U.S. Energy Corp. (USEG) Q4 2007 Earnings Report, Transcript and Summary

Good afternoon and good morning and welcome to the U.S. Energy Corporation Fourth Quarter 2007 Earnings Conference Call. [Operator Instructions] At this time I would like to turn the conference over to Reggie Larsen, Assistant to the CEO.

Good morning ladies and gentlemen. I would like to thank you for participating in this conference call during which we look forward to providing you with an update on our various operating, strategic and investment initiatives. Yesterday we filed our 10-K for the year ended December 31, 2007. I would refer you to that document for the company’s most recent financial statement. Before we get into the main part of this call I would like to read to you the following forward looking statement. In this conference call officers of U.S. Energy Corp. will be making forward looking statements within the meaning of Section 21(e) of the Securities Exchange Act of 1934. All statements other than statements of historical fact are forward looking statements including without limitation the statements under management discussion and analysis of financial condition and results of operations. The disclosure is about possible exploration, development and operation of our mineral and gas properties and future business plans. Words like expect, anticipate, believe and similar words and expressions will indicate that forward looking statements are being made. These statements are subject to risks and uncertainties. Actual results may be very different than what is projected by the forward looking statements. The financial statements included in our SEC filings require management to make estimates and assumptions which affect the reported amounts of assets and liabilities and revenues and expenses. Actual results could differ from these estimates. You should consider the information provided by the officers in the context of disclosures provided in the Form 10-K for the year ended December 31, 2007. I would like to now turn the call over to Keith Larsen, CEO of U.S. Energy Corp.

