US Energy Corp (USEG) 2012 Q1 法說會逐字稿

Good morning. My name is Allie, and I will be your conference operator today. At this time, I would like to welcome everyone to the US Energy Corp, first quarter 2012 Highlights, Operational and Financial Results conference call. All lines have been placed on mute to prevent any background noise. Thank you. I would now like to turn the conference over to Mr. Reggie Larsen, Director of Investor Relations for US Energy Corp, Sir, you may begin your conference.

Thank you. good morning ladies and gentlemen, and thank you for joining us today. With me this morning is Keith Larsen, Chief Executive Officer of the Company, who will be conducting the main portion of today's call, Mark Larsen, President, and Bryon Mowry, the Principal Accounting Officer for the Company, who will be reviewing the financial section of today's call. In terms of an agenda, we will provide you with an update on our operating initiatives for the quarter ended March 31, 2012, as well as the period subsequent to quarter end. We will also conduct a financial review of the quarter, and finish with the question-and-answer portion of the call.

Before getting started, I would like to note that during this call we may make forward-looking statements which may be identified by the words will, anticipate, expect, and similar words that are based on the beliefs and assumptions of US Energy's management. These and all statements, other than statements of historical fact, are forward-looking statements within the meaning of Section 21-E of the Securities and Exchange Act of 1934 and Section 27-A of the Securities Act of 1933. The forward-looking statements are subject to numerous risks and uncertainties, including those described in the Form 10Q for the quarter ended March 31, 2012, which we filed on May 10, 2012, our Form 10K for the year ended December 31, 2011, and our other filings with the SEC, all of which are incorporated herein by reference. I would now like to turn the call over to Keith Larsen.

Thank you Reg, and good morning ladies and gentlemen. I will begin the call with an overview of our quarter ended March 31, 2012 operational highlights. On March 31, 2012 the Company had 45 gross, 13.65 net producing wells, which include 27 gross Williston Basin wells, 5 gross Gulf Coast wells, 11 gross Austin Chalk wells in our Booth-Tortuga prospect, and 2 gross Eagle Ford wells. The Company produced 112,036 BOE during the three months ended March 31, 2012, with average daily net production during the quarter of 1231 BOE per day. In the Williston Basin under the Brigham/Statoil program, we completed 2 gross, 0.41 net wells.

The Kalil #2 well was completed in January of this year, and had an initial production rate of 1654 BOE per day. The Company has an approximate 27% working interest and an approximate 21% NRI in this well. The Lloyd #2 well was completed in early March and had an initial production rate of 4300 BOE per day, representing the highest initial production rate from any of our wells in the Williston Basin. We have an approximate 14% working interest and an approximate 11% NRI in this well. Subsequent to the quarter end, a third infill well in the State unit has been drilled to depth, and has been fracture-stimulated with 38 stages. The operator expects to drill out the plugs and flow back the well to turn it over to production in July 2012.

A Three Forks well in this same unit is scheduled to be drilled in the fourth quarter of 2012, which will be the second Three Forks formation well drilled in our program to date. One additional infill well in the Hovde unit is also scheduled to be drilled in the fourth quarter of 2012. Drilling and completions also continued under the Zavanna Program during the quarter, and is scheduled to continue at an aggressive pace. During the quarter we completed 2 gross, 0.45 net, and drilled 3 gross, 0.25 net wells in the Yellowstone and SE HR prospects, respectively. As we announced last week, the initial production rate of the Skorpil #1 well was 1533 BOE per day on a 36/64 restricted choke. The well was fracture-stimulated with 35 stages, and began producing in late April. The Company has an approximate 23% working interest, and an approximately 18% NRI in the well.

