U.S. Energy Corp. (Nasdaq: USEG, “U.S. Energy” or the “Company”), a
growth-focused energy company engaged in the operation of
high-quality producing oil and natural gas assets, today reported
financial and operating results for the three and twelve
months-ended December 31, 2022.
FULL YEAR 2022 HIGHLIGHTS
- Record
production of 1,700 barrels of oil equivalent per day
(“Boe/d”);
- Adjusted EBITDA
of $15.0 million;
- Net cash
provided by operating activities of $10.9 million;
- Free cash flow,
excluding expenditures for acquisitions, of $4.7 million;
- Initiated a
quarterly cash dividend, and returned $1.7 million to
shareholders;
- Oil and gas
related capital expenditures of $6.2 million;
- Year-end
outstanding debt balance of $12.0 million, $4.4 million of cash,
total liquidity of $12.4 million, and net debt to EBITDA of
0.5x.
FOURTH QUARTER 2022
HIGHLIGHTS
- Record
production of 1,918 Boe/d;
- Adjusted EBITDA
of $2.7 million;
- Net cash
provided by operating activities of $2.3 million;
- Oil and gas related capital
expenditures of $1.0 million.
MANAGEMENT COMMENTARY
“During the fourth quarter and full-year 2022,
we delivered profitable growth across our portfolio of low-decline
producing assets, while generating record production volumes,”
stated Ryan Smith, Chief Executive Officer of U.S. Energy Corp.
“Total production increased 9% in the fourth quarter, driven by
strong contributions across our diversified asset base. Our
operating team materially reduced lease operating expenses during
the quarter, positioning us to hold margins flat on a sequential
basis, despite declines in realized oil and natural gas prices”
“Last year, we continued to advance a
disciplined, programmatic acquisition strategy, completing five
transactions that added 6.3 MMBoe of proved producing reserves to
our portfolio. Looking ahead, we continue to target assets in our
core areas that we can acquire at attractive multiples while
maintaining the strength of our balance sheet and proven track
record of asset integration. Through the first quarter of 2023, our
asset portfolio continues to perform well, resulting in continued
free cash flow generation,” concluded Smith. “We expect to maintain
our production profile with minimal capital expenditures during
2023 while focusing our capital allocation efforts on high rate of
return initiatives, maintaining a strong balance sheet and
supporting shareholder returns, principles we believe will support
long-term sustained value creation.”
BUSINESS OUTLOOK
U.S. Energy has grown its portfolio of mature,
producing assets through multiple acquisitions at below market
valuation multiples. The Company will continue to target
opportunities within its core focus areas that demonstrate high
margin free cash flow and provide complementary operating synergies
that drive sustained margin expansion. We remain committed to this
disciplined acquisition strategy, while continuing to prioritize
free cash flow allocation towards shareholder returns and further
debt reduction under our revolving credit facility.
PRODUCTION UPDATE
For the three months ended December 31, 2022,
the Company produced 176,432 Boe, or an average of 1,918 Boe/d, as
compared to 161,206 Boe, or an average of 1,752 Boe/d, during the
prior quarter.
|
4Q 2022 |
3Q 2022 |
Sales Volume (Total) |
|
|
Oil (Bbls) |
102,361 |
95,429 |
Gas and liquids (Mcfe) |
444,425 |
394,659 |
Sales volumes (Boe) |
176,432 |
161,206 |
Average Daily Production (Boe/d) |
1,918 |
1,752 |
Average Sales Prices |
|
|
Oil (Bbl) |
$79.06 |
$94.81 |
Gas and liquids (Mcfe) |
$5.06 |
$7.10 |
Barrel of Oil Equivalent (Boe) |
$58.80 |
$73.36 |
|
|
|
YEAR-END 2022 PROVED
RESERVES
The Company’s year-end 2022 SEC proved reserves,
as prepared by an independent third-party reserve engineer, were
7.9 MMBoe compared to 6.3 MMBoe at year-end 2021, a 24% increase
year-over-year1.