Thank you everyone for dialing in and joining us on this call this morning. I look forward to giving everyone an update. Let me simply say that we are very pleased with our accomplishments during 2007 which was the most profitable year in our corporate history due primarily to the sale of our uranium assets to Uranium One Inc. for $111.7 million. This allowed U.S. Energy to report earnings of $56.4 million or $2.54 per share on our diluted basis for 2007. We have the potential to receive future payments from Uranium One of up to $40 million based upon the achievement of other milestones. On December 31, 2007, we had $72.3 million in cash and cash equivalents, working capital of $74.6 million, a current ratio of 10.2 to 1. An accumulated surplus of $19.1 million, shareholders equity of $115.1 million and debt of $5.7 million the majority of which is associated with our construction loan in our real estate sector. In addition to our outstanding liquidity position and the net gain for the year ended December 31, 2007, I would also like to highlight some of our accomplishments during the past year. As mentioned earlier the sale of our uranium assets resulted in a net gain of $111 million which included the receipt of 6.6 million shares of Uranium One common stock and $14 million in the form of cash payments and the release of cash bonds held for reclamation obligations on the properties. We sold all of the shares of Uranium One received for the sale of our uranium properties for $90 million. We also sold other marketable securities primarily shares of Uranium Power Corp for $1.5 million. Separately we sold the Ticaboo, Utah Townsite to Uranium One for $2.7 million for which the company received $2.7 million and recorded a net profit of $472,000. We recorded $2.8 million in interest income from cash investments. We finalized the exploration development and mine operating agreement with Kobex Resources Limited for the Lucky Jack Molybdenum Property in Colorado. At December 31, 2007, Kobex had expended a total of $7.7 million on the property for initial acquisition payments to the company operation, engineering and permitting work. We acquired the minority shareholder interest in Crested Corp. by issuing approximately 2.9 million shares of the company’s common stock on a one for two share basis. We liquidated and dissolved all subsidiary companies other than Sutter Gold. We paid a $0.10 per share dividend to all shareholders of record on July 6, 2007. We purchased 228,000 shares of the company’s common stock under the terms of the stock buy back plan at an average price per share of $4.59 per share. We obtained an $18.5 million construction loan and initiated construction of the $26 million, 216 unit Mopec family housing complex in Gillette, Wyoming. We purchased a 20% working interest in prospective oil and gas properties in the Gulf coast area for $2.9 million. I believe everyone would have to agree that 2007 was a very busy and productive year. We look forward to another productive year in 2008. Let me now move on to a review of U.S. Energy’s current operations after which we will open the call to your questions. First, I am pleased to report that and our partner Kobex Resources continue to make progress towards filing of a plan of operations with the U.S. Core Service and ultimate development of world class molybdenum mine at the Lucky Jack project in west central Colorado. We have consultants working on geotechnical aspects of the plan of operation along with hydrological, rough mechanics, mine planning, facility site, transportation, socioeconomic factors and mineral evaluation. Last month the state of Colorado approved Kobex’s plan for an amended work program for delineation drilling at the mine deposit, including the construction of a new access strip that bypasses the old workings of the historic keystone mine. We had submitted this program to Gunnison country for its review and expect to complete the program by the middle of next year. We also recently announced that metallurgical tests from historical core and reject samples have concluded that we will not need to use cyanide in the mine process and that by removing pyrites from the ore we can produce thallenes that do not generate acid. These are important milestones for the project and are consistent with our commitment to developing a mine that minimizes its impact upon the environment. Yesterday we learned that sales tax revenues for Gunnison County, Colorado had declined for a fifth year in a row. We firmly believe that economic diversification is imperative in Gunnison County and we look forward to continuing to contribute to the local economy in Gunnison County in a very meaningful way. We’ve also been engaged locally and nationally in legislative efforts regarding hard rock mining. We attended several meeting with key senators and staffers in Washington D.C. relating to the mining reform legislation currently before congress. We are working closely with our industry associations to come up with a bill that has minimal impact on the Lucky Jack project. They key points that are being debated involve a new royalty on hard rock mining on public lands which would not affect our project due to the patents that have been issued. However, the elimination of patenting going forward is an issue that we support. As well as the funding of clean up at abandoned mines. These issues are also supported by the National Mining Association and the Northwest Mining Association. Our current schedule for the Lucky Jack project calls for the submission of a formal plan of operations to the U.S. Forest Service before the end of the third quarter 2008. I will keep you posted as we move towards the accomplishment of this important milestone. Moving on to our oil and gas activities, our partners now plan to drill up to three wells in the Gulf coast region beginning this summer. This is several months later than we originally anticipated due to further study, permitting and rig availability issues. We remain excited about our 20% working interest and look forward to the spudding of this first well. Today we have invested approximately $3 million in the project and expect to spend an additional $4.5 million in drilling later this year. If the initial drilling program is successful it could expand to include a number of additional wells for this program over the next several years. In order to pursue other opportunities within time horizons that are shorter than our moly projects we are evaluating additional oil and gas ventures with successful and motivated partners that have the resources to explore and develop properties with above average potential. In our quest to identify new ways to enhance shareholder value we continue to review mineral prospects. To date this year we have found nothing meaningful to pursue beyond the initial due diligence stage. Rather or primary focus will remain to be the advancement of our world class mine project with Kobex. However, with the recent tightening of credit on a global scale we are beginning to see a greater number of opportunities that are available on reasonable terms. The appears to be particularly evident in the uranium sector where company valuations and stock prices has been under pressure lately. We will continue to seek investment opportunities in the mineral sector and our focus will remain in North America. We are also looking at opportunities in alternative energy including wind and solar power. While we have yet to identify an opportunity that adequately rewards our shareholders while generating environmentally clean alternative energy a number of projects are currently being evaluated. Regarding our Sutter Gold subsidiary, management continues to look for joint venture partner or other possible opportunities that can enhance the value of this advanced stage Sutter Gold mine. As I have discussed before, and based on the long lead times to permit mineral operations U.S. Energy has begun to devote a portion of its capital to recurring revenue opportunities in real estate. Our immediate area of focus is intermountain west where high commodity prices have increased demand for workers in the mining and energy industries. We see this trend continuing, I’m delighted to report that our Remmington Village Apartment Complex in Gillette, Wyoming is now approximately 60% complete. Residents have already committed to 172 of the 216 units and 48 units or two of the nine buildings are already occupied. The City of Gillette has provided us with occupancy permits as the buildings are completed, because of the extreme housing shortage in the area. Our Gillette project is ahead of schedule and on budget and we look forward to cash flow that it will begin to generate in the coming months. At full occupancy with a 7% vacancy rate our cash flow after debt payments are projected to be over $500,000 per year. Meanwhile we are pursuing real estate opportunities we continue to seek out sustained growth areas of the intermountain west are being impacted by energy development. We look to establish recurring revenues and cash flow during the years leading up to receipt of our permits to align Mt. Emmons. Earlier this week Wyoming reported that it had reached a record level of low unemployment and are also boasted the second strongest economy in the nation. Despite the national check backs and sub-prime mortgage failures, Wyoming economy remains robust due to minerals and energy development. Finally, I know that many of our shareholders are frustrated by the recent price performance of USEG shares which are currently trading at only a modest premium the amount of cash on our balance sheet. In order to expand an interest in the company we have approved a more active investor relations program for 2008. We have already attended or participated in mining industry shows in Vancouver and Toronto and investor road shows are scheduled for New York, Chicago, Dallas, Denver, London, and Germany in the coming months. Our main focus remains the advancement of our world class modeling project and in the mean time we look to advance growth in equity investments as highlighted during our discussion today. In closing I would like to again thank all of you for your participation in this conference call and we would now like to open the floor to your questions.

