22 BOE. It averaged something like $25 in the first nine months of the year. You know, how much lower do you think you can squeeze that out? Is there more, you know, potential there?
Speaker Change: Sway in the employers favor for the first time in quite a while at least down in Houston, Texas, It feels like that.
Speaker Change: <unk>.
Speaker Change: So I do think that you know.
Speaker Change: Incrementally as inflation tapers off and.
Ryan Lewis Smith: I mean, I think on an absolute basis, there's a little bit of potential, like some costs have come down, they're still historically high, but, And again, I'm talking recent times in the graph here, but like steel and the associated pipe, etc., that we use very often, prices have started to trend down, labor costs and availability have started to trend down a little bit, you know, it feels like it's starting to So I do think that, you know, incrementally as inflation taper off, and the industry becomes more healthy. There's probably some, continued reduction in those costs. You know, that being said, the flip side to having a, you know, high single-digit ish corporate decline rate on our assets is a little bit higher LOE. So I'm happy where we were.
Speaker Change: The industry becomes more healthy theres probably.
Speaker Change: Uh huh.
Speaker Change: Some.
Speaker Change: Continued reduction to those costs that being said the flip side the having a.
Speaker Change: High single digit ish corporate decline rate on our assets on a conventional asset base is a little bit higher <unk>. So I'm.
Speaker Change: I'm happy where we were I think there is some room to still.
Speaker Change: Reduce some of what you saw in the fourth quarter.
Speaker Change: But I think the really big jump that we made from when we initially bought the assets to our fourth quarter a lot of that is going to be onetime stuff. That's removed. So we still do have some improvement, but a lot of that improvement has been realized.
Speaker Change: Thanks for being candid on that yeah. It made some great progress.
So Ryan and Marc you know I know you don't give guidance but M.
Speaker Change: In theory, if crude oil prices stayed above $70 for the rest of the year.
Speaker Change: What type of production growth do you think you could achieve maybe on an organic basis, let's exclude that divestiture of the 11% 12% production decline.
Speaker Change: I mean should you be up high single digits.
Ryan Lewis Smith: I think there is some room to still reduce some of what you saw in the fourth quarter. But I think the really big jump that we made from, you know, when we initially bought the assets to our fourth quarter, a lot of that is going to be one-time stuff that's removed. So you know, we still do have some improvement, but a lot of that improvement has already been realized. Thanks for being so candid about that.
Speaker Change: Just looking at this year for production volumes.
Speaker Change: Yeah, I mean, I think that that could be a fair assumption, Tim and not to be coy, but like.
Speaker Change: Some of the <unk>.
Speaker Change: When I called day to day smaller scale organic projects those are real and we're still kind of getting our arms around that and starting to begin those.
Ryan Lewis Smith: Yeah, you made some great progress. And to Ryan and Mark, you know, I know you don't give guidance, but, in theory, if crude oil prices stayed above $70 for the rest of the year, what type of production growth do you think you could achieve, maybe on an organic basis? Let's exclude that divestiture of the 11 to 12% production decline. I mean, should you be up, you know, high single digits, you know, just looking at this year for production volumes. Yeah, I mean, I think that that could be a fair assumption, Tim, and not to be coy, but some of the, what I call, you know, day-to-day, smaller scale, organic projects, those are real, and we're still kind of getting our arms around them and starting to begin those.
Speaker Change: Think we will have more color on the next call or <unk>.
Speaker Change: Incrementally and between now and then on.
Speaker Change: Some of those projects and kind of what we expect.
Speaker Change: It's due from a capex perspective.
Speaker Change: And a production profile perspective, but I.
Speaker Change: I do think just again from a high level and our model I think historically, there's always shown this.
Speaker Change: That we can keep production.
Speaker Change: Flat.
Speaker Change: Were close to flat with <unk>.
Speaker Change: Very low single million dollar.
Speaker Change: Capex number on our current assets.
Speaker Change: Great.
Speaker Change: Good color I got one last question for Mark maybe.
Ryan Lewis Smith: I think we'll have more color on the next call or gradually in between now and then on some of those projects and kind of what we expect them to do from a CapEx perspective and a production profile perspective. But I do think, just again, from a high level, and our model, I think, historically, has always shown this that we can keep production, you know, flat or close to flat with a very low single million dollar CapEx number on our current asset. Great That's a really good color.
Mark L. Zajac: I know you did a 20 million impairment in the fourth quarter and six and a half in the third quarter.
Mark L. Zajac: If the prices stay fairly flattish or not down too much I mean would you expect it could be done with impairments for the rest of this year.
Mark L. Zajac: In our filing we made last night I think we're projecting one in the in the first quarter of 'twenty four.
Mark L. Zajac: The issue ultimately is the SEC rolling prices and so if prices decrease on a comparative basis as the quarters roll in there is a potential for impairment and that's what we're dealing with we're dealing with retrospective prices relative to current prices.
Tim Moore: I got one last question for Mark. Maybe, you know, I know you did the 20 million impairment in the fourth quarter and, you know, six and a half in the third quarter. You know, if the prices stay fairly flattish or not down too much, would you expect it could be done without impairments for the rest of this year?
Speaker Change: Yeah, No I figure that I, just think maybe when we get past March.
Speaker Change: Could be not as much of an issue, but thanks, a lot I appreciate all the color and the answers.
Speaker Change: Great. Thanks, Tim.
Speaker Change: With no further questions in the Kiwi will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Mark L. Zajac: In our filing we made last night, I think we're projecting one in the first quarter of twenty four. The issue ultimately is the SEC rolling prices. And so if prices decrease on a comparative basis as the quarters roll in, there's a potential for impairment. And that's what we're dealing with. We're dealing with retrospective prices relative to current prices. Yeah, no, I figured that out. I just think maybe we could test March, you know; it could be not as much of an issue.
Speaker Change: Okay.
Speaker Change: [music].
Tim Moore: But thanks a lot. I appreciate all the color and the answers. Great. Thanks, Tim. With no further questions in the queue, we will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.