Good day, and welcome to the U.S. Energy Corporation Third Quarter 2024 Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to questions. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Mason McGuire, Vice President of Finance. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to U.S. Energy Corp.'s third 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; 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 September 30, 2024. The press release, together with accompanying presentation materials are available in our Investor Relations section of our website at www.usnrg.com. Today's discussion may contain forward-looking statements about the 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, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements. Further, 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 our latest quarterly earnings release and conference call presentation. With that, I would like to turn the conference 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. Turning to our quarterly results. These reflect the dedication and resilience of our operational team, as well as the positive momentum from our recent business development efforts. Focusing on our recently acquired Montana project, we made significant progress this quarter with the completion of our first industrial gas well in late October. We're currently evaluating the results and finalizing plans to target what we believe are economically promising production zones, which have been independently tested to show non-hydrocarbon helium concentrations of up to 1.5%. Looking ahead, we plan to commence drilling a second well in early 2025 with additional developments throughout the year, aimed at similar zones where we anticipate similar helium concentrations. Importantly, our initial well came in below our projected drilling costs and we expect these costs to decrease as we move forward with our drilling program next year. We remain highly enthusiastic about this opportunity, confident that the Montana project not only stands as a substantial value driver for U.S. Energy on its own, but also serves as a foundational step towards building a robust industrial gas platform. This initiative represents an efficient and economically compelling use of our existing capital, while positioning U.S. Energy with heightened relevance in the capital markets. Based on the data gathered so far, we continue to anticipate that these wells will drive highly economic development of our asset base both in the field and at the infrastructure level, supported by a realistic and achievable capital spending plan that can be funded from U.S. Energy's existing balance sheet. This is advantageous for several clear reasons with positive impacts expected to flow…

Thank you, Ryan. Hello, everyone. Let's delve into the financial details for the third quarter of 2024. Total oil and gas sales for the quarter amounted to approximately $5 million, reflecting a decrease from $8.7 million in the same period last year. This decline was attributed to a 30% reduction in volumes, partially offset by 18% increase in realized prices. It's important to recall that prior quarter's production was impacted by severe weather events in several of our key operating areas. This quarter's production demonstrates our ability to bring weather-related production issues back online, offset by our South Texas divestiture which closed early in the third quarter. Sales from oil production contributed 88% of our total revenue for the quarter, demonstrating our continuing focus on optimizing our oil assets. Our lease operating expense for the third quarter was approximately $3 million consistent with prior quarter, equivalent to $28.95 per BOE versus $27.69 per BOE in the second quarter. The increase in the LOE per BOE quarter-to-quarter is due to repair costs associated with prior weather events and reduction in daily production volumes from divestitures. Severance and ad valorem taxes for the third quarter of 2024, totaled approximately $0.3 million, reflecting a decline from $0.6 million in the same period last year. As a percentage of total oil and gas, sale revenue these taxes accounted for approximately 6% during the quarter. Cash, general and administrative expenses was $1.6 million for the third quarter of 2024 and a reduction of 27% when compared to the same period of 2023. Year-to-date, cash general and administrative expenses have decreased $1.8 million when compared to the same period from a year ago. This decrease reflects lower compensation and a variety of overhead costs as we divest properties and focus on our helium project. Turning to…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Jesse Sobelson with D. Boral Capital. Please go ahead.

Hello, everyone. Good to hear the great progress on the balance sheet. I'm just curious, can you remind investors of what is anticipated that you'll be able to bring these helium assets online and what needs to happen between now and then? Thanks.

Yeah. Good morning. Good question. So as you know, the ultimate goal is to get a processing plant in place to process the streams and then you'll ultimately start selling helium, et cetera. So walking through a time line, we think at this point that's somewhere between three and five wells drilled, some light gathering lines laid for the gas streams, ultimately feeding to a plant there's a pretty wide range of expectations on how long it's going to take the plant to get built. It's looking like it will probably be sooner than what we originally thought. So right now we're still sticking to that very early fourth quarter of next year to have full cycle production to sales. I do think there's a little a significant chance that that time line can get moved up based on the plant being delivered and commissioned sooner. But right now we're looking at an over-under on October 1 of next year.

Awesome. It sounds like things are going pretty well there. I think just another additional follow-up question here on the M&A side of things. In your prepared comments, you did mention a continued focus on M&A with what appears to be the open consideration of both acquiring new assets and selling legacy ones. Is the angle here to be a pure-play industrial gas company? Or are you guys still expecting to hold on to specific oil and gas assets over the longer term? Thanks. And that's it for me.

Yeah. So the goal for it is to ultimately create and run this industrial gas platform, kind of, full stop. On the legacy E&P asset side, no secret, small mid-cap E&Ps trade at pretty ugly valuations. The M&A market, at least the public M&A market on bigger deals is very tough to get done with equity valuations and the public-private disconnect. That being said, what I'll call the smaller -- I mean and I'll define smaller sub-20 type of million dollar range on these assets, whether it's funded by small private family offices, et cetera is still very active. I view, if we can pull forward value on assets on again give or take a future 4-year cash flow type of number and redeploy that into industrial gas assets in the near term Montana, it's a very good trade-off for us. So, I think that you continue to see us -- you will continue to see us kind of pick off our noncore E&P advantageously to sellers. I expect that to continue, ultimately leaving us with our industrial gas project in Montana and our E&P assets in Montana. We like those now because, it's all oil. It's close by to where all of our operations are -- it has strong margins, it covers overhead et cetera. Eventually, I think all of the E&P assets go just to streamline the message and the platform that we have. In terms of the acquisition side, I probably should have been more specific. I don't think you see us acquire E&P assets going forward anymore. That's just not what we're looking at the type of assets that you acquire at this level, usually aren't what I'll call fitting the public company model more smaller-scale stuff, where I do think you see us make strides on the M&A front is expanding the industrial gas platform, whether it be on the producer side or on the infrastructure side, because they kind of go hand in hand. So, we're definitely active in looking at further like-kind acquisitions to the ones that we made this summer and then just repeating myself a little bit, opportunistically divesting our legacy E&P.