[Operator Instructions] Our first question comes from [Michael Shafranski] from Onyx Capital Management. [Michael Shafranski] - Onyx Capital Management: A couple questions on your balance sheet which I’m not really understanding completely. First, the undeveloped mining claims, you talk about a few of the mining claims you have in California that’s $21 million, is that actually a cash path that you made this year.

I’ve got Scott Lorimer our CFO and VP of Finance and I’ll direct the question to him. I think he can give you clarification there.

What happened there was when we merged with Crested Corp. we issued the shares all of the assets were already on the balance sheet of U.S. Energy on a consolidated basis with Crested. When we issued the shares the actual value of the shares plus the tax affected portion of that transaction went on the balance sheet as an addition to undeveloped mining claims representing the minority interest shareholders of Cresteds ownership of Mt. Emmons. This is, of course, subject to PHAS 141 which we’ve complied with but it is not a cash addition it is the issuance of the 2.8 million shares of U.S. Energy for the minority interest in Crested plus the affected tax.

I think it’s fair to say, Scott, that’s nothing to do with the Sutter Gold.

There is about $800,000 in there of Sutter Gold which is an historical balance that has come forward from the Sutter Gold property on a consolidated basis. The majority of that $21.8 million that you see on the balance sheet is the purchase of the minority interest of the credit to shareholders of Lucky Jack.

Does that give you some clarification? [Michael Shafranski] - Onyx Capital Management: Yes, it does. Another question was on the undeveloped and oil and gas properties up $2.9 million. I did notice that you actually spent that. Are those proved reserves or are you just sort of looking over there.

No, it’s not proved reserves this is exploration until we drill. That’s our investment in the oil and gas prospect on the Gulf coast.

Our next question comes from Sandy Wyman from Gilford Securities. Sandy Wyman – Gilford Securities: I have two questions as well. Number one, could you go a little bit further in talking about Sutter Gold and where you stand on that? I know you’ve been looking for a joint venture and/or try to sell is or whatever and have indicated that you’d give us some kind of a resource update drilling program wise and so forth. If you do a lot of investigative work and find some of that information on their website or up on the Toronto Exchange but we don’t seem to ever get any news about it down here. Could you go into that a little bit further?

We are somewhat limited because of the ongoing discussions and our intention to liquidate or sell our share or bring in a joint venture partner and I’m not at liberty to explain or give details on where we are at there, but I am very encouraged. The U.S. laws and the FCC does not allow us to expand as crazy as Sutter can because of their Canadian affiliation. In general we are very encouraged with the price of gold. We have a good amount of interest in coming in and getting the mining to operation and either taking our position or participating with us and funding the development of mining. I hesitate to go further because of disclosure issues and again I’ll direct you to Sutter’s site. I hear your frustration somewhat and possibly others because of our inability to mirror or focus on this asset. With gold nearing $1,000 an ounce with the resources that have been identified in this project I’m very confident that something is going to happen in the very near term that’s going to advance this project. Sandy Wyman – Gilford Securities: My other one relates to the buy back. With the stock call it a point lower than your average cost of what you did and really only spending $1 million over the course of a six month period and I think on the last conference call you had indicated that had you used up the $5 million you might even consider increasing the buy back. Yet, we only spent $1 million over the course of six months. Especially with the stock down are you trying to save the money or do you want to support the stock?

We can’t really define it as supporting the stock. There are certain rules and regulations and I’m sure everyone is aware of how and when and various intricacies of buying our stock and so I’m limited to what I can tell you about our buy back program. We have been out there, we have been not aggressive because you can’t be aggressive but we do see a continuation and it’s more in the neighborhood of $1.7 million which is a considerable amount of money. One million as of the end of the year. We do continue and I personally continue to support the buy back as far as after this program is over would I also support additional buy back of our shares, I would. Of course that an issues that would be brought up before the Board of Directors and I can tell you fundamentally that cash is king. Our Board is very cognizant that cash is now and will continue into the future as the economic issues that are facing the nation today become more severe or possibly a recession and so forth. We believe that a strong balance sheet will put us in a position to where we can take advantage through other companies that don’t have the financial strength that we do. In general, to answer your question, I support continuing the buy back program and if in fact we go into a second phase and our shares continue to be under valued in my opinion that I would support an expansion of that buy back as well.

