Reggie Larsen - Director of IR Keith Larsen - CEO Steve Richmond - CFO

Good morning. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the U.S. Energy Corp Year-end 2013 selected highlights, financial results and operations update conference call. All lines have been placed on mute to prevent any background noise. I would now like to turn the conference over to Mr. Reggie Larsen Director of Investor Relations at U.S. Energy Corp. Sir you may begin your conference.

Thank you Kate. Good morning, ladies and gentlemen, and thank you for joining us today. With me this morning is Keith Larsen, Chief Executive Officer of the company; Steve Richmond, the company's Chief Financial Officer; as well as members of the company’s management team. In terms of an agenda, Keith will provide you with an overview of our highlights, financial results and operating initiatives for the year ended December 31, 2013; as well as the period subsequent to quarter end, and we’ll finish the call with a question-and-answer session. As a preliminary matter, I would like to note that during this call, we may make forward-looking statements which may be identified by the words will, anticipate, expect, and similar words that are based on the beliefs and assumptions of U.S. Energy's management. These and all statements other than statements of historical fact are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The forward-looking statements are subject to numerous risks and uncertainties, including those described in the Form 10-K for the year ended December 31, 2013; which we filed on Wednesday, March 12, 2014, and our other filings with the SEC, all of which are incorporated herein by reference. I'd now like to turn the call over to Keith.

Thank you Reggie; and good morning, ladies and gentlemen. To begin today's call, I'd first like to thank the audience for attending our conference call and for following the company's progress throughout 2013. The year 2013 was the transformative year for the company as we continued our drive to narrow our focus on the oil and gas sector. During the year we shed several non-core assets, realized very meaningful production and reserve gains as we exited the year. In 2013 we realized record oil and gas revenues and record reserves, and we look to improve those records in 2014. During the 12 months ended December 31, 2013 we had an average daily production rate of 1164 net barrels of oil equivalents and the company realized a total annual production of approximately 425,000 barrels of oil equivalent during the year. This production comes from 113 gross, 16.2 net wells, primarily located in the Williston Basin of North Dakota, South Texas. We have relatively stable production of approximately 1,100 net barrels of oil equivalent per day during the first three quarters of 2013. We began to see an increase in production from or to non-operated drilling programs in South Texas during the fourth quarter of 2013. We have now reached daily production rate during the fourth quarter of 2013 of approximately 1340 net barrels of oil equivalent per day, which represents to an approximate 22% increase in net daily production as compared to the average for the first three quarters of 2013. As a result of increase production the company recognized another company record, $9.3 million in revenue during the three months ended December 31, 2013 as compared to $8 million during the same period of the prior year, and $8.6 million during the prior quarter. The $1.2 million increase in year-over-year…

Yes sir. (Operator Instructions) Your first question comes from the line of Alan [indiscernible] with Sidoti & Company. Your line is open.

First, if you could just touch on the 5H well, how much is that one end up costing?

The total amount that we got into right now is probably about 4 million and they had some trouble right after they turn the corner on it and got stuck a couple of times and because of the other success that we have in area we decided to move on and get some cash flow moving before we move back to it. The real issue was there were some Austin Chalk wells in the area and they were trying to directionally avoid some of those wellbores and so they kind of corkscrewed the well if you will but my understanding now is we are going to come from the other direction and we don’t anticipate any more further trouble on that well.

Okay. So, do you have an expectation on how much the additional cost would be or?

I think it’s going to be come in under 3 million like the other three piece of wells that we have drilled.

Okay, great. And then if you could just touch on The Beeler 2H well, do you have a current daily rate on that?

Steve you get the, probably better to give you…

Just wonder what the decline rates have been, if you can kind of compare, contrast that with the other, I know that’s early but the other Beeler wells?

The February gross rates are about 5,300 barrels of oil and about 27,000 MCF.

And do you expect Contango to continue drilling on the areas you have AMI in for I guess through the rest of the year or do you not really have the clarity from them on that?

No I think they’re going to continue with at least one rig throughout rest of the year, what happened is outside of our AMI they had a lease obligation and they moved rig there. But I expect them to continue on our properties throughout the rest of the year.

And then in the filing I guess you mentioned 8 million you have allocated for acquisition CapEx. Just wondering if you target I guess high working interest kind of like what you have done in Booth-Tortuga and Big Well and if that’s not as important?

We’re targeting Buda formation in South Texas with high working interest.

So no change in strategy there, just allocating that for just additional?

That’s correct.

And then last question from me, do you have any expectation on cost for Mount Emmons this year?

No it’s been running about $2 million to run the water treatment plant but we’re working on ways to reduce that cost and one of them has threw a voluntary cleanup program down there in Colorado and we expect to get the acceptance of that for future and if it does than we hope to cut those cost at least in half.

Our next question comes from the line of Charles [indiscernible] a private investor. Your line is open.

