Tom Kerr, CFA: Hello, everyone. My name is Tom Kerr, Senior Equity Analyst at Zacks Small Cap Research, and welcome to another episode of our CEO Chat program. Today, we have the CEO of Big Sky Industrial, Ryan Smith. Big Sky Industrial (NASDAQ: BSIN) is an integrated energy company transitioning from a legacy oil and gas company to a newer industrial gas, energy, and carbon management platform. The company’s primary operations are based in northern Montana. The headquarters are in Houston, Texas. The company was formerly known as US Energy but instigated a rebranding initiative last week to change the name, and the new ticker is BSIN. Our latest update report has a price target of $3 per share. Welcome, Ryan.
Ryan Smith: Hey Tom, good to see you, and thanks for having me.
TK: Let’s get started with the rebranding, of course. You’ve been known as US Energy for quite some time, and the change to Big Sky Industrial. Give us a little background and what led to that name change.
RS: Yeah, for sure. The company’s been public for a very long time. We traded as US Energy Corp. for decades as a conventional oil and gas producer. Over the last couple of years, we have fundamentally transformed that business. We’ve assembled an asset base in Montana that does something very unusual. It produces helium, which is a federally designated critical mineral, alongside a very high-quality stream of CO2 that we capture and manage. So today we’re really three businesses in one. We’re helium production, carbon management, and conventional oil. And as that transformation took hold, the old name simply didn’t describe us anymore. We’re not a traditional EMP company. We’re a helium, industrial gas, and carbon management company. So, on June the eighth, we completed the rebrand to Big Sky Industrial, and our NASDAQ ticker changed from USEG to BSIN, but we’re the same company, same shares, same team, just a public identity that finally matches the strategy.
TK: That makes sense. Well, let’s get into the revenue streams, or what you call the Big Sky Carbon Hub in northern Montana. As I think you just mentioned, there are three potential revenue sources. Let’s look at each one and see how they’re integrated. The first one is helium, of course. What is the assay base for that, and how do you get that out of the ground?
RS: Yeah, exactly right. We have three revenue streams coming from this. As you mentioned, our flagship asset is the Big Sky Carbon Hub in northern Montana. It sits on top of a large geologic structure called the Kevin Dome, which is one of the largest features of its kind in the United States. And what really makes it unique is the gas stream itself. The gas that comes out is a non-hydrocarbon gas stream with significant amounts of helium. And just as a note, most of the world’s helium is produced as a tiny byproduct of large natural gas fields, which kind of further bifurcates the uniqueness of the helium that we have on this asset base. The helium concentration in the gas stream is highly economic by industry standards, and on a volume basis, in our initial phase one development, we have about 1.3 billion cubic feet of helium in the resource. The production method is completely conventional. We already have three producing wells delivering stable, low-decline gas, and those wells alone are expected to supply our initial processing plant for years without drilling anything new. So, we’re not doing anything exotic to get it out of the ground. The innovation is really what we do with the gas once it’s at the surface, and that’s where the processing plant comes in.
TK: Got it. We’ll get into the processing plant and where that helium goes in a few minutes. Let’s just take the second and third revenue streams. The second is carbon capture, which is interesting, where you’re going to capture and store CO2. Explain how that works and how you get paid from that, from the federal government, I believe.
RS: Yeah, so when we process that gas to pull the helium out, we’re left with a very large, very high-quality amount of CO2. And instead of venting it into the atmosphere, we capture it and put it permanently and safely underground in deep geologic formations. Simplistically, that’s carbon sequestration. The way we get paid for it is a federal tax credit called Section 45Q. Under 45Q, the government partners with operators and owners of the necessary infrastructure and effectively pays roughly $85 per metric ton of CO2 that we capture, utilize, and permanently store.
In phase one, we’re moving some pretty significant volumes and expect to utilize and sequester about 125,000 metric tons a year, which, just for understanding, that’s probably the equivalent of about 25,000 cars taken off the road. At those volumes, it adds up to about an estimated $130 million of 45Q value over the course of phase one. What we like about that is, you know, obvious comments, policy supported, commodity independent. Our carbon management business doesn’t care what oil or helium prices do. It’s a predictable, federally backed cash flow stream tied simply to how much CO2 we capture and put away. To claim those credits, you need an EPA-approved monitoring plan called an MRV, and that’s a very big near-term milestone that we’re working through.
TK: Are the MRVs expected in 2026 or any time frame on that?
RS: They are. They are expected through 2026. We’re hoping that they’re granted over the summer, but over the course of 2026, we’re very confident that we’ll get the approvals that we need.
