U.S. Energy Corp.

Greetings. Welcome to the U.S. Energy Corporation's second quarter 2024 results conference call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that this conference is being recorded. At this time, I'll hand the conference over to Mason McGuire. Mason, you may now begin.

Thank you, Operator, and good morning, everyone. Welcome to U.S. Energy Corp's second 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. And our Chief Financial Officer, Mark Zajac, will give a more detailed review of our financial results. After the market closed yesterday, U.S. Energy issued a press release summarizing operating and financial results for the quarter ended June 30, 2024. This press release, together with accompanying presentation materials, are 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 the various risks and uncertainties included in 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. Further, please note that the non-GAAP financial measures may be disclosed during this call. A full reconciliation of GAAP to non-GAAP measurements are available in our latest quarterly earnings release and conference call presentation. With that, I'd like to turn the call over to Ryan 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. Our quarter-end results reflect the hard work and resiliency of our operational team, as well as the results of the company's business development efforts. To begin, we closed our initial transaction targeting helium and other industrial gases in late June, as well as entered into a letter of intent for a complementary and contiguous acreage position to the transaction that is already closed. The assets are located across the Keevan Dome structure in Montana, an area with an extensive presence of vast CO2, nitrogen, and helium resources. These new assets, of which we have closed on one and expect to close on the other during the fourth quarter of 2024, represent a tremendous development opportunity for U.S. energy and immediately move to the front of our corporate line in competing and ultimately demanding capital allocation. As we undertake our near-term drilling activity, of which we have two initial wells being drilled in September with potential further development in the late fall, We have many data points on productive zones while still believing the helium dominant pay zones have largely virgin reservoir pressure, resulting in what we expect to be highly productive wells with minimal declines at modest capital costs of $1.2 to $1.8 million due to their relative shallow and conventional nature. The expected size and minimal decline rates of the newly drilled wells are expected to support highly economic development of the asset base, both at the field and associated infrastructure level, without the need to undertake an unrealistic and unfundable capital spending plan. This is advantageous for numerous obvious reasons and the effects will ultimately show up in our realized economics. Additionally, our wells in the initial period will target our areas of high confidence while also bringing additional clarity to the productive parameters of the asset base. We plan to have results from the first two wells during the fourth quarter and plan on sharing these results on our fourth quarter earnings release. My final point on our recent transactions and a very critical aspect on the background summary of the Keven Dome, Montana assets is the vast majority of helium production in the United States is hydrocarbon-based, driven by being a byproduct of natural gas. The helium and industrial gas sources across U.S. Energy's new assets are non-hydrocarbon-based and part of industrial gas streams, making this project as low of an environmental footprint as any of its type in the United States. Turning to our legacy oil and gas assets, we achieved net daily production of approximately 1,221 barrels of oil equivalent per day, an increase over the first quarter of 2024, with oil production representing approximately 62% of our total production, with the remainder consisting of an approximately even split of natural gas and NGLs. 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. While this is the second large weather system to hit the Gulf Coast this year, and nearly identical effects were felt during the first quarter, primarily all of the effective production is located on our lesser producing areas and has been brought back online. There are no long-term issues expected by the weather, and the company's core asset focus areas were unaffected 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. Our leased operating expense came in at $3.1 million, representing a decrease in total expense to the prior quarter. A majority of our LOE is fixed at this point, and our per barrel metric is highly sensitive to any variations in production. Our per barrel cost for the second quarter was $27.69 per BOE, a 5% decrease from the first quarter. The weather-driven loss production, combined with additional expenses on the same areas, combined for the elevated metric. We believe our per barrel LOE will revert back to the low $20 per barrel range or significantly lower than what was realized. As we continue moving through 2024, the majority of our capital will be spent efficiently on developing our recent transactions and highest return projects, combined with supporting the production profile of our legacy asset base, continuing the company's share repurchase plan, maintaining balance sheet integrity, and being advantageous of organically generated M&A opportunities. U.S. Energy has historically targeted being a growth platform that aggregated oil and gas assets. While oil prices have been more supportive over the last couple of years than were previously experienced, the challenges facing public small and mid-cap EMPs are real, specifically when managing current costs of capital and executing on meaningful transactions that are truly accretive to existing shareholders. We have grown the platform here at the company when applicable. We have also targeted asset sales when we felt the market was tilted in the seller's favor as shown by our last two asset sales, the most recent representing our exit from our South Texas properties. These transactions have left us with an ideal balance sheet, extremely low levels of simple bank debt, and a clean cap structure that is able to support development. While any development project will of course need development capital, U.S. Energy sits in a highly enviable position relative to any perceived peer of having significant sources of internally generated non-dilutive capital. Whether it's cash flow from existing operations or, more meaningfully, opportunistic asset sales, having that lever to pull forward significant cash value is a huge advantage, particularly with a highly desirable and immediate use of proceeds. We believe that U.S. Energy stands out from other energy companies of our size in this backdrop of current energy industry dynamics. We now have a highly economic and scalable development project, and our remaining EMP 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. Our focus at U.S. Energy remains on operational efficiency, balance sheet discipline, 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 second quarter, we continue to accelerate our previously announced share repurchase program. During the quarter, the company repurchased approximately 200,000 shares bringing our year-to-date repurchase total to approximately more than greater than 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 return opportunity as we see in the marketplace. We expect to continue this activity going forward. In conclusion, U.S. Energy sits at the beginning of what I believe is a true first-mover advantage in this space, which I define as a growth-focused, non-hydrocarbon, industrial gas-focused company in the United States. The existing small-scale companies in the space are hindered by burdensome and convoluted equity structures, ugly balance sheets, and listed on exchanges that are avoided by most institutional investors. U.S. Energy faces none of these hurdles, and we believe further corporate opportunities will present themselves as this becomes apparent in the marketplace. Now I would like to introduce Mark Zajac, our CFO, who will provide a detailed update on the financial results for the second quarter.