The CDK #1 well has also been drilled to depth and fracture-stimulated with 35 stages. The operator expects to drill out the plugs and flow back the well, and turn it over to production in July 2012. The Company has an approximate 32% working interest and an approximate 25% NRI in this well. The Larsen #1 well has also been drilled to depth, and is currently being fracture-stimulated with a planned 35 stages. The Company has an approximate 28% working interest and an approximate 21% NRI in the well. I would like to point out that the above mentioned wells all have high net interest to the Company, and they are anticipated to add meaningfully to our daily production as they are brought online.

Three additional wells are currently drilled to depth, and are scheduled to be fracture-stimulated between now and July of 2012. The Skogen #1 well is scheduled the to be fracture-stimulated in late May. The Company has an approximate 6.6% working interest and approximate 5% NRI on the well. The Kepner #1 well is scheduled to be fracture-stimulated in June. The Company has an approximate 4.6% working interest and an approximate 3.6% NRI in this well. The Wells #1 well is scheduled to be fracture-stimulated in late June. The Company has an approximate 9.1% working interest and an approximate 7% NRI in this well.

Looking forward, we anticipating having an initial well drilled in all of our participated Yellowstone acreage units, and therefore hold all units by production by mid-summer 2012. The operator will then focus on drilling the remaining SE HR initial wells units through May of 2013. Before moving on from our Zavanna program, I would like to note that January 2012 the Company sold an undivided 75% of its undeveloped acres in its and SE HR Zavanna leasehold interest for $16.7 million and $1.4 million in reimbursed well cost. The Company retained the remaining 25% interest in the undeveloped acreage and its original working interest and production in 10 gross, 2.3 net wells. Our average working interest in the remaining locations will be approximately 8.75%, and net revenue interest in new wells after the sale are expected to be in the range of 6.7% to 7%.

Moving onto our Daniels County, Montana acreage, on May 9, 2012 the Company signed a letter of agreement to sell an undivided 87.5% of its acreage to a third party for $3.68 million. The agreement is conditioned upon execution of a mutually acceptable purchase and sale agreement, and will be effective on June 1, 2012. Under the terms of the agreement, the Company will retain a 12.5% working interest in the acreage and reserved overriding royalty interest. The purchaser also committed to drill a vertical test well to depths sufficient to core the Bakken Three Forks formation on or before December 31, 2015.

The Company will deliver a 80% NRI to the purchaser and 1% overriding royalty interest to a land broker. The Company will also pay the land broker a 10% commission for the cash consideration paid by the purchaser upon the closing of the transaction. In addition to our success in the Williston Basin, the Company has a 30% working interest at two oil prospects in Zavala and Dimmit Counties in South Texas with Crimson Exploration. The prospects target the oil window of the Eagle Ford shale play. The two prospects bring Company's participation in the region to 13,785 gross, 4136 net acres. It is estimated that under current spacing that there is a potential for the Company to participate in 114 gross, 34 net wells in both prospects combined.

During the quarter we drilled and completed 1 gross well, 0.3 net, which is the initial test well at the Booth-Tortuga prospect. The Beeler #1 well commenced production in mid-February at a gross 24 initial rate of 370 BOE per day on an 18/64 choke. The well was drilled to a total measured depth of 14,428 feet, including a 7200 foot lateral, and was completed using 20 stages of fracture-stimulation. The Company has an approximate 30% working interest and 22.5% NRI on this well. The KM Ranch #2H well in Zavala County, our second well in the Leona River acreage block, was also drilled during the quarter to a total measured depth of 12,875 feet, including a 6100 foot lateral, and is awaiting completion.

The operator continues to monitor specific completion activity, methods, and performance of the surrounding area in order to develop a more effective completion for optimum recovery and its high potential environment. The operator has not yet scheduled the completion of the KM Ranch #2, as we both believe that it is more important to first develop the best practices set of procedures for completions in the region that will maximize our return on investment. We are also monitoring recent activity of other operators and other formations in the Dimmit County area that could increase the upside potential for our position there dramatically. All acreage in both areas are held by production.