TK: Got it. And the third revenue stream is oil. Despite the name change, you’re still going to be in the oil business a little bit because of the unique asset base. And what you’re doing there in Montana is enhanced oil recovery using CO2. I know that’s a big buzzword, could you explain what CO2-enhanced oil recovery is?
RS: That’s the third stream, and it’s a really elegant piece of the model outside of just traditional oil and gas production. Enhanced oil recovery is a multi-decade-old proven technique. When an older oil field is giving up all the easy oil, you can inject CO2 down into the reservoir. Simplistically, the CO2 mixes with the trapped oil, frees it up, and pushes additional barrels to the surface that you otherwise could never recover. Why is it so powerful for us, specifically? Most companies, a lot of companies, do CO2 EOR and have to go out and buy the CO2 and source the CO2. That’s a major cost.
We don’t have to do that. We capture our own CO2 at the Big Sky Hub as part of the helium processing. We own the nearby oil field called Cut Bank that has a very long production history. It contains more than 170 permitted injection wells that are already in place. So, we get paid the 45Q credit to put the CO2 into the ground, and then we sell the incremental oil that comes out the other side. It’s, again, another case on this asset where the same molecule is earning money twice regarding the oil asset, with tens of millions of barrels of recovery upside over the life and development of the field.
TK: Now that’s great. That’s a very diversified revenue stream. You don’t see that that often, to have a company of your size with three sorts of dedicated and unique revenue streams. Back to helium for a second, you recently announced that you had entered into an offtake agreement. An offtake agreement is more of a selling agreement for customers that don’t know what that is, but can you explain what the offtake agreement is and what it means for you, as it pertains to the helium business?
RS: Yeah, it’s hugely important. You described it well. An offtake agreement is essentially a pre-arranged buyer for our helium production. We signed a five-year agreement to sell our helium to a global investment-grade industrial gas company, one of the leading helium distributors in the world, and exactly the kind of counterparty that you would want to have on a project like this, and the key feature is that it’s a hundred percent take or pay. That means the buyer is contractually obligated to pay for the helium, whether they take physical delivery or not.
So, when you think about what that does for us, before we’ve produced a single molecule commercially, we already have a long-term contracted investment-grade buyer for essentially all of our helium output. That removes market risk, it removes credit risk, and it turns this into a development project, into a financeable, predictable, cash-flowing business. For a company our size, that kind of validation from a major global player, in my opinion, is worth nearly as much as the cash flow itself.
TK: Got it. Interesting. Let’s talk about infrastructure for a second. Although the wells are there, you’re still building out a lot of infrastructure, and let’s take it in two parts. One is the processing plant, and the other is sort of the infrastructure to get the oil and helium where it wants to go. Let’s take the first one, the processing plant. That’s going to, what is it, liquefy helium, process CO2? Where does that stand, and what does it do exactly?
RS: Great question. The plant is the heart of the whole operation. It’s what purifies the helium and captures and liquefies the CO2. The big de-risking news is that we’ve already reached what’s called a final investment decision on the processing plant, and we’ve signed a fixed scope engineering and construction contract with our EPC partner, which is a leading EPC provider for these types of industrial gas facilities, both in the United States and in Canada. So, it’s no longer just a concept on paper. Capital is being spent today, long lead equipment items are on order, and our contractor and our employees are mobilized to get this put together every single day.
On the ground in Montana, as you mentioned, the infield gathering pipelines go in this year. It’s a very simple gathering system that we’re laying. Relative to gathering systems, it’s very cheap. Those gathering numbers are built into our public given CapEx. And we’re targeting commissioning ahead of first commercial operations for everything in the first quarter of 2027. So right now, where we sit, we’re roughly nine months out from turning the whole platform on. Helium sales, carbon management, CO2, EOR, all coming online together.
TK: Got it, and then the other part of the infrastructure is getting the helium and oil where it’s supposed to go. For those who don’t know where the Big Sky Carbon Hub is located, it’s in a very northern rural part of Montana, almost at the Canadian border. How does the helium get from the processing plant to the customer? And number two, how does the oil get from the oil wells to the customer?
RS: Fair question, because northern Montana sounds remote, but in the industrial world, where we’re actually very well positioned logistically, the offtake structure makes it even simpler. Under our sales agreement, the buyer takes title to the helium right at our plant gate and handles all the downstream transportation and distribution themselves. That heavy logistics burden sits with a global gas company that does this every single day, all over the world, and not just with us. That said, the location is genuinely good. We have major rail access through the Port of Northern Montana at Shelby. We sit near interstate trucking on both I-15 and I-90. Helium ships in specialized containers, and from our hub, it can move by rail or truck to wherever our customers need it, so we’re not building in a logistics desert. The oil is the easiest piece because it’s a conventional, established operation. The Cut Bank field has been producing for a very long time and already has the infrastructure in place. The gathering, the trucking that move our oil to market – our market up there is a very large refinery system that’s right outside of Billings, Montana – the same way it has for many years, so there’s no new system to build there.
