USEG 2026 Q2 Earnings Call

Thanks, Mason, and good morning, everyone. Welcome to our second quarter call, the first one we get to do as Big Sky Industrial. Investor engagement over the last 90 days has been the strongest I've seen in my time here, with more meetings, sharper questions, and a lot more of them from institutions that have never looked at us before. The story is starting to resonate, and that's a credit to the work this team has put in over the last several quarters. Let me start with the name, since it's the most visible change since we last spoke. on June 8th, U.S. Energy Corp. became Big Sky Industrial, and our stock began trading on Nasdaq under BSIN. Structurally, nothing moved and nothing was required of shareholders. It wasn't a change in strategy, but it was the name catching up to the business.

We spent the last few years turning a legacy oil and gas producer into an integrated industrial gas and carbon management platform, and in the second quarter, we made that official. The quarter was about finishing the foundation and then going to work on top of it. in April, we completed the phase one capital stack by amending our credit facility and doubling the borrowing base. Later that month, we signed a five-year, 100% take-or-pay helium offtake with an investment-grade global industrial gas counterparty. In June, we completed the rebrand, and all quarter long, capital went into the ground in Montana. Every structural piece of phase one is now in place, engineering, permitting, EPC, funding, and offtake. What's left between here and first revenue is execution.

Here's how I'll walk through the call this morning, what's happening in the field, then our commercial position and the market we're walking into. Mark will take you through the quarter and the balance sheet, and I'll come back at the end with what's ahead. Let's start in the field because like every development project, execution is critical. We made our final investment decision on the phase one processing facility in March, and we took it the way it should be taken. Engineering complete, permitting complete, a fixed scope EPC contract with CANUSA EPC, and a funded capital stack behind it. Five weeks later, we added a long-term contracted helium buyer on top of that. Since then, it's been a construction project and not a development project. Capital went into the plant through the first half and long lead equipment items are moving through fabrication.

The plant is sized for up to 8 million cubic feet a day of inlet capacity, which gets us to more than 14 million cubic feet of contained helium and about 125,000 metric tons of captured CO2 per year. On the field side, the producing wells are in the ground along with two operational Class II injection wells. Gathering system installation is underway this summer. Plant commissioning is targeted for later this year and first gas and with it commercial operations for March 2027. That's the same schedule we gave the market when we first sanctioned a project and the modular plant design is a big reason why we haven't moved that. There's far less that can go sideways on site, and that's what keeps us comfortable on schedule and budget.

On the regulatory side, both of our monitoring, reporting, and verification plans on Big Rose and Cut Bank are in active review at the EPA. Those interactions have been positive and nothing has come up that gives us concern. We expect approvals well ahead of commercial operations, though that timing belongs to the agency and not to us. Those approvals are the gate to the Section 45Q credit stream, roughly $130 million of credit value over the first 12 years of phase one alone. I want to highlight that number because I don't think it's understood yet. That $130 million of federal carbon capture tax credits from a single phase one facility at a company whose entire market cap today is much less than that. It's policy-backed and commodity independent, sitting underneath everything that we're building.

The credit is $85 a ton with annual CPI-linked escalators. It has bipartisan support and it runs for 12 years. Our base case uses today's rate and anything better is pure upside. That number is more than just a line on a schedule. Under current law, 45Q credits are transferable. That means they can be sold to a third party for cash. We've begun the work to monetize the phase one credit stream and pull that value forward rather than collect it in 12 annual installments. That converts a policy-backed credit stream into non-dilutive cash up front at a scale that is highly significant relative to where the company is valued today. We expect it to be the primary funding source for phase two, and we've already started that planning. You'll hear more from us on both of these throughout the balance of this year.

None of it sits in our base case, but it's the largest source of non-dilutive capital available to us, and we're actively working on it. Now to the commercial side of the platform. The helium offtake we signed in April anchors our initial revenue. A reminder on the terms, 5 years with an investment-grade global industrial gas company, one of the leading helium distributors in the world. 100% take or pay, 1.2 million cubic feet per month at a fixed plant gate price of $285 per Mcf with CPI escalation beginning March 1, 2028, and a price redetermination in year 3 that preserves our upside. Volume risk is gone. Demand risk is gone. The helium is contracted day 1 revenue 90 days later, here's what I'd still emphasize. A counterparty like that doesn't sign a multi-year, 100% take or pay contract with a development stage project on faith.

They put our resource, our development plan, and our ability to execute through significant diligence first. That was third-party validation of this asset, and nothing has changed the picture other than we're 90 days closer to first gas production. On helium, global helium supply is structurally tight. Instability in the Middle East, along with real questions about long-term supply out of Russia and Qatar, has only made it tighter. There's no substitute for helium in semiconductors, medical imaging, fiber optics, aerospace, or the manufacturing chain behind the AI build-out. Demand doesn't flex on price, and domestic supply is very thin. Our all-in contracted price of $285 is strong, especially with transportation and tolling costs sitting solely with our counterparty. Candidly, I think it will look conservative relative to where the market is heading, which is why we negotiated the 3-year reprice.

We're an American producer of a strategically important industrial gas at a moment when that matters a great deal in Washington. On the CO2 and carbon management, 45Q tax credits has bipartisan support, was extended under the IRA, and the carbon management market is forecast to grow exponentially from here. Today, there are only about 20 operational CCUS projects in the entire country, which is a very short list, a list that we'll be on. What sets us apart is how the CO2 comes to us. It's created as part of our own industrial process, and we capture all of it and either sequester it permanently or put it into work and enhance oil recovery. There's no combustion, no fermentation, no energy-intensive capture equipment on the front of the plant. Most carbon projects spend real capital and real energy just to get CO2 into a pipe.

We don't, and that's a structural cost advantage and one that a competitor cannot go and just buy. On the oil front, Cut Bank keeps doing its job. Low decline, established production that supports the platform while we build out. The bigger point is the retained optionality that it gives us. There is significant recovery potential through phased CO2 enhanced oil recovery, and the CO2 comes from us. No third-party supply, no negotiation, no counterparty risk. We already hold more than 170 permitted Class II injection wells, so the path to a multi-decade production tail is a low capital path. Cut Bank is the captive CO2 outlet that closes the loop on the platform. With that, let me hand it to Mark to walk through the second quarter results and the capital structure.

Thanks, Ryan, and good morning, everyone. I will keep my remarks focused on the capital structure because that is where the most consequential financial work happened this quarter. There are two pieces I will cover, our phase 1 capital position and the path forward. I will briefly touch upon the quarter's results, and the additional details can be found in the morning's press release and the 10-Q. Starting with the quarter, revenue was $2.1 million, essentially flat from a year ago, as stronger realized oil prices offset lower volumes following our completed divestiture program. Cash general administrative expense was $1.8 million, down from $2.6 million in the first quarter as the transaction-related professional fees behind FID, the EPC contract, the offtake, and the credit facility amendment rolled off. Adjusted EBITDA was a negative $0.9 million compared to a negative $1.3 million a year ago.

We invested $9.6 million of industrial gas capital in the first half against $2.5 million in the prior year period. That number is the one I would like to point to. It is the clearest financial evidence that Big Sky Industrial has moved from development into construction this year. As for our capital position, the equity offering we completed in March brought in capital to fund development and strengthen the balance sheet. in April, we amended our senior secured credit agreement, doubling the borrowing base to $20 million, fixing the interest margin at 200 basis points, and suspending quarterly financial covenant testing through the first quarter ending March 31, 2027. The facility runs to a May 2029 maturity with no prepayment penalties. Those are the right terms for a project in construction, low cost, no covenant noise, and flexibility on timing.