By Thomas Kerr, CFA
NASDAQ: USEG
READ THE FULL USEG RESEARCH REPORT
1st Quarter 2026 Financial & Operating Results
U.S. Energy (NASDAQ: USEG) production in the 1st quarter of 2026 was 34,290 barrels of oil equivalent (“BOE”) (64% oil), compared to 47,008 BOE in the 1st quarter of 2025. During the quarter, the company generated revenues of $1.6 million (86% oil) compared to revenues of $2.2 million in the prior year period.
1st quarter 2026 realized average sales prices were $63.00/bbl for oil and $3.05/Mcf for natural gas, resulting in an average realized price of $46.78/BOE as compared to 1st quarter 2025, which averaged $59.01/bbl for oil, $4.14/mcf natural gas, and an average realized price of $46.65/BOE. The sequential decline in production and revenue was largely due to the company’s strategic divestitures, which were the final significant step in the company’s legacy asset optimization program. The monetization program funded the company’s pivot to its industrial gas, energy, and carbon management platform and is now substantially complete.
1st quarter 2026 lease operating expense totaled $0.9 million, compared to $1.6 million in the prior year period, which reflects the reduced legacy oil and gas footprint. Cash G&A expense totaled $2.6 million in the 1st quarter, compared to $1.9 million for the 1st quarter of 2025. This increase reflects higher professional fees and compensation expense related to the company’s strategic transformation. The costs include legal, technical, and advisory work supporting the FID, the EPC contract negotiation, the helium offtake agreement, and the amended credit facility. These costs are expected to normalize as Phase 1 transitions from development to construction execution.
The reported net loss was ($3.2) million, or $(0.08) per diluted share, during the 1st quarter of 2026. Adjusted EBITDA was ($2.1) million.
Capital expenditures in the quarter totaled $4.4 million. The company recently disclosed an aggregate near-term capital program of $28.0 million to $32.0 million for the remainder of 2026, primarily related to construction of the gas processing plant, gathering system, and related infrastructure (plus up to approximately $0.6 million for plugging-and-abandonment activities). On the 1st quarter earnings call, management indicated approximately $20–$25 million of capital remained to be deployed across the project on a front-weighted basis.
Balance Sheet & Liquidity
At the end of the 1st quarter, the company had $10.5 million in cash and total debt outstanding of $2.5 million. Availability on its credit facility was $7.5 million, resulting in period-end total liquidity of approximately $18.0 million.
Subsequent to the end of the quarter, the company amended its senior secured credit facility, which doubled the borrowing base from $10 million to $20 million (see below).
As of April 30, 2026, the Company held $10.4 million in cash and $27.9 million in total liquidity, including $17.5 million of undrawn capacity under the amended senior secured credit facility. With the Phase 1 capital stack in place and the ELOC formally suspended, the company has stated that it believes it has sufficient liquidity to advance Phase 1 toward targeted commercial operations in the 1st quarter of 2027 without anticipated reliance on the public equity markets, while maintaining flexibility to pursue additional value-enhancing opportunities.
Business Updates
Final Investment Decision (“FID”) Achieved
On March 18, 2026, the Company announced FID on the Phase 1 processing facility at the Big Sky Carbon Hub and executed a fixed-scope engineering, procurement, and construction (“EPC”) agreement with CANUSA EPC. The plant is designed for approximately 8 MMcf/d of inlet capacity, with initial operations targeting approximately 14 MMcf of high-purity helium and approximately 125,000 metric tons of refined CO₂ per year. Commercial operations are expected to begin in the 1st quarter of 2027.
Helium Offtake Agreement Executed
On April 27, 2026, the company executed a five-year helium sales agreement with an investment-grade global industrial gas company for the sale of contained helium to be produced at the Big Sky Carbon Hub. The contract provides for a 100% take-or-pay commitment by the counterparty for up to approximately 1.2 MMcf per month (14.4 MMcf annually) over a five-year initial term at a fixed plant-gate price of $285 per Mcf, with annual CPI-linked escalation beginning March 1, 2028, and a year-three price redetermination with a right of first refusal. This important agreement establishes contracted initial helium revenue and supports the commercial viability of the Big Sky development. The agreement materially reduces volume and demand risk over the initial five-year term, subject to counterparty performance and the commencement of commercial operations at Big Sky.
Phase 1 Capital Stack Completed
During the 1st quarter of 2026, the company generated approximately $17.2 million in proceeds from equity issuances, consisting of an underwritten public offering and drawdowns under the company’s committed equity facility, which has not been drawn since March 2, 2026.
On April 20, 2026, the company announced the closing of a Second Amendment to its senior secured credit agreement with FirstBank Southwest, which doubled the borrowing base from $10 million to $20 million. The amendment also revised the applicable margin on outstanding borrowings and suspended quarterly financial covenant testing through the fiscal quarter ending March 31, 2027. The facility matures May 31, 2029, with no prepayment penalties. Together with the proceeds of the March 2026 equity issuance, the company has stated that the Phase 1 capital stack is in place and is expected to fund Phase 1 through targeted commercial operations.
MRV Applications Advancing in Active EPA Review
Both of the company’s Monitoring, Reporting, and Verification (“MRV”) submissions, Big Rose and Cut Bank, remain in active EPA review, with the company continuing to anticipate approvals during the summer of 2026, although approval timing is not within the company’s control.
These approvals are required to access the Section 45Q tax credit framework, which the company has estimated could represent approximately $130 million of potential credit value over the first 12 years of Phase 1 operations. These estimates are subject to qualification, sustained operation, and the realization of $85 per metric ton of CO₂ sequestered. 45Q credits are not company guidance and are subject to MRV approval, ongoing compliance, and monetization risk.
Valuation & Estimates
We maintain our DCF derived price target of $3.50 per share, which reflects our expectation that initial helium, carbon-management, and CO₂-EOR revenue could begin in the 1st quarter of 2027, which is supported by the achievement of Phase 1 FID in March 2026.
Our Zacks SCR DCF model assumes initial monetization of the three revenue streams beginning in 2027. For 2027, our estimates include oil revenue of $11.0 million, helium revenue of $2.0 million, and Section 45Q tax credit revenue of $7.5 million, which we estimate could generate adjusted EBITDA of approximately $12.0 million. For 2028, our estimates assume total revenue of approximately $29.0 million and adjusted EBITDA of approximately $17.0 million.
Under this scenario, our DCF valuation is approximately $3.50 per share. The Zacks SCR DCF uses a discount rate of 12.5%, which we view as conservative given the development-stage profile of the project.
Based on Zacks SCR estimates, we believe USEG is estimated to be trading at approximately 2.5x–3.0x our 2027 adjusted EBITDA estimate. Small-cap industrial gas peers have historically traded in a 7x–8x forward EBITDA range, and large-cap industrial gas companies at mid-teens forward EBITDA multiples. U.S. Energy is in a pre-revenue, construction phase, and any multiple expansion would be dependent on successful execution against the 2027 commercial-operations milestone. We highlight the valuation gap as an observation, not a prediction.
We also note the current market capitalization is substantially below the approximately $130 million of Section 45Q tax credit value the company has estimated could be generated over the first 12 years of Phase 1 operations.
USEG does not provide public financial guidance or forecasts to the investment community at this time.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives payments totaling a maximum fee of up to $50,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.