TK: Then the CO2 doesn’t really need to go anywhere. It gets sequestered back in the ground or sent to the oil wells themselves, so that’s kind of a closed-loop system there.
RS: Correct.
TK: All right. Let’s talk about some financials for a second. In terms of liquidity, recently, what is cash, debt, and total available liquidity, and then part two, does that fully fund the infrastructure build-out until revenue 2027?
RS: This is the question that every investor rightly asks. I’ll be direct with it. Phase one, building the entire platform and getting to first revenue, is fully funded. We’ve already deployed roughly – again, some of these numbers move within quarters and stuff like that, so I’ll give general numbers that are guided from what we’ve talked about in the market already – but we’ve deployed roughly $35 million of our own money into the project. The remaining capital to complete infrastructure construction at this point is on the order of another $20 million or so remaining until the plant is online. That remaining amount is fully covered between cash on hand from our March equity raise and our existing debt facility, which we expanded in April.
Importantly, just talking about the capstack, we’ve formally suspended our equity line of credit, which was a very good instrument for us earlier in the year. That being said, we’re not planning to issue dilutive equity to get phase one across the finish line. Additionally, we’ve hedged a meaningful portion of our oil production to lock in cash flow through the construction window with the rise in prices that you’ve seen over the last few months. So, to put it plainly, the path to first revenue is fully funded with no financing contingencies. I personally believe this transforms the question from whether we can build it, to what it’s worth once it’s up and running.
TK: Got it. When it’s up and running, that’s going to be a 2027 event. Hopefully, all three revenue streams will come online. You’ve talked in investor presentations and about what this business could look like, say, three years, five years from now. I know you don’t give guidance at this point, but generally speaking, any comments on how big this could be looking out two, three, or four years?
RS: I’ll answer this carefully for the caveat that we’re a public company, so we have to be disciplined about forward-looking statements. I want to be clear that this is illustrative modeling and not formal guidance. With that being said, looking out over the next five years or so, I think the base of our asset demands, in a good way, and the economics demand, in a good way, scaling this asset. The size of the resource, the end user markets, all are up and to the right, and you want to expand as much as reasonably possible. I’ll use a 2030 date. By 2030, we expect to have both processing plants – our initial phase one, which we’ve already talked about, and further, larger development, which we’ll refer to as phase two, which we expect to be roughly two and a half to three times the size of phase one, funded largely from our own operating cash flow rather than dilution – both of those phases in operation.
With that full platform running, our internal models point to a $40 to $50 million range of EBITDA. That is two-thirds consisting of helium and carbon management revenues, with the remaining being oil and gas revenues, and a business that continues to compound and scale from there. The reason that we have conviction in the shape of that financial profile, even if any single number moves around, is really the structure beneath it. Three diversified streams: helium under a take-or-pay contract, carbon revenue federally supported, we’ll continue to hedge out oil production to lock in that predictable cash flow, so it’s not just a one-commodity bet. It’s a diversified, largely contracted cash-generative platform.
TK: That’s great. You just kind of mentioned this, but I think it’s a good story. Of those three revenue streams, the majority of them, two-thirds, are not subject to price volatility. You said the oil you might hedge, so there’s still some price volatility, but for the carbon management with the offtake agreement, there’s no end price volatility. Any other things we might have missed, important points, closing comments?
RS: First of all, thank you for having me. I will give one framing thought: I think Big Sky Industrial is one of the more unique stories in the small-cap space right now. We sit at the intersection of three themes that investors and the United States government could care a lot about: critical minerals and domestic supply chain security through helium, carbon management, and energy. We have one asset, we have one molecule that turns into three independent revenue streams, two of which are either contracted with an investment-grade counterparty or federally supported by the United States government.
We’ve taken a lot of the major risks off the table. We’ve reached final investment decision, we’ve signed our offtake agreement, and phase one is fully funded. So right now, it’s really about execution into first production in 2027. We’re very excited about what’s ahead. We encourage everybody to follow along. Our new ticker is BSIN, and there’s a lot more in our filings and on our website. I appreciate it, Tom, for having me and everybody for listening in today.
TK: Great. Thanks for your time. To read all of our reports, investors can go to SCR.Zacks.com as well as our social media channels. You can also go directly to the company’s website at BigSkyindustrialInc.com. That concludes our CEO chat, and I really appreciate you being here.
RS: Thanks for having me, Tom.
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