The Bayou Bend well located in southeastern Texas was also drilled by Mueller Exploration during the third quarter of 2011. The well was drilled to a depth of 11,265 feet, and three perspective pay zones were encountered. The well targeted a liquids rich gas formation. The well began sales in April 2012, and had initial flow back rates of approximately 200 BOE per day, which consisted of approximately 80 barrels of oil and 700 MCF of natural gas. The Company has an approximate 13.5% working interest and a 9.9% NRI in this well.

I would now like to provide a brief update on our Remington Village apartment complex located in Gillette, Wyoming. Mid-April, Colliers International commenced their marketing efforts for Remington. Thus far we have received a very encouraging response. We have a $10 million long term loan from a regional commercial bank on the asset, which will be satisfied in full upon the completion of the sale. Our goal remains to monetize this asset in order to maintain our focus on oil and gas and deploy the remaining capital into our active drilling programs. We expect to complete the sale of Remington this year.

Finally, before turning to the financial portion of the call, I would like to provide an update on the Mount Emmons project. As announced yesterday, we are in the process of developing a world-class molybdenum deposit in Gunnison County, Colorado, known as Mount Emmons project. As a result of several meetings held with interested local parties and numerous public officials over the course of the last year, we have determined that we will consider land exchange, or a similar process, that would allow the conveyance of the patented and unpatented mining claims associated with the Mount Emmons project to the United States In return for real property or other consideration.

The potential land exchange will proceed in parallel with US Energy's ongoing effort to secure permits for the development of its Mount Emmons molybdenum mine. In June 2011, US Energy met with the Town of Crested Butte and other interested parties to determine whether there were alternatives to full mine development. High Country Citizens Alliance and Red Lady Coalition, opponents of mine development, also participated in the process. After a series of conversations, US Energy agreed to explore the possibility of a land exchange. US Energy currently operates a water treatment plant that treats legacy water discharge from a prior mine on the Mount Emmons property.

The town parties are exploring the formation of a special district to take over operations of the water treatment plant. Assumption of the water treatment plant by a third party is a fundamental precondition to consummating a land exchange. Conversations with the Town of Crested Butte, other state and federal government officials, and local public interest organizations are ongoing, and US Energy has found substantial support for the proposed exchange. However, the potential exchange remains subject to legislative action, as well as a federal appraisal. US Energy intends to work closely with Colorado Senators Michael Bennett and Mark Udall in the near term to see legislation introduced in the US Senate.

The Board of US Energy has put several conditions on any consideration of an exchange as follows -- that the Company pursue the exchange contemporaneously with permitting efforts for full mine development; that the land exchange be substantially completed by year end 2012; that a third party entity take over the operation of the water treatment plant located at the Mount Emmons property; and that the Company receive significant value for its shareholders as part of the exchange.

During the course of 2011, US Energy conducted extensive due diligence concerning the potential land exchange. As part of that process, US Energy engaged a private consulting group to assist us in the land exchange diligent process. US Energy has also had a series of meetings in Washington DC to discuss legislative approaches to the land exchange. In addition, US Energy engaged a federally certified appraiser to provide the Company with a preliminary assessment of the value of the Mount Emmons properties using federal appraisal standards. The preliminary evaluation came in at a range of $50 million to $100 million in value today, utilizing various valuation approaches, similar to a commercial appraisal.

Final valuation of the Mount Emmons properties would be based on a federal appraisal, which would be completed at sometime in the future, based on legislative action. It should be noted that the federal appraisal may vary substantially from the preliminary appraisal commissioned by US Energy. Furthermore, it is possible that US Energy and the State of Wyoming could work together to exchange Mount Emmons and certain state-owned lands within the boundaries of Grand Teton National Park in Wyoming to the United States through joint exchange legislation. Such an exchange could also result in compensation of the State of Wyoming for its parcels inside Grand Teton National Park.

