Q1 2024 U.S. Energy Corp Earnings Call

Okay.

Operator: Greetings and welcome to the U.S. Energy Corporation first quarter 2024 results conference call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mason McGuire, Director of Corporate Development. Thank you, sir. You may begin.

Speaker Change: Greetings and welcome to the U S Energy Corporation first quarter 2024 results conference call.

Speaker Change: At this time all participants are in a listen only mode.

Speaker Change: A brief question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to introduce your host Mr. Mcguire director of corporate development. Thank you Sir you may begin.

Mason McGuire: Thank you, operator, and good morning, everyone. Welcome to US Energy Corp's first quarter 2024 results conference call. Ryan Smith, our Chief Executive Officer, will provide an overview of our operating results and discuss the company's strategic outlook. 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 its operating and financial results for the quarter ended March 31, 2024.

Mcguire: Thank you operator, and good morning, everyone welcome to U S Energy Corp. 's first quarter 2024 results Conference call, Brian Smith, Our Chief Executive Officer will provide an overview of our operating results and discuss the company's strategic outlook, our Chief Financial Officer, Mark say, Jack will give a more detailed review of our financial results.

Mcguire: After the market closed yesterday U S energy issued a press release summarizing the operating and financial results for the quarter ended March 31 2020 for.

Mason McGuire: This press release, together with the 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 those 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.

Mcguire: This press release together with the accompanying presentation materials are available in the Investor Relations section of our website at Www Dot U S. NRG dot com todays 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.

Mcguire: And uncertainties, including the risks described in our periodic reports filed with Securities and Exchange Commission, except as required by law, we undertake no obligation to update our forward looking statements.

Mason McGuire: Further, please note that non-GAAP financial measures may be disclosed during this call. A full reconciliation of GAAP to non-GAAP measurements is available in the latest quarterly earnings release and conference call presentation. With that, I'd like to turn the conference call over to Ryan Smith.

Mcguire: Please note that non-GAAP financial measures may be disclosed during this call a full reconciliation of GAAP to non-GAAP measurements are available in the latest quarterly earnings release and conference call presentation.

Mcguire: With that I'd like to turn the conference call over to Ryan Smith.

Ryan Lewis Smith: Good morning, everyone and thank you for joining us today I'm pleased to share with you our results from this quarter as well as provide an update on our strategic outlook.

Ryan Lewis Smith: Good morning, everyone. Thank you for joining us today. I'm pleased to share with you our results from this quarter, as well as provide an update on our strategic outlook. Our quarter-end results reflect the hard work and resiliency of our team. We achieved net daily production of greater than 1200 barrels of oil equivalent per day, representing the first full quarter since our asset divestitures, which closed at various points during the fourth quarter of 2023.

Ryan Lewis Smith: Our quarter end results reflect the hard work and resiliency of our team.

Ryan Lewis Smith: We achieved daily production of greater than 200 barrels of oil equivalent per day, representing the first full quarter since our asset divestitures, which closed at various points during the fourth quarter of 2023 oil.

Ryan Lewis Smith: Oil production accounted for 62% of our total production, with the remainder consisting of an approximately even split of natural gas and NGL. As explained in our release yesterday, our operations were heavily impacted by severe flooding that made national news throughout East Texas and the Gulf Coast during the quarter. However, nearly all of the affected production was brought back online in late March.

Ryan Lewis Smith: Oil production accounted for 62% of our total production with the remainder consisting of an approximately even split of natural gas and Ngls.

Ryan Lewis Smith: As explained in our release yesterday, our operations were heavily impacted by severe flooding that made national news throughout the east, Texas and the Gulf coast during the quarter.

Ryan Lewis Smith: Nearly all of the affected production was brought back online in late March.

Ryan Lewis Smith: And while there are no long-term issues expected by the weather, I would expect certain of the same assets, primarily along the Gulf Coast, to be impacted in the second quarter by additional heavy range, which has been experienced recently. The company's other core asset focus areas were unaffected during the quarter and continue to perform to our expectations. I'm particularly proud to highlight our substantial achievements in cost management in the face of adverse weather conditions.

Ryan Lewis Smith: And while there are no long term issues expected by the weather I would expect certain of the same assets, primarily along the Gulf coast to be impacted in the second quarter by additional heavy rains, which have been experienced recently.

Ryan Lewis Smith: Companies other core asset focus areas were unaffected during the quarter and continued to performed our expectations.

Ryan Lewis Smith: I'm, particularly proud to highlight our substantial achievements in cost management in the face of adverse weather conditions. Our lease operating expense came in at $3 $2 million, representing a flat total expense to the prior quarter and a reduction to the first quarter of 2023.

Ryan Lewis Smith: Our lease operating expense came in at $3.2 million, representing a flat total expense compared to the prior quarter and a reduction to the first quarter of 2023. The majority of our LOE is fixed at this point, and our barrel metrics are highly sensitive to any variations in production. Our per barrel cost for the first quarter was approximately $29 per BOE.