Our next question comes from Doug Dyer from Discovery Advisors. Doug Dyer – Discovery Advisors: Right now the stock is trading at cash and we’re not getting any credit for the moly and what I’d like to know is would you and Kobex consider a feature off take agreement with a large steel producer similar to what General Moly did with Arcelor or any other type of JV with a major steel producer or possibly a large mining company that could give us some recognition for the moly asset?

The answer to that is yes. Part of the reason I’m going to be going to Germany next month is to have some discussions about the possibility of that very thing. Of course our goal right now because of the funding on Kobex side is to not dilute our shareholders and would like to keep as much of it as we can. There has been interest showed in the industry to come in because of the nature of the deposit and size of the deposit that I think there are a lot of opportunities but we will be exploring it throughout 2008 and yes we would welcome a large partner that came in an paid the value that we believe that its worth to become involved with us. Those are the things that we are exploring and we certainly anticipate that with that type of participation that it will reflect the true value of that for our shareholders.

Our next question comes from George Gasper from R.W. Baird. George Gasper – R.W. Baird: The first question is on the oil and gas exploration side. It seems like this is getting slower up take, it was pretty well organized to go ahead in January or early February there was plenty of planning it sounded like going on before that. I heard what you said about this specifically it seems like there are some extenuating circumstances here that has caused this situation to be really much slower to evolve than what was originally anticipated. How can you accelerate this?

In regard to the oil and gas the explanation we received from our partners is that they continue to evaluate and be certain and for sure that the targets we are going after and the expenditure of this large amount of money is put in the right place. We did and I have reported that I thought we were going to spud our first well prior to this time. I think with the extra look at what we are doing is going to pay off for the shareholders. I also believe, although there are rigs available the rigs that we are using are people that have worked for our partners in the past but are familiar with these type of structures that we are going after, its rig availability now. In that sense you can go out and find a rig but to go out and find experienced rigs that have the capability that we are looking for is not as easy as it may sound. I still am very excited about the potential that we have in these prospects that the quality of the people we are working with and unfortunately as disclosed earlier because of confidentiality and the nature of the competition in the area I can’t disclose and I would really like to. I think that once we do get the performance of whatever it is that we hit either dry hole which is exploration we get production that again will reflect the shareholder value that we’ve selected to go into here. I hope that gives you a flavor of where we are at. I believe that the first well is proposed to be started around the first of summer. George Gasper – R.W. Baird: Will these exploration agreement that you have in connection with this is some type of consulting arrangement is it and they are going to gain access to part of your interest at the conclusion of the drilling or before the drilling?

What happened is Wyles Exploration brought this prospect to us, Brian Wyles is the consultant to the company, he’s got 25 years experience in the industry specifically in the Gulf coast and other areas. The structure of the deal is we get all of our money back plus a 5% interest and at that time he will earn back up to a 20% of our 20% working interest. We get our money back first and then he has a back end promotional interest for bringing the prospect to us. George Gasper – R.W. Baird: Are you saying that you have a 5% interest in the wells?

We will have a 20% and then he will have up to a 4% working interest after we get our money back. George Gasper – R.W. Baird: An additional question on Kobex, you mentioned that the expenditure was $7.7 million through December and I believe that they set up a budget to spend $14 million by April 30 this year. Can you speak to how that’s coming along and what happens beyond April 30 as far as the additional expenditure load is there a budget set to go forward beyond April or what’s the progression on this beyond the current agreement?

Those are forward looking and until they approve their budget after April I can’t really expand on it. Except for to say we are very encouraged with our results. We knew that there were going to be some challenges in permitting as there are in any project in the United States today. We feel very confident in Kobex, their management and that going forward. You might recall that the expenditures required under our contract is only some $4 million and they’ve doubled that so far. I think that expresses their desire and their commitment to the project. We look forward to delineation drilling under the [bre-actuals] and the Canadian rules, the U.S. Rules. We need to go in and confirm what historical numbers that Amex had in there. Kobex’s desire to do a 43101 to have actual number of how many pounds are in the ground and also the evaluation of financing the project and filing our plan of operation. I expanded a little bit on that I first reported that we would follow our plan of operations before the end of ’07. Now, as you can hear we are looking at before the end of ’08. We don’t want to get too far ahead of ourselves. The drilling program and further geotechnical and lock mechanic work and various things that are required will help advance that plan of operations so that it will go more smoothly with the forest service. To answer your question specifically about Kobex, about their intentions, you will be hearing more as we proceed and the management committee approves the future budgets. I’m sorry I can’t give you more direction at this time but that’s where we are today.