The SEC twelve-month first day of the month
average used for year-end 2022 was $90.67 per barrel of crude oil
and $5.71 per MMBtu of natural gas, both after adjustments for
quality, transportation, and regional price differentials. Year-end
2022 SEC proved reserves were comprised of approximately 65% crude
oil and 35% natural gas. Approximately 100% of 2022 proved reserves
were classified as proved developed producing.
The present value of the Company’s reported SEC
proved reserves, discounted at 10% (“PV-10”), at year-end 2022 was
$174.2 million. The PV-10 of year-end 2022 SEC proved reserves at
strip pricing as of April 11, 2023, was $100.1 million.
FOURTH QUARTER 2022 FINANCIAL
RESULTS
U.S. Energy reported oil and gas sales in the
fourth quarter 2022 of approximately $10.4 million, compared to
$11.8 million in the third quarter 2022. The decline in revenue was
primarily due to a 20% decline in realized prices during the
quarter. Sales from oil production represented 79% of total revenue
during the quarter.
The Company recorded lease operating expense
(“LOE”) in the fourth quarter 2022 of approximately $4.5 million or
$25.56 per Boe, compared to $5.4 million or $33.19 per Boe in the
third quarter, a 23% reduction in unit expenses. The reduction in
LOE was due to the completion in the fourth quarter of the
Company’s well maintenance program on newly acquired assets in West
Texas, partially offset by the return to production activity in the
same region. The Company expects LOE to continue to trend lower in
2023.
Severance and Ad Valorem taxes in the fourth
quarter 2022 were approximately $0.7 million, as compared to
approximately $0.8 million in the third quarter. Cash general and
administrative expenses in the fourth quarter 2022 were
approximately $2.4 million as compared to approximately $2.2
million in the third quarter.
Realized price in the fourth quarter 2022
averaged $58.80 per Boe and cash operating margin was $15.41 per
Boe, or 26%, equivalent to the third quarter 2022 cash operating
margin based on higher realized prices of $73.36 per Boe. While
spot commodity prices declined sequentially between the third and
fourth quarter 2022, the Company was able to deliver stable margin
realization due to the reduction in its LOE.
Adjusted EBITDA for the fourth quarter 2022 was
$2.7 million as compared to $3.1 million in the third quarter. The
Company reported net loss in the fourth quarter 2022 of $1.8
million, or $0.07 per diluted share. During the third quarter 2022,
the Company had net income of $4.1 million, or $0.16 per diluted
share, which included $5.6 million of unrealized hedging gain.
HEDGING PROGRAM UPDATE
The following table reflects the hedged volumes
under U.S. Energy’s commodity derivative contracts and the average
fixed, floor and ceiling prices at which production is hedged for
full year 2023, as of April 12, 2023:
|
|
Collars |
|
Period |
|
Commodity |
|
Volume(Bbls) |
|
Floor($ / Bbl) |
|
Ceiling($ / Bbl) |
Q1 2023 |
|
Crude Oil |
|
66,200 |
|
$57.73 |
|
$76.00 |
Q2 2023 |
|
Crude Oil |
|
53,500 |
|
$60.00 |
|
$81.04 |
Q3 2023 |
|
Crude Oil |
|
52,600 |
|
$60.00 |
|
$81.04 |
Q4 2023 |
|
Crude Oil |
|
51,200 |
|
$60.00 |
|
$81.04 |
|
|
|
|
|
|
|
|
|
|
Swaps |
Period |
Commodity |
Volume(Bbls /
MMBtu) |
Avg Price($/Bbl
/$/MMBtu) |
Q1 2023 |
Crude Oil |
3,000 |
$54.57 |
Q1 2023 |
Natural Gas |
60,000 |
$2.955 |
Q2 2023 |
Crude Oil |
3,000 |
$54.57 |
|
|
|
|
BALANCE SHEET UPDATE
As of December 31, 2022, the Company had debt
outstanding of $12.0 million on its revolving credit facility with
availability of $8.0 million and a cash balance of approximately
$4.4 million. The credit facility matures in 2026.