Ryan Lewis Smith: The majority of our L. O is fixed at this point in our barrel.

Ryan Lewis Smith: Metrics are highly sensitive to any variations in production our per barrel costs for the first quarter was approximately $29 per Boe.

Ryan Lewis Smith: While this per barrel metric amount is higher than we have recently experienced, had we averaged our March exit production for the entire quarter, also said that once our weather-related production issues were resolved, our per barrel LOE would be in the low $20 range or significantly lower than what we realized. Moving through 2024, our capital will continue to be spent efficiently on supporting the production profile of our existing asset base, continuing the company's share repurchase plan, maintaining balance sheet integrity, and taking advantage of organically generated M&A opportunities. While equity valuations and borrowing costs have made small-scale M&A tough recently, allocating capital to oil-weighted projects in the company's existing portfolio remains highly economical. We've had these assets under control for about two years now.

Ryan Lewis Smith: While this per barrel metric amount is higher than we have recently experienced and we asked our March extra production for the entire quarter.

Ryan Lewis Smith: Also said is once our weather related production issues were resolved our per barrel L. O would be in the low $20 range are significantly lower than what we realized.

Ryan Lewis Smith: Moving through 2024, our capital will continue to be spent efficiently on supporting the production profile of our existing asset base, continuing the company's share repurchase plan, maintaining balance sheet integrity, and taking advantage of organically generated M&A opportunities.

What do your valuations and borrowing costs have made small scale M&A tough recently allocating capital to oil weighted projects in the company's existing portfolio remains highly economic.

Ryan Lewis Smith: These assets under control for about two years now and with the first year plus it's really figuring out what we have from an asset optimization standpoint. Since then we've been able to really explore an engineer opportunities that we believe can add value in a much more capital accretive way than any upstream M&A that I see in the market.

Ryan Lewis Smith: And with the first year plus just really figuring out what we have from an asset optimization standpoint. Since then, we've been able to really explore and engineer opportunities that we believe can add value in a much more capital-accretive way than any upstream M&A that I see in the market. These are projects that we are always currently evaluating, and we will share more as they come to fruition throughout the year.

Ryan Lewis Smith: These are projects that we are always currently evaluating and we will share more as they come to fruition as we move throughout the year.

Ryan Lewis Smith: We believe the U S Energy Corp 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 pricing outlook. 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 return.

Ryan Lewis Smith: We believe that US Energy Corp stands out from other oil and gas producing companies of our size against the 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 energy landscape.

Ryan Lewis Smith: 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 balance sheet discipline, and responsible resource management underscoring our commitment to driving sustainable value creation.

Ryan Lewis Smith: Our focus at US Energy remains on operational efficiency, balance sheet discipline, and responsible resource management, 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 returns. To that end, during the first quarter, we extended our previously announced $5 million share repurchase program through June of 2025. We continued our share repurchase activity during the first quarter, and since restarting our repurchase activity in late December of 2023 and through the first quarter, we've repurchased more than half a million shares, or greater than 2% of the company's outstanding shares.

Ryan Lewis Smith: As we move forward, we remain dedicated to capitalizing on current market conditions and leveraging our strengths to deliver continued growth and shareholder returns.

Ryan Lewis Smith: To that end during the first quarter, we extended our previously announced $5 million share repurchase program through June of 2025, we.

Ryan Lewis Smith: We continued our share repurchase activity during the first quarter and since restarting our repurchase activity in late December of 2023 and through the first quarter, we've repurchased more than half a million shares or greater than 2% of the company's outstanding shares.

Ryan Lewis Smith: 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 return opportunity as we see in the marketplace. I expect to continue this activity.

Ryan Lewis Smith: We continue to believe that repurchasing our equity at current valuation levels is prudent and one of if not the best allocation of free cash flow along with as high of a return opportunity as we see in the marketplace.

Ryan Lewis Smith: I expect to continue this activity going forward.

Ryan Lewis Smith: In summary, the first quarter was strong in terms of operational resiliency, the highly adverse weather cost controls and the results of capital allocation decisions made earlier in the year.

Ryan Lewis Smith: In summary, the first quarter was strong in terms of operational resiliency, highly adverse weather, cost controls, 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 flow. The company's goal remains to continue expanding our scale through both being selectively advantageous in the M&A market and growing our assets with initiatives that complement our core operating area.

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: 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 that complement our core operating areas.

Ryan Lewis Smith: 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 for the first quarter.

Ryan Lewis Smith: Increasing our scale and maintaining our shareholder return 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 first quarter.

Mark L. Zajac: Thank you, Ryan. Hello, everyone.

Mark L. Zajac: Ryan Hello, everyone, let's delve into the financial details for the first quarter of 2024.

Mark L. Zajac: Let's delve into the financial details for the first quarter of 2024. Total oil and gas sales for the quarter amounted to approximately $5.4 million, reflecting a decrease from $8.3 million in the same period last year. This decline was attributed to a 29% reduction in volumes and an 8% 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 fourth quarter of 2023 and severe weather events in several of our key operating areas. Sales from oil production contributed 88% of our total revenues for the quarter, demonstrating our continued focus on optimizing our oil asset.