Great. Thanks for the detail there. Its exciting to watch the transformation network. I'll jump back in queue.

Thank you. And our next question comes from John Davenport of Johnson Rice. Please go ahead.

Hi. Good morning guys. Thanks for taking my question. I was curious, if you would be able to give us either a time line on when some additional data points on helium concentrations might be available or at the time line on a helium reserve report might be? Thank you.

Yes, good morning, John. So in terms of data points, we kind of gave our first one here a couple of weeks back. Right now, we're setting up operations up in Montana to complete this well, will flow back from the targets that we have analyzed and deemed the most economic. Ultimately, we're going with this first phase that we think is going to be able to feed a plant as soon as possible. So, I think the next data point, we always put out a pretty big ops update at the very first part of the year, just post Christmas time. I think that's going to be when we do it again. I kind of against multiple incremental data points every couple of weeks just whenever you can get something more fulsome out there. So, I think that sometimes whether it's early December or early January, we have more public data release from the completion of this well that goes everything from helium content to further data on the respective zones to flow rate, et cetera. And then on the reserve report side, they kind of run hand in hand just as we get more data, Ryder Scott is our third-party group that is doing the reserves for this asset. I think they probably come in around the same time, whether it's very early, very mid-January on the reserve side. But we're working with them on a daily basis now and I expect that to be forthcoming in relatively short order.

Okay. Got it. Thanks, guys. That’s all from me.

Thank you. And our next question comes from Tom Kerr from Zacks Investment Research. Please go ahead.

Good morning, guys. Can you follow-up on the helium full cycle, like you mentioned, everything goes to plan, you have three or five wells, processing plant finished in October. Looking for the next 12 months and without giving guidance, can you tell us what that may mean for revenues or EBITDA just from the helium program?

Yes. Good morning, Tom. So I think on that time line, we have a fairly good feel for where that is going to shake out at. We're still working on an offtake agreement. I personally want to see where we get to on that, right before we get it.

Okay. So you don't want to – okay…

I think – yes I mean I think a full cycle plan for this first one and I'm stalling a little bit on you just because there's ranges of the plant size that we haven't determined yet. And that's based on flow rates, that's based on helium content, that's based on the zones we go after. And all that requires the capital allocation to get that, right? I think a fair number to use, and this isn't a formal guidance number, but we kind of see this first plant, assuming it's a nitrogen-based plant coming in at the $5 million $6 million, give or take EBITDA type of number range. And again, once we tightened that number down, we'll give a formal guidance and time line on that. But right now I think that's a fairly accurate and conservative number to give on an annual run rate that begins next year.

Got it. And on the well cost, you said it keeps going down. Is that still about $1 million per helium well drilled?

That's probably about right. This first one we had an AFE for I think it was right around $1.8 million. Undoubtedly, this first well we knew going in was going to be the most expensive well, just setting up operations up there, getting our first well drilled, the internal mandate was to literally Cadillac this process to make sure that there wasn't a corner cut saving dollars just to make sure that we got a very good lay of the land, drilled the three zones and drilled – I think it was a 22-day drill. Going forward, once we start going after singular zones probably upgrading our rig a little bit, now that we know we need one with a little more power, we see that number coming down significantly, 1, 1.1. There's always a little swag in that number but I think it's going to come down 30-plus percent from the realized cost on this first one.

Got it. And can you kind of give us a primer on helium pricing? I know a lot of it is contract based but where does that look now? Can you look into 2025 and see how that looks? What's sort of outlook for that or how you guys look at the helium pricing?

Yes. No, great question, right? So the numbers we have modeled and kind of the number that I gave you is based on what we see on the low end, which and I apologize I don't know the exact number, but call it in the $400 to $450 range. Spot helium isn't necessarily the best way to look at it because so much of this is based on offtake agreements. Historically, the producer has contracted with a broker and the broker has middle manned a deal with the larger end user. You've seen a couple of groups I'll say, kind of, get smart on that process and cut out the broker because there's only so many end users here which significantly improves the price that you're realizing because you're not paying the middleman. So $450 to $600 type of number is what we see in the market. We model to the low end of that we forecast into the low end of that. I think there's significant upside to that number at least varying towards the high end of the range going directly to an end user which is what we're going to try to do. But that's kind of the range we're seeing now. There is some -- depending on who you ask there's forecast out there that have it going higher, have it going a little bit lower. But we're comfortable in that range especially keeping our forecasting number in that low to mid-$400 type.

It sounds good. Thanks. One more for me quick one. The oil and gas PV10 has that changed much from the July numbers? Or will it be in the 10-Q a new number?

It will be in the materials. I don't think we filed our actual reserve number in the SEC filing. It's around $35 million now give or take a little bit with where pricing is post -- I'm sorry that's a wrong number. It's right around $51 million. I just got corrected.

Okay. Thanks. I was going to say that's a big drop. I will just get back in the queue.

I appreciate it.

Thank you.

Thank you. Ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to the management team for any closing remarks.

This is Ryan Smith. We thank you for joining us. We're excited about what we're doing here. We think we have a very big year coming in 2025 with the project and the new projects we have on deck and that we're working on and we look forward to updating the market on our results and speaking on our next call. Thank you.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.