While a cooperating process between the State of Wyoming and US Energy remains in the early stages of assessment, both parties recognize that a joint exchange could provide broader benefits to all parties. We have dedicated considerable time over the last year investigating a land exchange as a possible method for us to create shareholder value for the Mount Emmons project in the nearer term. However, we will continue to work on the plan of operations for the Mount Emmons mine, which we plan to submit in the first quarter of 2013. This dual path approach provides us with time to continue to gauge the likelihood of a federal land exchange while preserving our rights to advance the project toward the permitting process and the resumption of our project marketing efforts at the beginning of 2013.

We appreciate the efforts of Colorado Senators Bennett and Udall, and look forward to continuing to work closely with them and the town parties as this endeavor progresses in the coming weeks and months. All parties understand that we have a window of opportunity to make something happen this year in regards to a federal exchange, and we will remain committed to this effort through the balance of 2012.

I would like to now turn the call over to Bryon Mowry, the Company's Principal Accounting Officer, to review the financial portion of the call.

Thank you, Keith. Operating revenues increase by $1.7 million to $8.3 million during the quarter ended March 31, 2012, as compared to revenues of $6.7 million during the quarter ended March 31, 2011. This is an increase of 24.8% when comparing the first quarter of 2012 to the first quarter of 2011. The operating revenue increase is primarily due to higher oil sales volumes and higher average commodity prices. Operating revenues for the first quarter of 2012 do reflect a decrease of $500,000 when compared to operating revenue realized during the fourth quarter of 2011. The decrease is primarily due to slightly lower production during the first quarter of 2012.

Production volumes for the three months ended March 31, 2012 averaged approximately 1231 BOE per day, up 9.6% from the first quarter of 2011, but a decrease of 4.6% in production volumes from the fourth quarter of 2011. Our average realized price of $74.40 BOE per day -- BOE was $8.33 BOE higher during the first quarter of 2012 then realized prices from the first quarter of 2011, but down approximately $0.15 BOE from realized prices in the fourth quarter of 2011.

Operating income from oil and gas operations was $1.8 million during the quarter ended March 31, 2012, as compared to a operating loss of $185,000 from oil and gas operations during the quarter ended March 31, 2011. The increase in earnings from oil and gas operations is primarily due to a $1.7 million increase in revenues due to higher production and commodity prices during 2012 when compared to 2011, and a net decrease of $1.2 million of lease operating expenses. The increase in oil and gas revenue and the decrease in operating expenses were partially offset by $856,000 higher depletion expense in 2012.

Direct operating income from oil and gas operations increased by approximately $2 million from the three months ended March 31, 2011, and increased by $60,000 when compared to the three months ended December 31, 2011. Our DD&A rate was approximately $32.50 per BOE for the first quarter of 2012, as compared to $27.55 BOE for the first quarter 2011 and $35.65 for the fourth quarter of 2011. A major reason for the increase in our DD&A rate when compared year-to-year is our increase in drilling and completion costs in the Williston Basin, the underlying proved reserve volumes and estimated cost to drill and complete proved undeveloped reserves. The drop in the DD&A rate from the fourth quarter in 2011 to the first quarter of 2012 was partially the result of a sale of a portion of our undeveloped acreage in December 2011 and January 2012.

Our lease operating expense per BOE, including work-over costs, was $25.82 for the three months ended March 31, 2012. This rate compares to $40.34 per BOE for the quarter ended March 31, 2011, and a rate of $24.23 for the quarter ended December 31, 2011. The main reason for the decrease in the LOE rate when comparing quarter-to-quarter is that during the quarter ended March 31, 2012 we had $718,000 of work-over expense, which was $1.8 million lower than the quarter ended March 31, 2011. When comparing the first quarter of 2012 to the fourth quarter of 2011, our LOE rate has increased $1.59 per BOE. The main factor in that increase is an increase of $431,000 in work-over expense during the first quarter of 2012 compared to the fourth quarter of 2011.