Mark L. Zajac: Total oil and gas sales for the quarter amounted to approximately $5 $4 million, reflecting a decrease from $8 $3 million in the same period last year.

Mark L. Zajac: This decline was attributed to a 29% reduction in volumes and an 8% reduction in realized prices.

Mark L. Zajac: It is important to note that this quarter's production was significantly impacted by the non operated divestments made during the fourth quarter of 2023 and severe weather events in several of our key operating areas.

Sales from oil production contributed 88% of our total revenues for the quarter, demonstrating our continued focus on optimizing our oil assets.

Mark L. Zajac: Our lease operating expense for the first quarter was approximately $3.2 million, equivalent to $29.02 per BOE, indicating an impressive 28% reduction in total lease operating expense compared to the first quarter of 2020. This reduction can be attributed to fewer one-time workovers in our continued effort to increase operating efficiency. Severance and ad valorem taxes for the first quarter of 2024 totaled approximately 300,000, reflecting a decline from 500,000 in the same period last year, as a percentage of total oil and natural gas sales revenue. These taxes accounted for approximately 6% of cash general and administrative expense for the first quarter of 2024. This expense is flat when compared to the same period in 2023.

Mark L. Zajac: Our lease operating expense for the first quarter was approximately $3 2 million equivalent to $29 and <unk> per Boe.

Mark L. Zajac: Takeda and an impressive 28% reduction in total lease operating expense compared to the first quarter of 2023. This reduction can be attributed to fewer one time workovers in our continued effort to increase operating efficiency.

Mark L. Zajac: Severance and AD valorem taxes for the first quarter of 2024 totaled approximately 300000, reflecting a decline from 500000 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 expense was $2 million for the first quarter of 2024. This expense is flat when compared to the same period of 2023. The first quarter. Traditionally included some lumpy annual cash G&A expenses that had a greater impact on our cash balance that smooths out throughout the rest of the year.

Mark L. Zajac: The first quarter traditionally includes some lumpy annual cash G&A expenses that have a greater impact on our cash balance but level out throughout the rest of the year. Turning to our net financial performance, the company reported a net loss of $9.5 million in the first quarter of 2024. The first quarter loss is largely attributable to an oil and gas impairment expense of $5.4 million, dollars driven by the impact of lower SEC pricing on the company's reserve report and wells temporarily shut in for the quarter. Workovers are currently ongoing to bring some of these properties back to production. We are currently not projecting an impairment for the second quarter of 2024.

Mark L. Zajac: Turning to our net financial performance the company reported a net loss of $9 $5 million in the first quarter of 2024.

Mark L. Zajac: First quarter loss was largely attributable to an oil and gas impairment expense of $5 4 million.

Mark L. Zajac: Dollars driven by the impact of lower SEC pricing on the company's reserve report and wells temporarily shut in for the quarter.

Mark L. Zajac: Workovers are currently ongoing to bring some of these properties back to production. We are currently not projecting an impairment for the second quarter of 2024.

Mark L. Zajac: Our adjusted EBITDA stood at $0.2 million for the first quarter of 2024, compared to $1.2 million in the same period last year, influenced most notably by the decline in commodity prices and production from the prior period. Let's briefly touch on the balance. As of March 31, 2024, the company held outstanding debt of $5 million on our $20 million revolving credit facility, and our cash position stood at $2 million.

Mark L. Zajac: Our adjusted EBITDA stood at one 2 million for the first quarter of 2024 compared to $1 2 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: Let's briefly touch upon the balance sheet.

Mark L. Zajac: As of March 31, 2024, the company held outstanding debt of $5 million on our $20 million revolving credit facility, our cash position stood at $2 million.

Mark L. Zajac: And 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 financial results, which are able to support the company's initiatives in a way that maintains full balance sheet integrity. I am leading the charge to ensure that the company's reporting process maintains 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.

Mark L. Zajac: And 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 financial results that are able to support the company's initiatives in a way that maintains all balance sheet integrity.

Speaker Change: I am leading the charge to ensure that the company is reporting process maintains a high standard of excellence and we feel confident in our ability to support any growth initiatives, we may entertain going forward. Thanks.

Speaker Change: You for your participation. This morning, we are now ready to take your questions.

Speaker Change: Thank you we will now be conducting a question and answer session.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, if you would like to ask a question, press star 1 at this time. Thank you. Our first question comes from the line of Charles Meade with Johnson Rice. Please proceed with your question.

Speaker Change: I would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Information tool indicate your line is in the question queue.

Speaker Change: Press Star two if you would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Once again, if you would like to ask a question press star one at this time.

Speaker Change: Okay.

Speaker Change: Thank you. Our first question comes from the line of Charles Meade with Johnson Rice. Please proceed with your question.

Charles Arthur Meade: Good morning, Ryan to you in the in the whole U S energy team there.

