US Energy Deleverages Balance Sheet, Swaps Stock for Debt

Like so many others in the energy space, U.S. Energy Corp. (NASDAQ:USEG) found itself in a financial crunch when the price of oil sunk from over $100 a barrel in 2014 and remained stubbornly low. In a bid to reduce debt, slash interest expense and open the door to outside capital again, the Denver-based independent energy company has struck a deal with APEG Energy II, L.P., the sole lender of USEG's senior secured credit facility and entity controlled by Angelus Private Equity Group.

Per the agreement, U.S. Energy is exchanging $4.46 million of its $6.0 million of outstanding borrowings under the credit facility for 5.82 million shares of freshly issued stock, equating to 76.7 cents per share. That's a 1.3% premium to the 30-day VWAP (volume weighted average price) as of September 20, 2017. With the new shares, APEG will own about 49.9% of the outstanding stock of USEG.

U.S. Energy will also make pay $600,000 in cash, leaving only $900,000 in debt on its books, a reduction of 84% from where it was and move that will save about $400,000 in annual interest payments.

As the company adjusts to inexpensive oil and repositions itself for growth, it picked up its fundamentals during the second quarter. Production tallied 58,369 barrels of oil equivalent during the quarter, up 17% from the first quarter of the year. Oil and gas revenue was also up 17%, rising to $2.0 million, while lease operating expenses dropped 35% from Q1 to about $500,000.

The company reported total proved reserves of 1,458 MBOE as of the end of the quarter and PV-10, a discounted value metric for future oil and gas revenues, of $13.9 million.

Market participants obviously are relishing the partnerships and delevered books, sending shares shooting ahead on big volume from Wednesday's closing price of 75 cents to as high as $1.37 in morning trading on Thursday. The stock has slid from the intraday high, but still holding at 93 cents, representing a gain of 24.4%, as the lunch break approaches.