READ THE FULL USEG RESEARCH REPORT
U.S. Energy (NASDAQ:USEG) continues to achieve major milestones while advancing the full-cycle development of its industrial gas assets across the Kevin Dome structure in Montana.
Upstream Development
During the quarter, two additional industrial gas wells were drilled, bringing the total to three high-deliverability wells in the CO₂ and helium-rich Duperow Formation with each positioned to deliver strong economic returns. The three wells achieved a combined peak rate of 12.2 MMcf/d, with a high-value composition of approximately 0.5% helium and 85% CO₂.
Following testing, flows were restricted to about 8.0 MMcf/d and subsequently shut in to preserve reservoir value until the plant infrastructure is online which sets the stage for an efficient production ramp-up. The company is planning one additional industrial gas well in the Spring of 2026 in the same formation. The company is also advancing enhanced oil recovery (EOR) opportunities using recycled CO₂ on nearby company-owned oil assets in Montana. In addition, the company is conducting helium offtake negotiations with third-party end users to support commercialization.
Infrastructure Development
The design for the initial gas processing facility was finalized, targeting high-purity recovery of helium and recycled CO₂. An 80-acre site in Toole County, MT, was acquired for $240,000 to host the facility.
The infill gathering system (pipelines) design was also completed, with construction planned for early 2026 to directly connect wells to processing and sequestration operations. Permitting, land access, and utility connections are advancing in parallel to enable a timely startup. Initial construction of the plant is expected to begin in the 3rd quarter of 2026. We believe the cost of the plant would be in the $20-$30 million range. Once operational, the facilities are expected to generate diversified cash flow from helium sales, incremental oil through enhanced oil recovery, and carbon management.
Carbon Management Initiatives
The EPA Monitoring, Reporting, and Verification (MRV) plan was submitted in October 2025, with approval expected by spring or summer 2026. This would make the company eligible for federal carbon credits. A second MRV plan for enhanced oil recovery (EOR) operations is being prepared, with submission planned for December 2025. The company continues sustained injection of 17.0 MMcf/d across two company-owned wells, equivalent to approximately 240,000 metric tons of CO₂ sequestered annually, while advancing near-term EOR projects utilizing recycled CO₂ on legacy oil assets in Montana. Additionally, a second Class II injection well was approved by Montana regulators in August 2025.
Well Summary
The company has three active industrial gas wells currently with another one planned to be drilled in the spring of 2026. The company also owns two CO2 injection wells.
Industrial Gas
#1) In January 2025, the company acquired 24,000 net acres across the Kevin Dome which included the already drilled Kiefer Farms well targeting the CO2 rich Duperow formation. CO2 wells are drilled at a shallower formation than nitrogen wells at approximately 3,000 feet. This well is expected to become a near-term economic contributor to the industrial gas processing facility that is being developed.
#2) and #3) In July 2025, the company drilled and completed two producing wells in CO2 zones with helium concentrations in the 0.4%-0.5% range. These wells, located within 1-2 miles of the Keifer Farms well (#1 well), together with the Keifer well make three productive wells.
#4) A 4th producing well may be drilled in Spring 2026. This is expected to be located in the same area as wells #1, #2 and #3. This will be an industrial gas well similar to the three active wells described above.
Carbon Sequestration
#1) This was the company’s first well of its industrial gas program and was completed in October 2024. It was drilled to the nitrogen rich Precambrian formation at approximately 5,000 feet and produced helium concentrations of 1.5%. However, the volumetric flow was not sufficient to make this a viable well to develop required helium extraction at the processing plant. This well is being converted to a CO2 injector well has been approved for Class II status. The MRV has been filed on this well with approval expected in the summer of 2026.
#2) In April 2025, the company acquired approximately 2,300 net acres with CO2 rights that are contiguous to its existing positions across Montana’s Kevin Dome structure. This acquisition includes an active Class II injection well to sequester CO2 captured from the company’s industrial gas processing facility (see below for more details).