Charles Arthur Meade: Good morning Ryan, to you and the whole US Energy team out there.

Ryan Lewis Smith: Good morning, Charles. You too.

Charles Arthur Meade: Good morning, Charles you too.

Charles Arthur Meade: I want to ask you to elaborate a little bit more on the weather impact of 1Q, but more specifically how it's going to carry into, or not carry into 2Q. It seemed like when I was reading the release last night, it was, you know, like much or most of the production would come back. Listening to you this morning, it seems you're closer to all of it.

Charles Arthur Meade: I Wonder ask you to elaborate a little bit more on the on the weather impact of <unk>, but more specifically, how it's going to happen carry into or not carry into our into <unk>. It seemed like when I was I was reading the release last night. It was you know like much.

Charles Arthur Meade: Most of the of the production would come back in.

Charles Arthur Meade: Listened to you. This morning, it seems you're closer to all so I guess, what I'm asking in a way that in my in my imagination. I think you know if you guys. You know you could have some bad floods wash out up a lease road or something like that you need and you look at it and you're like well, it's going to cost US you know half a million dollar should build that road back in and we only have.

Charles Arthur Meade: So I guess what I'm asking, you know, in my imagination, I think, you know, if you guys had some bad floods, you could have some bad roads washed out, or something like that. And you look at it, and you're like, well, it's going to cost us, you know, half a million dollars to build that road back. And we only have a value of, you know, 200 on that well.

Charles Arthur Meade: You know, we only have up a value of you know 200 on that well, it's open and so maybe that well it doesn't come back, but I wonder if you could just kind of talk about.

Charles Arthur Meade: And so maybe that well doesn't come back. But I wonder if you could just kind of talk about if there's anything, if there's any assets that you're going to kind of permanently lose, and then what kind.

If if theres anything if theres any assets that you can make kind of permanently lose and and then and what kind of magnitude we should be thinking about for a I think you mentioned the Gulf coast. There, there's some some flooding impacts in Q as well.

Ryan Lewis Smith: Yeah, no, great, great question. So there's a few parts to that, and it was really kind of two weather effects that, you know, we should discuss. I think it was early January; it might be mid-January. East Texas and the Gulf Coast experienced extremely, extremely heavy rains. I mean, a national emergency declared level of activity. And that affected our kind of, I guess, more northern East Texas assets a bit, but it really affected our Gulf Coast and our Liberty County assets quite a bit.

Speaker Change: Yeah, no great Great question, So there's a few parts of that and.

Speaker Change: It was really kind of two to weather effects that we should discuss I think it was early January it might it might be mid January but.

Speaker Change: East, Texas, and the Gulf Coast experienced extremely extremely heavy rains I mean national emergency declared level of activity and that affected our kind of I guess more northern east, Texas assets, a bit, but it really affected our Gulf coast, and our Liberty County asset.

Speaker Change: It's quite a bit the the good news is that long term, we don't expect to see any effects from it but the the early in the quarter.

Ryan Lewis Smith: The good news is that, long term, we don't expect to see any effects from it. But the early-quarter flooding was very significant. A lot of our assets in Liberty County are very close to the Trinity River.

Speaker Change: Letting was very significant a lot of our assets and Liberty County are very close to the Trinity River and you know for those in the Gulf Coast area that River has been overflowing nonstop for you know.

Ryan Lewis Smith: And for those in the Gulf Coast area, that river has been overflowing nonstop for quite a bit of time now, very good comment on lease roads. You know, if you if you took an aerial view of the flood, the water percent pretty quickly. But we definitely had our main lease road washed away. And it's not catastrophic to our operations because it's pretty cheap and it's pretty easy to put some stuff around it but it does stop everything I mean safety is the number one concern you know with a lease road washing away like that and and flooding I mean you're looking at loss of life if you start sending people out there so it automatically gets shut down the vast majority of that production started getting brought back online in, I'll call it, mid to late March.

Speaker Change: Quite a quite a bit of time now.

Speaker Change: Very good comment on lease roads, you know if you. If you took an aerial view of the flood in the water.

Speaker Change: <unk> pretty quickly but.

Speaker Change: We definitely had our main lease road washed away and its not.

Speaker Change: Catastrophic to our operations, because it's pretty cheap and it's pretty easy to put some stuff around it but.

Speaker Change: But it does stop everything I mean safety is the number one concern you know with our lease road washing away like that and flooding I mean youre looking at.

Speaker Change: Loss of life, if you start sending people out there. So it automatically gets shut down the vast majority of that production.

Speaker Change:

Speaker Change: Started getting brought back online and I'll call. It mid to late March and then you know over the last month in April are Unfortunately, the same the same area received even even more rain you know of.

Ryan Lewis Smith: And then, you know, over the last month in April, unfortunately, the same area received even more rain, you know, a couple feet of rain over the course of a week. A double dip, right? So the same thing happened. It wasn't as much in our northern East Texas. It was more specifically the Gulf Coast.