During the quarter ended March 31, 2012, we recorded a net loss of $381,000 after taxes, or $0.01 per share, as compared to a net loss after taxes of $2.2 million, or $0.08 per share for the quarter ended March 31, 2011. During the fourth quarter of 2011, we recorded a net loss of $2.8 million, or $0.07 per share. Our balance sheet remains strong at March 31, 2012, with working capital of $11.8 million, including cash and cash equivalents of $7.8 million. At March 31, 2012, we had total debt balance of $10.2 million, primarily related to our Remington Village project. On May 1, 2012 we borrowed $5 million from our senior credit facility, with the proceeds of the loan being used to fund our oil and gas programs.

In March 2012 our borrowing base under the senior credit facility increased from $28 million to $30 million, as a result of the redetermination based on that December 31, 2011 financial statements, production reports, and reserve reports. Currently we have drawn down $5 million on the line of credit. On April 20, 2012, Wells Fargo completed the purchase of BNP Paribas North American Reserve-Based Oil and Gas Lending Group. The personnel involved with our senior credit facility joined Wells Fargo as a result of the sales by BNP Paribas, and our borrowing base facility has now officially been transferred to Wells Fargo. I would now like to turn the call back over to Keith Larsen for the Q&A session.

Thank you, Bryon. That concludes our prepared remarks for today. Operator, would you begin the Q&A session now, please?

Yes, sir.

(Operator Instructions)

Noel Parks, Ladenburg Thalmann.

Just a couple of things -- thinking about the rest of the year in production, it sounds like there is some sort of clustering of when you expect essentially Bakken wells to come online, some or completions in June, July. Is it likely that third quarter production might be a little softer than second quarter, and then fourth quarter would be a good bit stronger? Or do you expect more of a steady increase throughout the year?

Well, Noel, as you know, we get the initial flow backs from the high interest wells, which we are not going to be participating in, in the third and fourth quarter. They will be lower interest wells. But we do anticipate participating in several additional wells, specifically with Zavanna. We do not give guidance on what the rest of the year is going to be, but I can see an increase, and we still expect to exit the year better than 1500 barrels a day.

Okay, great. And you mentioned in the Eagle Ford -- I think you said in Dimmit County -- you had a couple other formations that you are aware of other operators having a look at. Could you talk a little bit more about that?

Yes. Both the Purcell and the Buda, we have heard that they are trying some laterals in both formations and have had some encouraging results; and of course we do have both the Buda and the Purcell in both areas. So as well as watching the completions in the Eagle Ford by several operators, one specifically being Chesapeake, that has around 15 wells very near our Leona River prospect, we are watching for others, and their production rates and so forth; and we are hoping to play comes to us. Of course, both areas are held by production, and we would rather other people spend their money and bring the play to us, and we can learn as much as we can on all three of those formations, and possibly others.

Okay, and just one last thing in the financials -- on the unit basis, does the DD&A stabilize pretty much from here? Or just because you do have some pretty decent CapEx at this point in the year, or are we going to see some more fluctuation there as well?

Noel, what I am seeing up there is, starting to see a reduction in the price to drill and complete. We were seeing between 10 (technical difficulty) AFEs up from 6.25 when we started the program with Brigham back in '09. But after talking with Brigham and Zavanna, both, we are starting to see a lot more competition, specifically in the completion. So hopefully that DD&A rate is going to come down some, and I think probably that would be echoed by other operators as well.

Jeffrey Connolly, Sidoti & Company.

Just looking at your balance sheet, you have a lot of flexibility, and you lowered the CapEx guidance by about $5 million, and it seems that Eagle Ford might be kind of coming along a little bit slower than expected initially. So can you comment on what other opportunities you might have to deploy capital, and if you are thinking about anything else?

We are seriously looking at two additional projects, and the $5 million reduction was a result of our missing on the Cirque well that we drilled in California, that we had $5 million budgeted for there, and that is why we reduced it. If we do have a slowdown in the Eagle Ford, then we plan on pursuing another couple of deals that we are working on as we speak to deploy that capital in those areas.