Good morning assuming stable oil prices can you give us any revenue guidance for 2014?

Charles it’s still a little early for that, would like to see some more performance from these wells in Buda. So we’re going to withhold that at least until the next quarter.

(Operator Instructions) And I am showing we do have a question from Robert [indiscernible] a private investor. Your line is open.

You guys are doing a bang up job. I have a few questions, hopefully you can answer. Will these well bores be able to be used for the Eagle Ford after they’re depleted in the Buda line or partly depleted?

I don’t know the answer to that question. I know that they can go down and mellow up the casing in some instances. But we have not had great success today in the Eagle Ford area. We drilled three wells, two in the Leona River and one in the Booth-Tortuga and the wells did not perform. What we’re doing is we’re waiting on different operators around us to kind of bring the plate to us to develop new techniques and fracking and completing and possibly develop those in the future. And we have had some shows as have logged through the Eagle Ford that are encouraging. But today we’re not planning on any Eagle Ford development in the area.

Alright, well I would imagine that given that most of the drilling cost or at least the vertical part of the well is that you’d have stronger economics when you get the Buda line near to depletion and I anticipate you’ll do well but we’ll see. And then is there any hope for the Buda line on well I guess it’s a KM Ranch acreage?

There is, we do have the Buda formation there, I am glad you mentioned that because I forgot to in our prepared remarks. That is we’ve got several formations and that’s what we like about South Texas acreage, we got the Austin Chalk, we’ve got the Eagle Ford, we’ve got the Buda, we’ve got the Georgetown, we’ve got Pearsall. So there is multiple potentials in the area and again I think that after we developed more fully down the Buda down and the Booth-Tortuga that we will be looking at Leona River KM Ranch areas for possible exploration there as well.

Then another question about the Buda where you are at, has there been any successful wells to our West?

Not that I know of, no horizontal wells to our west, mainly it’s been to the east and that was then used and to our south. So the nine wells will be west the most western horizontal well on the Buda.

Alright, so we’re doing, it step out and or exploration as we go west on the acreage block?

That is correct.

Then, when I look at your acreage map and I look at your little pictures South Texas in your presentation. It looks to me like it might cross the real Grand River. The Mexican government is changing the rules in Mexico about participation in oil and gas down there. And you guys may have started looking into it already or not, but I think that you should talk at least with Contango about looking for prospects that are on the other side of the river. I did not believe -- as I mentioned to you, you want to mention that onetime the straight line between Colorado and Kansas didn’t terminate production and neither or the Rio Grande river, I don’t think. And lastly, it looks me like the wells to south of this are getting gassier almost as if what you’re looking at is the solution gas driver reservoir, is the kind of your take at this stage or has anybody made an effort to understand whether or not this is just one large fractured reservoir behaving in certain ways?

We have seen higher indication of gas production to the south, but I think it’s too early to tell Robert. We need to drill some more wells but really see what the performance is down there.

Okay. Well, I’ll grab but that’s true, but just to put a bug in your area. I think you guys are in real large solution gas driver as Warren. It’s looked to me like the acreage to the north is in the oil lake which is where Booth-Tortuga is, the other acreage not so much. And then lastly, on your maps I can see a structure contour and I’m assuming what I’m looking at is the nose of anticline, is that correct?

Not sure. I’m not a geologist, but we do see some turns of the contours like you see on the map there. Robert, we appreciate your comments and your questions there you my friend.

Or I will listen you guys are doing a bang-up job and you’re on the right road. The last thing I’d say to you is the Bakken where I didn’t get any real value for now, the value of the Company the stock price today is the value of the Bakken. They’ve already given you nothing further Budas or nothing for the Bakken and I look for that to rectify itself shortly. Good look gentlemen.

And our next question [indiscernible] Private Investor. Your line is open.

Can you comment further on the possibility of the second rig in the Buda at least that was mentioned back in Contango on their call?

Yes, Charles our understand is that they’re bringing a second rig, so we’re going to start the five later this month and the ninth later this month and my understanding from Contango is that rig will be with us for two drills possibly more but they also have another area for that rigs. So we may only get two and we may get more than the two. And again that probably is going to read depend on results.

And there are no further questions at this time. You have any closing remarks?

Yes, I do. I would like to thank our audience for joining us today. As demonstrated throughout 2013, we have continued to manage our balance sheet and joint commitments. We have significantly reduced our overhead cost through the sale of noncore assets. We are focused on our development opportunities through acquisitions on the drill bit. And we continue to work to reduce our management holding cost by working diligently to monetize this legacy asset and further refine our focus on the oil and gas sector. We will continue to maintain our financial and operational flexibility but the ultimate goal of driving growth and profitability for the company’s shareholder. I want to thank everybody for joining us today.

This concludes today’s conference call. You may now disconnect.