Speaker Change: A couple of feet of rain over the over to Jorge.

Speaker Change: A double dip right.

Speaker Change: So the same thing happened it wasn't as much on our northern East, Texas. It was more specifically Gulf coast. So that will bring that number down from what is shut in you know I think it's it's a ferrous it it'll be shorter period of time. So I think you know.

Ryan Lewis Smith: So that will bring that number down from what is shut in. You know, I think it's, it's a fair, and it'll be a shorter period of time. So I think, you know, we're still assessing half to maybe a third of the production that was affected in the first quarter being affected in the second quarter. But we don't expect any long-term issues with productivity or integrity of the wells or any type of environmental issues from the weather.

We're still assessing half to maybe a third of the production that was affected in the first quarter being affected in the second quarter, but we don't.

Speaker Change: Expect any.

Speaker Change: Long term issues from productivity or integrity of the wells are or any type of environmental issues from the weather.

Charles Arthur Meade: Got it. So if I understand you right, Ryan, the duration is still a little bit in question, but whether the assets will come back is not.

Speaker Change: Got it so if I understand you right Ryan it's that.

The duration is still a bit in question, but but whether the assets will come back he is not.

Charles Arthur Meade: Correct. Okay. And then one follow-up question. I want to make sure I heard this right in your prepared comments. I was taking notes. I think you said that you're looking at a number of projects that are more attractive than traditional upstream M&A opportunities. Did I hear that right?

Ryan Lewis Smith: Correct, Okay, and then 101 follow up question I wouldn't want to make sure I heard this right in your in your prepared comments I was I was taking notes.

Ryan Lewis Smith: Thank you you said that you that you're looking at a number of projects that are more attractive than traditional.

Ryan Lewis Smith: Upstream M&A opportunities did did I hear that right and is there is there anything you'd want to add to that.

Ryan Lewis Smith: And is there anything you want to add to that?

Ryan Lewis Smith: Yeah, I mean, again, everything's relative to the US Energy platform. So you know, a lot of the I would say the small cap focused type of asset sales, whether that's M&A or usually more of an asset acquisition level in our core areas at the size of deals that we look at, right? Like a lot of those, they have to be evaluated for ARO, environmental concerns. A lot more goes into it now, I know you know this, than it did in the past.

Speaker Change: Yeah, I mean again everything is relative to the U S energy platform. So you know a lot of the I would say the small cap.

Focus type of asset sales, whether that's M&A or are usually more of a asset acquisition level in our core areas at the size of the deals that we look at right like a lot of those have to be evaluated for a aro <unk>.

Speaker Change: Your mental concerns a lot more goes into it now I know you know this than it than it did in the past so whenever we see packages a lot of these packages I mean commodity prices being strong how have helped but a lot of them. Once you. Once you bake in the mandatory P. N E and the mandatory E. R O assumptions a lot of these assets are really liabilities.

Ryan Lewis Smith: So whenever we see packages, a lot of these packages, I mean, commodity prices being strong have helped, but a lot of them, once you bake in the mandatory P&A and the mandatory ARO assumptions, a lot of these assets are really liabilities. And even the ones that aren't, again, I'm not talking about the cream of the crop, Delaware Basin, and Midland Basin type of assets, but everywhere else carries a pretty ARO liability

Speaker Change: And even the ones that arent good I'm not talking about the the the cream of the crop Delaware Basin Midland Basin type of type of assets, but everywhere else carries a pretty big P. N a.

Ryan Lewis Smith: So as we look at, you know, adding Incremental barrels, if you will, in this market, we don't see, at least very rarely, opportunities that are lower risk, easier to achieve, and higher rates of return than what we already have in our existing portfolio, right? The challenge there is we have a very large asset base that ranges from almost, you know, Canada to the southern border. And it's finding the right candidates to go in and spend the resources, do the work.

Speaker Change: Our liability so as we look at you know adding.

Speaker Change: Incremental barrels if you will in this market, we don't see at least I'm very rarely do we see.

Speaker Change: Opportunities that are lower risk easier easier achievable and higher rates of return than what we already have in our existing portfolio right. The challenge. There is we have a very large asset base that ranges from almost you know Canada is in the southern border.

Speaker Change: And it's it's finding the right candidates to go in and spend the resources spend the work.

Speaker Change:

Ryan Lewis Smith: You know, I think you've seen in a lot of these unconventional basins, again, across the lower 48, a lot of recompletion and refrack work going on. That's what we're looking at. A lot of our East Texas and mid comp stuff, we think that there are multiple, at a minimum, candidates that we have in the portfolio that could reasonably be looked at as high value refract candidates. We executed on one on our East Texas property in the fourth quarter.

Speaker Change: I think you've seen and a lot of.

Speaker Change: These unconventional basins again across the lower 48, a lot of re completion re frac work go on that's what we're looking at a lot of our east, Texas and mid Con stuff. We think that there are multiple at a minimum candidates that we have in the portfolio that.

