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US Energy Corp (USEG) -- Still Selling @ Huge Discount to PV10 This nanocap sells at a 20% discount to the PV10 value of just its proved developed reserves as of last quarter end, at SEC pricing ($75 oil price held constant). The PV10 value at current strip prices would obviously be a lot higher, making the trading discount a lot greater. They attended their first investor conference recently, the Louisiana Energy Conference, and the stock went up about 16% during that week so it seems that their story is resonating, and they stand to benefit from further efforts to get their story out to more people. About a month ago they made a small bolt-on acquisition which has me very intrigued. They bought a small amount of oil production and a local gas pipeline along with associated gathering lines, in Liberty County, TX. This is down in the Gulf Coast, just a few counties west of the Louisiana state line. It is not considered a hotbed of oil and gas but that gets me to the main point here -- when your market cap is only $115M you don't need to try to play in the same sandbox as the big boys. You can find these backwaters where no one is spending any money, even with the high commodity prices we are enjoying, and make serious amounts of coin. The best illustration of this is what USEG has been able to do with its first acquisition in Liberty County, back in 4Q 2020. They issued $250K of stock to buy a bunch of mostly shut-in wells, spent $400K to get them back online, and voila, today the project is producing 80-100 bopd (see slide 7 of latest presentation). I estimate that at current oil prices this project is paying out its investment every 2-3 months. Liberty County has a lot of salt domes that were drilled out decades ago but which have a lot of stripper wells still going, which produce small amounts of both oil and gas. Reading between the lines of USEG's PR announcement on their latest Liberty County acquisition, I believe they plan to extend the pipeline they bought to both their own plus other companies' wells, so that the associated gas that is being produced will be able to be sold into their pipeline vs. flared as is the case currently. There is probably not huge amounts of gas being flared over there but at $8-$9 gas there doesn't have to be very much to make a lot of money. They finally filed the registration statement with the SEC to get the shares issued on 1/5 free-trading. This will provide a much-needed increase to the public float on the shares. A big chunk of the SG&A last quarter was non-cash -- shares issued to the new directors that came on in connection with the 1/5 acquisitions. The company's hedge book is not something to brag about but it is not much worse than most other company's at this time. I believe the success or failure of this company will have little to do with how good or bad its hedging decisions is. |
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