U.S. Energy (NASDAQ:USEG) management used the company’s first-quarter 2026 earnings call to emphasize progress on its transition away from a legacy exploration and production model and toward what President and Chief Executive Officer Ryan Smith described as “an integrated industrial gas, energy, and carbon management platform.”
Smith said the quarter should be viewed in the context of a company in a build phase, following divestitures of non-core oil and gas assets and reinvestment into the Big Sky Carbon Hub in Montana. He said recent milestones included a final investment decision on the Big Sky processing facility, a fixed-scope EPC contract, completion of the phase I capital stack, suspension of the company’s equity line of credit and a five-year helium offtake agreement.
Big Sky Project Moves Into Construction
The phase I plant is designed for about 8 million cubic feet per day of inlet capacity. Initial operations are expected to target roughly 14 million cubic feet of high-purity helium annually and approximately 125,000 metric tons of refined CO2 per year. Commercial operations remain targeted for the first quarter of 2027, according to Smith.
Field work has included three successfully drilled wells and two acquired wells, along with two operational Class II permitted injection wells. Smith said gathering infrastructure installation is scheduled for this summer, facility commissioning is targeted for the third quarter, and first gas through the plant is expected in the first quarter of 2027.
On the regulatory front, Smith said the company’s monitoring, reporting and verification submissions for Big Rose and Cut Bank are under active EPA review. He said management has not identified material issues to date and continues to expect approvals during the summer of 2026. Those approvals are required for access to Section 45Q tax credits.
Smith said phase I operations are expected to support approximately $130 million of 45Q credit value over the first 12 years, based on the current $85-per-metric-ton credit rate.
Helium Offtake Sets Initial Revenue Stream
Management highlighted the recently announced helium sales agreement as a key commercial milestone. Smith said the five-year agreement with an investment-grade global industrial gas company covers 100% of phase I helium volumes on a take-or-pay basis.
The agreement covers up to 1.2 million cubic feet per month, or about 14.4 million cubic feet per year, at a fixed plant gate price of $285 per thousand cubic feet. The contract includes CPI-linked escalation beginning March 1, 2028, and a year-three pricing redetermination.
Smith said the contract “eliminates volume risk” and “demand risk” for the initial helium stream. During the question-and-answer session, he said the company’s plant-gate pricing should be viewed differently from some industry price announcements because U.S. Energy’s counterparty will pick up the helium at the plant, leaving the company without transportation and tolling costs that he said can be significant in other arrangements.
Smith also pointed to geopolitical disruptions and demand from semiconductors, MRI machines, fiber optics, aerospace and AI data centers as supportive of the helium market. He said domestic helium supply has strategic value relative to supply from regions such as Qatar, Russia and Algeria.
Capital Stack Completed for Phase I
Chief Financial Officer Mark Zajac said the company has completed the phase I capital stack. In March, U.S. Energy completed an equity offering, and on April 20 it amended its senior secured credit agreement.
Under the amended facility, the borrowing base was doubled to $20 million, the interest margin was fixed at 200 basis points over the alternative base rate, and quarterly financial covenant testing was suspended through the fiscal quarter ending March 31, 2027. The facility permits revolving borrowings through its May 31, 2029 maturity and carries no prepayment penalties, Zajac said.
Zajac also said U.S. Energy has not drawn on its equity line of credit since March 2 and formally suspended further use of the facility after closing the expanded debt arrangement. He said the move was intended to address a perceived dilution overhang.
“The equity capital structure is set for phase I, and the focus from here is execution, not further dilution,” Zajac said.
In response to an analyst question, Smith said the company initially expected low-$30 million spending for remaining go-forward infrastructure and estimated that roughly $20 million to $25 million remains to be spent on the project, with much of it front-weighted over the next two to three months.
CO2 Sales and Cut Bank EOR Remain Upside Areas
Beyond 45Q tax credits, Smith said U.S. Energy is evaluating direct merchant CO2 sales. In response to a question from Johnson Rice analyst John Davenport, Smith said roughly two-thirds of the projected 125,000 metric tons per year of CO2 is a higher-purity stream that could be upgraded for industrial or food and beverage markets with incremental capital.
Smith said that if CO2 could be sold at $350 to $400 per metric ton, it could increase the company’s revenue profile “three or fourfold” relative to the base case. He said U.S. Energy has started early-stage discussions with potential distributors and expects to pursue that opportunity more actively in the second half of the year.
The company also continues to view its Cut Bank field as part of the integrated strategy. Smith said Cut Bank provides low-decline cash flow and could offer approximately 70 million barrels of incremental recovery potential through CO2 enhanced oil recovery, using CO2 supplied by Big Sky. He said U.S. Energy has more than 170 permitted Class II injection wells.
Asked about shut-in well opportunities, Smith said the company has already brought back some low-capital opportunities, adding 40 to 50 barrels per day over the last month. However, he said most of the larger upside depends on rebuilding reservoir pressure through CO2 injection.
Phase II and Tax Credit Monetization Under Review
Smith said phase II is not included in the company’s base-case financial model but could use the same footprint, infrastructure, regulatory approvals, field operations and commercial relationships as phase I. He said the company’s acreage, permitted wells and geology support two to three times phase I capacity without new land or approvals.
Management said the main hurdle for phase II is the optimal capital structure. Smith said U.S. Energy is evaluating project finance debt and potential tax equity financing, including forward sales or structured monetization of future 45Q credits. He said such structures could pull a meaningful portion of the 12-year credit stream forward and potentially provide non-dilutive capital for additional development.
Smith closed the call by saying the company expects additional milestones this year, including MRV approvals, gathering and EOR preparation work, and plant commissioning ahead of targeted first revenue in the first quarter of 2027.
About U.S. Energy (NASDAQ:USEG)
U.S. Energy Corp. (NASDAQ: USEG) is an independent oil and natural gas exploration and production company that acquires, develops and operates hydrocarbon properties across onshore regions in the United States. The company’s activities encompass geological evaluation, drilling, completion and working-interest management, with an emphasis on cost-efficient development of discovered reserves and maximizing production from existing assets.
Over time, U.S. Energy has pursued growth through disciplined lease acquisitions, joint-venture partnerships and targeted drilling programs.