CONFERENCE CALL AND WEBCAST
U.S. Energy will not host an investor conference
call for its fourth quarter and full year 2022 earnings report as
it expects to host a conference call concurrent with its upcoming
first quarter 2023 earnings release.
ABOUT U.S. ENERGY
We are a growth company focused on consolidating
high-quality producing assets in the United States with the
potential to optimize production and generate free cash flow
through low-risk development while maintaining an attractive
shareholder returns program. We are committed to ESG
stewardship and being a leader in reducing our carbon footprint in
the areas in which we operate. More information about U.S. Energy
Corp. can be found at www.usnrg.com.
1) 2021 year end reserves includes assets
acquired from transaction closed on January 5, 2022.
ADJUSTED EBITDA
RECONCILIATION
In addition to our results calculated under
generally accepted accounting principles in the United States
(“GAAP”), in this earnings release we also present Adjusted EBITDA.
Adjusted EBITDA is a “non-GAAP financial measure” presented as
supplemental measures of the Company’s performance. It is not
presented in accordance with accounting principles generally
accepted in the United States, or GAAP. The Company defines
Adjusted EBITDA as net income (loss), plus net interest expense,
net unrealized loss (gain) on change in fair value of derivatives,
income tax (benefit) expense, deferred income taxes, depreciation,
depletion, accretion and amortization, one-time costs associated
with completed transactions and the associated assumed derivative
contracts, non-cash share-based compensation, transaction related
expenses, transaction related acquired realized derivative loss
(gain), and loss (gain) on marketable securities. Company
management believes this presentation is relevant and useful
because it helps investors understand U.S. Energy’s operating
performance and makes it easier to compare its results with those
of other companies that have different financing, capital and tax
structures. Adjusted EBITDA is presented because we believe it
provides additional useful information to investors due to the
various noncash items during the period. Adjusted EBITDA has
limitations as an analytical tool, and you should not consider it
in isolation, or as a substitute for analysis of our operating
results as reported under GAAP. Some of these limitations are:
Adjusted EBITDA does not reflect cash expenditures, or future
requirements for capital expenditures, or contractual commitments;
Adjusted EBITDA does not reflect changes in, or cash requirements
for, working capital needs; Adjusted EBITDA does not reflect the
significant interest expense, or the cash requirements necessary to
service interest or principal payments, on debt or cash income tax
payments; although depreciation and amortization are noncash
charges, the assets being depreciated and amortized will often have
to be replaced in the future, and Adjusted EBITDA does not reflect
any cash requirements for such replacements; and other companies in
this industry may calculate Adjusted EBITDA differently than the
Company does, limiting its usefulness as a comparative measure.
The Company’s presentation of this measure
should not be construed as an inference that future results will be
unaffected by unusual or nonrecurring items. We compensate for
these limitations by providing a reconciliation of this non-GAAP
measure to the most comparable GAAP measure, below. We encourage
investors and others to review our business, results of operations,
and financial information in their entirety, not to rely on any
single financial measure, and to view this non-GAAP measure in
conjunction with the most directly comparable GAAP financial
measure.