Okay. And then, can you just add any additional comments on the land exchange, and if the land that you would be getting is prospective for oil and natural gas?

Specifically, right now what we are looking at is lands that are associated with coal here in Wyoming. Although we do not know what the final land will be, we are pursuing several. We have not been looking at federal oil and gas properties today, but various, either credits from the US government, bidding rights on anything, including oil and gas, or other ways to create value; and again, we think that we have broad-based support after the discussions that we have had, both in Washington DC, the State of Colorado, and the State of Wyoming.

Joel Musante, C.K. Cooper & Co

I just have a couple of questions -- in Dimmit County, I saw that Chesapeake reported some good well result in the Eagle Ford. Could you just comment on where those wells were with respect to your acreage, and if there is anything else that you can add to that?

Well, the one that I know of for sure, Joel, was the Lazy A Cotulla -- I believe it was number 3 -- and it is about 10 miles to the southeast of our prospect in Dimmit. The other well I was not able to find out where it was; but in all, total, around our area, I have identified over 30 wells that are either being drilled and completed or have been permitted that summer within a throwing distance of a rock of our property, and others one to three, four, five miles way. So we and our partner, Crimson, are regulating and monitoring the results of those wells; and I have said this before to you, Joel -- if the play comes to us and the money that is being spent, I see it much like the Bakken, where someone else spent their money to really figure it out and we are holding all of our acreage by production so that when the play comes to us and they really get the final recipe, then that is the time to get more aggressive at it.

Okay. I mean, the rates that they had were quite a bit higher than what you had on your properties. Is there a difference? And I am not sure if you know anything about their completions or anything, but if you compare the well completions at the two locations, is there any color you can give there?

Joel, as you and I have discussed, we believe that Chesapeake is using the same recipe that we used on the KM Ranch #1, which we are encouraging. We plugged back 10 of the perforations, and brought on a level of over 400 barrels. By interpolation, that would indicate that if we would not have had the water issue with the other stages, it would have came in at over 800 barrels, which I consider to be a good well.

The well that we did in Dimmit County, they backed off of the pressures and the proppants that they used in that well in hopes of not fracturing into possibly the Buda or the Austin Chalk, where they thought the water was coming from. And of course, those results were not as encouraging. So I believe that Chesapeake is using the same fracture stimulation as we did on the KM Ranch #1, and if they are, and are getting similar results that we had on the initial well, then that is probably the fracture-stimulation job that we will do on the KM Ranch #2.

Again, we are awaiting the results of those wells, and as much information as we can get before we go ahead and crack that second well.

Okay, and just one more -- on the Brigham -- or Statoil, now -- wells, the payback period was going to kick in at some point, and I was just trying to find out if that had kicked in already, or if that is still off in the future somewhere?

Well, just as a reminder to everybody -- in the Statoil deal, the deal that we made was, we got paid back on all six of the first wells, and then they back in for 30% of our interest in those well bores. Then the next four, as a group, when we get paid back and they back in for 30%; and then the last five, it is a well-by-well payback.

To date, we have three or four wells that have paid back, but because of a work-over that we did on the Brad Olson #1, our very first well in the program, they are still a good distance out -- I would say at least 12 to 24 months out -- before we will receive payback on those first six wells; and then it may be that the second four pay back before first six, because of that significant work-over on the Brad Olson #1. But we are getting paid back on the wells. It is not as quick as we had anticipated because of some of the work-overs and the jibs we have received, but they are paying back, and we anticipate over the next 12 months to have payback on maybe 8 to 10 of the wells in the program.

Kurt Caramanidis, Carl M. Hennig, Incorporated.

It seems like operationally things are going pretty well. Been an investor for a long period of time, yet the stock price is about half of book value, about the value of the molybdenum mine, with no value for the oil assets, which is pretty unbelievable. When I look around and see value-to-book, most of the companies doing what you are doing are selling at one to two times book.