Speaker Change: Could reasonably looked at be looked at as high value refract candidates we.

Speaker Change: Executed on one on our East, Texas property in the fourth quarter. Its early so we don't have announced more results yet, but we're encouraged by the results that we've seen so far and we're going to do more so as you think about U S energy.

Ryan Lewis Smith: It's early, so we don't have any announceable results yet, but we're encouraged by the results that we've seen so far, and we're going to do more. So as you think about US Energy, we're always looking for the larger projects, always looking for initiatives that we'll be able to take and we'll be able to scale, but you know, in between those things, bringing on barrels from our existing portfolio is extremely attractive in the interim.

Speaker Change: We're always looking for the larger projects I'm always looking for initiatives that we'll be able to take and we'll be able to scale, but you know it and between those things.

Speaker Change: Bringing on barrels from our existing portfolio is extremely attractive in the interim.

Charles Arthur Meade: I understand that that is a helpful elaboration. It kind of gives me a better sense of what you're meaning. I appreciate it. Thanks.

Speaker Change: Got it that that is a helpful elaboration that kind of gives me a better sense of what you're meaning I appreciate it. Thanks.

Speaker Change: Of course, thanks Charles.

Speaker Change: Yeah.

Timothy M. Moore: The next question comes from the line of Tim Moore with EF Hutton. Please proceed with your question. Thanks and good morning.

Speaker Change: Next question comes from the line of Tim Moore with Yes Hutton. Please proceed with your question.

Timothy M. Moore: Thanks and good morning Ryan and team. You know, Ryan, I'm just kind of curious. Have you given any thoughts or, you know, maybe a rough estimate of what you think the BOE net production daily average exit rate could be or maybe what it could get to this year, you know, beyond the 1200.

Timothy M. Moore: Thanks, and good morning, Ryan and team Yeah, right I'm, just kind of curious have you given any thoughts or you know maybe rough estimate of what you think the V. O E. Net production daily average exit rate could be or maybe what it could get to this year beyond the 1200.

Ryan Lewis Smith: Yeah, I mean I guess.

Ryan Lewis Smith:

Ryan Lewis Smith: very smart way of asking what I think some recompletion activity will do. I think if you look at our PDP curve, again, the assets that make up the vast majority of our asset base are assets that we acquired in 2022. And most of those are conventional.

Ryan Lewis Smith: Very smart way of asking what I think some re completion activity, we'll do them.

Ryan Lewis Smith: I think if you look at our PDP curve again, the assets that make up the vast majority of our asset base or assets that we acquired in 2022 and most of those are conventional so we don't have a I'll call. It super steep declines that that most people experience. So.

Ryan Lewis Smith: So we don't have the, I'll call it, super steep declines that most people experience. So we lost some barrels in the first quarter because of weather. It won't be as big of a number, but we'll lose a little bit of barrels in the second quarter, adding those barrels back, and then taking into consideration what we sold on our non-op divestitures that brings it around to us. Call it a 1400 BOE per day number.

Ryan Lewis Smith: We lost some barrels in the first quarter because of weather, but it won't be as big of a number but we'll lose a little bit of barrels are in.

Ryan Lewis Smith: In the second quarter, how many of those barrels back and then taking in consideration of what we sold.

Ryan Lewis Smith:

Ryan Lewis Smith: On our non op divestitures that brings it around to it you know call. It a 1400 Boe per day number.

Ryan Lewis Smith: If you I'm assuming you mean exit at the end of the year, you know, if we have eight to 10% declines on numbers like that, I think, you know, 1400 1300 is kind of a range that isn't unreasonable from our existing PDP curve. And I think there's upside to that number just from the organic activity that we've kind of started undertaking. But I think we'll more earnestly start undertaking it as we move through the year. Assuming you know oil prices, Stay strong, of which we're pretty comfortably hedged at the moment.

Ryan Lewis Smith: I'm, assuming you mean exit at the end of the year you know.

Ryan Lewis Smith: If we have 8% to 10% declines on numbers like that I think you know for 200300 is kind of a range that isn't.

Ryan Lewis Smith: Unreasonable from our existing PDP curve and.

Ryan Lewis Smith: There's upside to that number just from the organic activity Oh, you've kind of started undertaking but I think we're more earnestly start undertaking it as we move through the year.

Ryan Lewis Smith: Assuming oil prices.

Ryan Lewis Smith: Stay strong all of which were.

Ryan Lewis Smith: Pretty comfortably hedged at the moment.

Timothy M. Moore: Great, thanks for that, Keller. The next question is, you know, I'm kind of curious, where are you spending your time on incremental CapEx? You mentioned you have some refract candidates. Just kind of curious, as you look out the rest of this year, what properties or areas do you think the CapEx is going to go to?

Speaker Change: Great great. Thanks for that color. My next question as you know I'm kind of curious where are you spending kind of incremental Capex. You know you mentioned you have some refract candidates just just kind of curious as you look out the rest of this year and what properties are areas do you think the capex is going to.