|
Three Months Ended |
|
Year Ended |
|
December 31, |
|
September 30, |
|
December 31, |
|
2022 |
|
2022 |
|
2022 |
|
|
|
|
|
|
Net Income |
$(1,811) |
|
$4,110 |
|
$(963) |
|
|
|
|
|
|
Depreciation, depletion,
accretion and amortization |
2,622 |
|
2,528 |
|
9,607 |
Unrealized loss (gain) on
commodity derivatives |
(316) |
|
(5,636) |
|
(1,458) |
Interest Expense, net |
247 |
|
187 |
|
544 |
Deferred income taxes |
499 |
|
29 |
|
(1,893) |
Non-cash stock based
compensation |
423 |
|
485 |
|
3,017 |
Transaction related
expenses |
|
|
- |
|
712 |
Transaction related acquired
realized derivative losses |
1,041 |
|
1,371 |
|
5,347 |
Loss (gain) on marketable
securities |
(2) |
|
45 |
|
83 |
Total
Adjustments |
4,514 |
|
(991) |
|
15,959 |
|
|
|
|
|
|
Total Adjusted
EBITDA |
$2,703 |
|
$3,119 |
|
$14,996 |
|
|
|
|
|
|
FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this
communication which are not statements of historical fact
constitute forward-looking statements within the meaning of the
federal securities laws, including the Private Securities
Litigation Reform Act of 1995, that involve a number of risks and
uncertainties. Words such as “strategy,” “expects,” “continues,”
“plans,” “anticipates,” “believes,” “would,” “will,” “estimates,”
“intends,” “projects,” “goals,” “targets” and other words of
similar meaning are intended to identify forward-looking statements
but are not the exclusive means of identifying these
statements.
Important factors that may cause actual results
and outcomes to differ materially from those contained in such
forward-looking statements include, without limitation, risks
associated with the integration of the recently acquired assets;
the Company’s ability to recognize the expected benefits of the
acquisitions and the risk that the expected benefits and synergies
of the acquisition may not be fully achieved in a timely manner, or
at all; the amount of the costs, fees, expenses and charges related
to the acquisitions; the Company’s ability to comply with the terms
of its senior credit facilities; the ability of the Company to
retain and hire key personnel; the business, economic and political
conditions in the markets in which the Company operates;
fluctuations in oil and natural gas prices, uncertainties inherent
in estimating quantities of oil and natural gas reserves and
projecting future rates of production and timing of development
activities; competition; operating risks; acquisition risks;
liquidity and capital requirements; the effects of governmental
regulation; adverse changes in the market for the Company’s oil and
natural gas production; dependence upon third-party vendors; risks
associated with COVID-19, the global efforts to stop the spread of
COVID-19, potential downturns in the U.S. and global economies due
to COVID-19 and the efforts to stop the spread of the virus, and
COVID-19 in general; economic uncertainty relating to increased
inflation and global conflicts; the lack of capital available on
acceptable terms to finance the Company’s continued growth; and
other risk factors included from time to time in documents U.S.
Energy files with the Securities and Exchange Commission,
including, but not limited to, its Form 10-Ks, Form 10-Qs and Form
8-Ks. Other important factors that may cause actual results and
outcomes to differ materially from those contained in the
forward-looking statements included in this communication are
described in the Company’s publicly filed reports, including, but
not limited to, the Company’s Annual Report on Form 10-K for the
year ended December 31, 2021. These reports and filings are
available at www.sec.gov.
The Company cautions that the foregoing list of
important factors is not complete. All subsequent written and oral
forward-looking statements attributable to the Company or any
person acting on behalf of any Sale Agreement Parties are expressly
qualified in their entirety by the cautionary statements referenced
above. Other unknown or unpredictable factors also could have
material adverse effects on U.S. Energy’s future results. The
forward-looking statements included in this press release are made
only as of the date hereof. U.S. Energy cannot guarantee future
results, levels of activity, performance or achievements.
Accordingly, you should not place undue reliance on these
forward-looking statements. Finally, U.S. Energy undertakes no
obligation to update these statements after the date of this
release, except as required by law, and takes no obligation to
update or correct information prepared by third parties that are
not paid for by U.S. Energy. If we update one or more
forward-looking statements, no inference should be drawn that we
will make additional updates with respect to those or other
forward-looking statements.
INVESTOR RELATIONS CONTACTU.S. Energy
Corp.IR@usnrg.com(303) 993-3200www.usnrg.com
US Energy (NASDAQ:USEG)
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