I am wondering what the plan is -- what to do differently, investor relations-wise, some kind of a dividend, if you are making money on selling assets, management -- how do we explain this stock price with what looks to be operationally going well, but stock price is unbelievable down here?

Kurt, we are frustrated as you are. I have attended that IPAA meeting in New York last month, continue to go out and visit with investors, doing non-deal road shows, and we are frustrated like you. The only answer that I can give you, because I do get the same question, is that people see possibly the mine as a negative, which it is at this time. It is $1.5 million to $2 million a year expenditure. We thought that by pursuing this land exchange, that we could ease the minds of investors somewhat, as well as pursuing mine development.

The other thing is, of course, selling our real estate. There is not a lot of oil and gas companies out there. So we are trying to clean up the other assets and become a pure oil and gas play, and we have had 100% success in the Bakken. Every one of the wells that we have drilled have been successful. So again, we just keep bringing on the wells, increasing our production, increasing our reserves, and eventually, I believe, the market will catch up with us.

So no plan to change? It is just hard for me to explain how things are going so well; and, I mean, basically I thought we had $4 just in oil. So you are saying that the molybdenum mine and the apartment is so bad that it is taking the Company down way below what the oil and gas is?

I guess I would look for something new with investor relations, some kind of a dividend if you are making money on selling that land, or if we start making more on the oil and gas, doing a regular dividend, because what we are doing is not working at all. It is quite obvious, but that is what I would hope for in the future.

Again, we will note those suggestions, As far as paying a dividend, as you know, we did not make money in the quarter, we lost $0.01. Our next goal is to make money, and that is what we are working toward, as well as, as we mentioned, we have taken $5 million off of our line of credit. So we are not going to borrow money to either pay a dividend, or possibly buyback stock, but your comments are well noted, and certainly something new in investor relations, or a new approach, or those types of things -- we will certainly take those suggestions under evaluation and we will work toward that.

Yes, I appreciate that. Insiders, the lack of buying there, that might show some support. It appears as though it is one heck of a buy at this price, but I guess if there is not people in management stepping up to the plate, I do not know why anyone else would. I am just frustrated. I know operationally you are doing well, but thanks for taking the call.

Appreciate your frustration, and we are with you. Let me assure you that all the employees of the Company are working diligently to turn the balance sheet around, to get us to making money, and get the stock price where it needs to be.

Mike Jacobson, Oak Ridge Financial.

Gentlemen, I am a stockholder. I am also a licensed broker. My question specifically is to Mr. Keith Larsen. How do you justify using cashless exercise on your stock options, rather than buying the stock outright?

Well, that is a benefit that the Board of Directors gave me at the time; and at the time, when you do not have the money to do that and you are going to lose the options, then that is the only avenue that is available to us.

So you have no investable money out of this nice salary that you are receiving?

That is pretty much it.

Wow. Six figs.

There are no further questions at this time. Do you have any closing remarks?

Yes. I would like to end the call by stating that our drilling programs remain active this Spring and moving into the Summer months. We look forward to reporting our additional drilling and completion results that are currently underway. Under our Eagle Ford program with Crimson, we will continue to work with the operator to obtain additional production data, as well as information from active programs in the region of our acreage blocks to further delineate and understand the prospective area. If successful, this program could add significant development potential for the Company going forward.

I would also like to thank all parties involved in the collaborative efforts toward the advancement of the Mount Emmons project. We are pleased to be at a point to share our efforts of last year and the potential impact that this could have to our Company. Internally, our President, Mark Larsen, and our General Counsel, Steve Youngbauer, have done an outstanding job to advance the effort to this point. There is much work left to be done before we get to the end game, and I assure you that we will continue to work diligently with all parties with the goal of finding a winning solution for everyone.

I would like to thank our audience for joining us today, and we look forward to updating you on our next call. Goodbye, everybody.

This concludes today's conference call. You may now disconnect.