Ryan Lewis Smith: Yeah, no, great question. And, you know, we look at this as I guess if you go back and look at our numbers for the first quarter, we had a very low capital spend. And that was by design.

Speaker Change: Yeah, No great question and you know we look at this as.

Speaker Change: I guess, if you go back and you look at our numbers for the first quarter, we had a very low capital spend and that.

Ryan Lewis Smith: And you know, part of my job and Mark's job is really identifying the high cost production that we have and the low cost production we have. And that sounds simple, but we have a lot of wells. So we're constantly looking at where those dollars need to go and whether it makes economic sense to, you know, save a dollar and yet have a barrel of production not go online. And in a lot of scenarios, this high cost production that makes sense.

Speaker Change: That was by design and you know part of my job and Mark's job is really identifying.

Speaker Change: The high cost production that we have and the low cost production, we have and that sounds simple, but we have a lot of well. So we're constantly looking at where those dollars need to go and if if it makes economic sense that you know have save a dollar yet have a barrel of production not go online and then a lot of scenarios, there's a high cost production.

Speaker Change: Sure that makes sense so.

Speaker Change: You know we're being.

Ryan Lewis Smith: So you know, we're being super disciplined on where we deploy our capital, and these projects are really going to have to fight to get that capital deployed to them. So where do I see it now? The first refract candidate we did was in East Texas. So obviously, that's probably an area that we feel pretty confident about, to continue to put more capital. We like our assets in Montana a lot, very steady, very low decline oil, and we have some projects up there we can do with Mark Zajac.

Speaker Change: Super disciplined on where we deploy our capital and these projects are really going to have to fight to get that capital deployed to it so where do I see it now the first refract candidates. We did was in east, Texas. So obviously that that's probably an area that we felt pretty confident about to continue to put.

Speaker Change: More capital, we like our assets in Montana, a lot very steady very low decline oil and we have some projects out there we can do.

Speaker Change: <unk>.

Ryan Lewis Smith: Our Midcon, you know, no secret, gas heavy or gassier than our other assets. Gas prices, you know, coming back from this the lowest of the low where they've been for the last couple of months really opens up opportunities for us up there. So kind of a generic answer on our key areas are where you're going to see us spend most of our capital. But that is where you'll see us spend most of our discretionary capital. And again, it's already begun on our East Texas assets.

Speaker Change: Our mid Con no secret gas heavy.

Our gassy or there are other assets with gas prices, you know coming back from.

Speaker Change: This is the lowest at the low where they've been for the last couple of months really opens up opportunities for us up there. So kind of a generic answer on you know are our key areas are where you're going to see us spend most of our capital.

Speaker Change:

Speaker Change: But that is where you'll see us spend most of our discretionary capital and again, it's all it's already begun on our east Texas assets.

Timothy M. Moore: You know, that's helpful pinpointing. I'm just kind of curious, you know, the work overs drag, you know, what do you think, you know, as you look at this June quarter and maybe even the September quarter? Is the work overdrag this quarter and next quarter? Do you think the timing is going to be more of a drag than last year was, or how does it kind of stack up against last year for you guys?

Speaker Change: No. That's helpful. Pinpointing I'm just kind of curious you know the Workovers drag you know what do you thinking as you look at this June quarter, and maybe even the September quarter.

Speaker Change: Is the Workover dragging out of this quarter and next quarter. You think the timing is there'll be more of a drag than last year was or has it kind of stack up against last year for you guys.

Ryan Lewis Smith: Yeah, I mean, I think it's going to be in terms of like, in terms of timing. If you mean on a calendar year, I don't see us having any issues on like when we want to go do an activity. Some of the work that we're doing, again, this is just the boring day to day business aspect of the company. But like some of the work over we activities we would have done was delayed by weather.

Speaker Change: Yeah, I mean, I think it's going to be in terms of like in terms of timing. If you mean on an iconic on a calendar year I don't see us having any issues like when we want to go do activity some of the work out again.

Speaker Change: Again this is just.

The boring day to day business aspects of the company, but like some of the Workover activity. We would've done was delayed by weather on this same area, you'll see an incremental kick up in production at some point in time I don't know if that extra work over activity is going to be in in late June if it's gonna be in early August yet, we're still kind of working through all that.

Ryan Lewis Smith: On this same area, you'll see an incremental kick-up in production at some point in time. I don't know if that extra work over activity is going to be in late June or if it's going to be early August yet. We're still kind of working through all that. But So from a timing standpoint, or availability of crews or anything like that, I don't see any issue this year versus last year in us being able to accomplish that.

Speaker Change:

Speaker Change: But.

Speaker Change: So from a from a timing standpoint.

Speaker Change: I don't or availability of crews or anything like that I don't see any any issue of.

Speaker Change: This year versus last year on us.

Speaker Change: Being able to accomplish that.

Speaker Change: From a we were always doing workover activity, it's one of our biggest line items.