Potential Opportunities in Gas Liquification Markets
There are only eight helium liquefiers in the U.S. with some being out of commission or not accepting third-party gas. None of these operating plants are currently geographically located to service helium production in the northern U.S. or Canada, so small operators face significant barriers to liquefaction, creating a unique opportunity for the company. USEG is well-positioned to capitalize on the helium liquefaction market, where limited capacity restricts third-party processing and transportation.
Strategically located in Montana, USEG’s operations are ideally suited for a West of the Rockies helium liquefier, enhancing internal economics by producing liquefied helium, which commands a 25-50% premium over gaseous form, and attracting strategic capital by serving West Coast and export markets.
The company sees significant potential to support emerging helium producers in the Rocky Mountain region, many lacking processing infrastructure, by offering third-party tolling services that diversify plant revenues through gaseous helium trucked to the facility, independent of throughput volumes. Acquiring iso-container helium trucks would enable downstream transportation, further expanding access to domestic and international buyers. By targeting smaller, early-stage producers, the company can integrate valuable assets, achieve economies of scale, and leverage untapped industrial gas streams for diversified growth.
3rd Quarter 2025 Financial and Operating Results
On November 12, 2025, U.S. Energy reported 3rd quarter 2025 financial and operating results. The year over year revenue comparisons were mostly irrelevant due to the oil & gas divestitures that occurred in 2024. Total oil and gas revenue in the 3rd quarter was approximately $1.74 million, of which $1.59 million was oil and $151,000 was natural gas and liquids.
In the 3rd quarter, lease operating expenses (LOE) were approximately $1.04 million, or $29.36 per Boe, compared to $3.1 million, or $28.95 per Boe, in the prior year period. The reduction in LOE is primarily due to fewer producing wells as a result of recent asset divestitures..
Cash general and administrative expenses in the 3rd quarter of 2025 were approximately $1.5 million compared to $2.0 million in the 3rd quarter of 2024. This primarily reflects lower acquisition related costs.
The company recorded a non-cash impairment charge of $0.87 million related to lower oil & gas prices.
The company generated an adjusted EBITDA loss of ($1.2) million in the 3rd quarter of 2025. The reported net loss was ($3.3) million, or ($0.10) per diluted share.
As of 9/30/25, the company had no outstanding debt, cash balances of $1.4 million, and $10.0 million of availability on its bank line of credit. In January 2025, the company raised approximately $10.5 million in net proceeds from an equity offering. In October 2025, the company filed for an equity line of credit for up to $25.0 million in gross proceeds.
Oil & Gas Business
In the 3rd quarter of 2025, the company produced 35,326 BOE, or an average of 384 BOE per day, as compared to 105,699 BOE or an average of 1,149 BOE per day during the prior year period. The decrease in production quantities primarily relates to the divestitures of properties in the Karnes County, East Texas and Mid-con regions which occurred in the second half of 2024 and the natural decline in production in remaining producing assets. During the 3rd quarter of 2025, production was 91% oil and 9% natural gas and liquids.
The company’s proved developed producing oil and gas reserve base as of October 1, 2025 consisted of approximately 1.5 million barrels of oil equivalent (“BOE”) comprised of approximately 75% oil. The PV-10 value of the company’s reserves was approximately $20.5 million at SEC pricing, with assumed pricing of $67.45/bbl, $3.10/mcf, and $33.01/boe for oil, gas, and natural gas liquids, respectively.
Valuation & Estimates
We maintain our price target of $3.00 per share.
We utilize multiple valuation methodologies to arrive at our target price of $3.00 for USEG stock. These include Discounted Cash Flow (DCF) calculations, peer multiples, price to book value, price to asset value and others.
Our DCF calculation assumes monetization of helium extraction begins in the 4th quarter of 2026. For calendar year 2026, we believe that helium revenues could total approximately $4.0 million, and EBITDA generation would be in the range of $1.0 to $2.0 million. We assume the oil and gas properties produce steady state revenues in the $7.0-$8.0 million range with EBITDA generation of approximately $1.0 million. Under this scenario, our DCF calculation is approximately $3.00 per share. This may prove to be conservative as we utilize a high discount rate of 12.5%. In addition, we do not incorporate any other industrial gas revenues or carbon sequestration related benefits into our model at this time.
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