U.S. Energy Corp. Announces Completion of Asset Divestitures and Provides Liquidity Update
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Insights
The divestiture of non-core assets by U.S. Energy Corp. and the subsequent debt reduction represents a strategic financial maneuver aimed at strengthening the company's balance sheet. The all-cash proceeds of approximately $7.2 million, which were used to reduce the company's debt from $12 million to $5 million, have effectively transitioned the company to a materially debt-free status. This is a significant development, as it enhances the company's financial flexibility and may improve its creditworthiness.
Furthermore, the maintenance of the $20.0 million borrowing base, despite the divestitures, suggests that the remaining assets are sufficient to support this level of credit. This could be indicative of the high quality or potential of the retained assets. The hedging program update, with significant portions of 2024 oil production hedged at favorable prices, provides a layer of revenue predictability and protection against price volatility, which is crucial for financial planning and stability.
U.S. Energy's focus on divesting non-operated, non-core assets aligns with a broader industry trend where energy companies are streamlining their portfolios to concentrate on core areas with higher returns. This strategic shift is likely to be well-received by the market, as it indicates a disciplined approach to capital allocation. The company's immediate overhead savings and increased liquidity position it to take advantage of growth initiatives with the highest potential return on investment.
The oil and gas sector is sensitive to changes in commodity prices and U.S. Energy's hedging strategy demonstrates a proactive approach to managing this risk. The average hedged prices provide insight into the company's revenue expectations and may influence investor sentiment by signaling confidence in the company's ability to sustain profitability in the face of fluctuating market conditions.
The divestiture of assets that accounted for 12% of U.S. Energy's total production is a noteworthy downsizing, yet it also reflects a strategic refinement of the company's asset portfolio. By focusing on higher-margin, operated assets, U.S. Energy can better control operational costs and efficiencies, which is critical in the energy sector where margins can be thin. The fact that the divested assets were primarily oil (83%) is relevant, as it may signal a strategic choice to optimize the company's product mix in favor of natural gas or more profitable oil operations.
The company's hedging positions, particularly in light of the current market conditions, suggest a conservative approach to commodity price fluctuations. For stakeholders, this can be seen as a move to ensure a stable cash flow, which is particularly important in an industry that requires significant capital expenditures for exploration and production activities.
HOUSTON, Jan. 10, 2024 (GLOBE NEWSWIRE) -- 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 announced it had completed a series of non-core asset divestitures.
HIGHLIGHTS
- All-cash proceeds of approximately
$7.2 million ; - Divested assets averaged approximately 200 barrels of oil equivalent per day (
83% oil) from July-September 2023, or12% of USEG total production over the same period; - All proceeds used to reduce existing debt, leaving USEG materially debt-free1;
- No changes to the Company’s existing
$20.0 million borrowing base; - Represents the majority of USEG’s non-operated assets.
MANAGEMENT COMMENTARY
“Throughout the fourth quarter, we executed on a series of asset divestitures representing the majority of U.S. Energy’s non-operated assets,” stated Ryan Smith, Chief Executive Officer of U.S. Energy Corp. “The assets divested represent legacy USEG properties, primarily in current non-core focus areas, and will allow the Company to realize immediate additional corporate overhead savings. With proceeds going directly towards debt reduction, U.S. Energy now sits in a position of increased liquidity across all measures and meaningful portions of our 2024 oil production hedged at an average price in the low
BALANCE SHEET AND LIQUIDITY UPDATE
The below table provides an overview of U.S. Energy’s debt and cash balances, as well as the Company’s hedge position, at both September 30, 2023 and December 31, 2023.
| As of | ||||||||
| 9/30/2023 | 12/31/2023 | |||||||
| ( | ||||||||
| Debt Outstanding | $ | (12,000 | ) | $ | (5,000 | ) | ||
| Add: Cash | 1,974 | 3,358 | ||||||
| Add: MtM Hedging (Loss) / Gain2 | (348 | ) | 2,059 | |||||
| Net (Debt) / Net Cash Position | $ | (10,374 | ) | $ | 417 | |||
| Net Liquidity3 | $ | 9,626 | $ | 20,417 | ||||
HEDGING PROGRAM UPDATE
The following table reflects the hedged volumes under U.S. Energy’s commodity derivative contracts and the average fixed prices at which production is hedged for full year 2024, as of January 9, 2024:
| Swaps | ||||||||
| Period | Commodity | Volume (Bbls) | Avg Price ($/Bbl ) | |||||
| Q1 2024 | Crude Oil | 53,000 | ||||||
| Q2 2024 | Natural Gas | 48,600 | ||||||
| Q3 2024 | Crude Oil | 45,000 | ||||||
| Q4 2024 | Crude Oil | 40,720 | ||||||
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. More information about U.S. Energy Corp. can be found at www.usnrg.com .
- Net debt/net cash calculation arrived at by taking debt outstanding plus cash plus value of commodity derivative portfolio.
- 12/31/2023 hedge position valued as of January 9, 2024.
- Liquidity calculated by taking the difference between the Company’s current
$20.0 million borrowing base and the Company’s net debt/cash positions.
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, 2022. 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 CONTACT
Mason McGuire
IR@usnrg.com
(303) 993-3200
www.usnrg.com
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