Ryan Lewis Smith: We're always doing work over activity; it's one of our biggest line items. So it's something we stay on top of. So yeah, I don't see it being any issue on a calendar or a timing basis for us in 2024.

So it's something we stay on top of a C.

Speaker Change: Yeah, I don't I don't I don't see it being any issue on a calendar or a timing basis for us in 2024.

Timothy M. Moore: Great, great. My last question, Ryan, is, you know, I have to bring this up. You know, I noticed an increase in insider ownership. There was a big purchase last month by the chairman's family office entity, and I think that office and him probably owned, I don't know, 20, 29 percent of the shares maybe. Anything you can share on that? Any commentary or any thoughts on that? And is there anything tied into that, like strategic terms?

Speaker Change: Great.

Speaker Change: Last question Ryan as you.

Ryan Lewis Smith: No I have to bring this up you know I noticed an increase in the insider ownership Theres a big purchase last month by the Chairman's family office entity and I think.

Ryan Lewis Smith: Think that office and so probably I don't know 20, 29% of shares maybe.

Ryan Lewis Smith: Anything you can share on that any commentary or any thoughts on that and is there anything tied into that are like the strategic alternatives.

Speaker Change: Yeah. Good question. So yes are our largest shareholder acquired a significant amount of shares during the quarter I believe that.

Ryan Lewis Smith: Yeah, good question. So yes, our largest shareholder acquired a significant amount of shares during the quarter. I believe that he owns about a third of the outstanding common stock now.

Speaker Change: He owns about a third of the outstanding common stock now.

Ryan Lewis Smith: You know, I'll give you the answer that it's a sign of support in the company. Is it part of the strategic alternatives process? You know, everything we do is right, like this. This isn't a desperate strategic alternatives process. It's an up-to-the-right process where we're really trying to find something and unlock value. So, I definitely am much happier that he bought an extra 12% and didn't sell 12%.

You know I'll I'll give you the answer that it's it's a sign of support in the company is it part of the strategic alternatives process. You know everything we do is right. This isn't a desperate strategic alternatives alternatives process, it's a up.

Speaker Change: Up into the right process, where we're really trying to find something in and unlock value. So.

Speaker Change: I I definitely I'm much happier that he bought an extra 12 per cent and didn't sell 12%.

Ryan Lewis Smith: But in all seriousness, I think it's a very good sign of support for somebody that's already very much in the equity bucket to get even deeper into that. And, you know, the strategic alternatives process, I know those are very black boxy. It's something that we're always working on, something that we're always evaluating everything that we do, whether it be, upgrading our asset base through asset sales that we've undertaken or exploring in the future.

Speaker Change: But in all seriousness I think it is a very good.

Speaker Change: Sign of support for somebody that's already very much in the equity bucket to.

Speaker Change: And you know even deeper into that and you know the strategic alternatives process. I know those are very black box. He is something that we're always working on something that we're always evaluating.

Speaker Change: Everything that we've done whether it be.

Speaker Change: Either high grading our asset base through asset sales that we've undertaken or explore in the future every M&A initiative, we take et cetera, all the way down the line to you know our shareholder roster. It kind of goes into that strategic alternatives process. So I don't think that you know if it was something extremely direct.

Ryan Lewis Smith: Every M&A initiative we take, et cetera, all the way down the line to, you know, our shareholder roster kind of goes into that strategic alternatives process. So I don't think that, you know, if it was something extremely direct, it would be something that he had to file and report, which, you know, wasn't done outside of a 13-D. So there would be nothing there from that angle. But it does encourage me as a sign of support to have insiders, you know, deploying significant capital and acquiring more shares. That's helpful.

Speaker Change: It would be something that he had to file and report which wasn't done outside of a 13D. So there would be nothing there from from that angle, but it does encourage me. It's a sign of support to have insiders, you know deploying significant capital and acquiring more shares.

Timothy M. Moore: That's helpful to hear, and I'll catch you at our annual conference next week in New York.

Speaker Change: That's helpful to hear and I'll catch you at our annual conference next week in New York.

Speaker Change: Absolutely. Thank you.

Speaker Change: Thank you we've reached the end of the question and answer session I would now like to turn the floor back over to management for closing comments.

Ryan Lewis Smith: Thank you. We have reached the end of the question and answer session. I would now like to turn the floor back over to management for closing comments.

Speaker Change: Yeah.

Speaker Change: Yes. Thank you everybody for joining us. This morning, we appreciate your time and listening to what we're doing here about U S. Synergy we're very excited about the future. We have a lot of opportunities in front of us and we feel good about our position in the market to be able to exploit those opportunities.

Ryan Lewis Smith: Yeah, thank you everybody for joining us this morning. We appreciate your time and listening to what we're doing here about US Energy. We're very excited about the future. We have a lot of opportunities in front of us, and we feel good about our position in the market to be able to exploit those opportunities. Thank you, and I look forward to updating you on our next quarterly call.

Speaker Change: You and I look forward to updating you on our next quarter's call.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.

Speaker Change: Okay.