Our next question comes from [Phil Larseren] from LaSalle. [Phil Larseren] – LaSalle: I understand where you are heading. A question I have for you, we all know the resource thing and Wyoming is doing very well. Is there anything going on in terms of moving forward with our idiocy of lack, you and I already talked about this, National Energy Policy in terms or uranium? Are we ever going to see anything out of n a Shootering?

Uranium One has been fairly quiet in their formal presentation disclosures. I think they are under some pressure to perform on the assets they bought. We all know that Uranium One shares are trading around $5.00. We were fortunate to get out our 6.5 million shares at over $13 per share and liquidate that. [Phil Larseren] – LaSalle: Yes, sir that was a great move. I appreciate you for doing that.

We do too. We are not a stock speculator; we got a double on it. We made the deal for $50 million and their stock was trading for $8.00 and we got a double on it. Again I think you are going to see more restructuring. They are under a lot of pressure to perform. Although I believe their focus is going to be on Dominion in South Africa, on Honeymoon in Australia and on their Kazakhstan enterprises. [Phil Larseren] – LaSalle: I think what I’m asking, are we seeing any kind of intelligent political movement out there to understand seeing as we import 60% of our energy that we should get on the stick on this kind of stuff or is it just kind of dead in the water?

It depends on whether you are talking, Utah right now is progressive if you are following the news Arizona the pipes on the north area of the rim are getting under continued environmental pressure, challenges and so forth. [Phil Larseren] – LaSalle: Environmental pressure from what?

Exactly. [Phil Larseren] – LaSalle: What is the environmental pressure from, where is the environmental pressure?

Too close to the Grand Canyon. [Phil Larseren] – LaSalle: Are we going to worry about dinosaurs as we all starve to death? I love the Grand Canyon, I’ve got nothing against the Grand Canyon but you are really being held up out there because of all this stuff? I’m kind of confused. How does this become an environmental issue with this whole thing about what we are talking about? How is this an environmental issue?

It’s more of a global issue where these environmental groups are out there to obstruct any type of extractive industry. Not only mining but forest, the only one they don’t seem to be attacking is renewable energy which is part of our interest, wind and solar power. It’s a political movement, its what I would call do gooders out there and we support good, sound environmental. [Phil Larseren] – LaSalle: Of course you do, you always have.

With that said, you still have people out there that are nimbi’s, not here not now not ever. [Phil Larseren] – LaSalle: Not in my back yard. You’ll recall when we were out in Beaver Creek, Colorado; together we were being picketed by the people that didn’t like what happening to the petroglyphs. Somehow the drilling would destroy a great piece of art that these people have been dead for 10,000 years. Carve it out and put it in a museum. What is our problem here?

You and I are on the same page. What made our country strong is our reliance on our natural resources. We need to get that message out in a responsible and respectable way to go and extract these and to give us back our position and national prominence where we are the world leader and we don’t have the nimbi syndrome that it can be done right; it can be done environmentally friendly. [Phil Larseren] – LaSalle: What basically you are saying is Nimbi is still an enormous problem and it’s holding you up.

That’s correct. [Phil Larseren] – LaSalle: That’s the core of my question here. I know what you are doing, I realize that it’s been an impatient experience for a number of my clients but you know I still have a huge position in your stock.

I appreciate that. [Phil Larseren] – LaSalle: The thing is, is how do we get this rationalized? My question to you here on that subject, we are actually, I worked in a drop forging plant to get money to go back to college and I really thought I’d never be alive to say that we are exporting steel now and we are doing it. Does this increase the desire of the molybdenum expansion and who can we get involved in this?

I believe that it does and again we’ve had various shows of interest from various industry participants. I’d like to keep as much as I can for the shareholders that we have. We don’t want to dilute, those are the things we are out looking at and investigating to see who would be the right partner. You mentioned steel, steel is a driver. China now is a huge production for steel, they are still Nat exporters of molybdenum but those things change as well as Henderson only has about 10 or 15 years left. Climax is going to start in 2010; Freeport has made the decision to go forward there. The grade is no where near the grade of our deposit. We feel all of these, one of the strongest deposits we have, one of the strongest in the world. It’s all just a matter of permitting which as we’ve talked about before that’s a challenge anywhere. We are up to the challenge; we are going to go out in a responsible way, respectful way to the environmental groups to show them that we can do this right. In fact, I’ve invited them to come and make it not only a show piece for the United States but a show piece for the entire world of how it can be done right. [Phil Larseren] – LaSalle: That’s another part of what you all already covered here. How much of a Nimbi experience do we have is molybdenum? Why would anybody care?

It’s the same thing that we talked about anybody in a mining, these environmental groups are, I suppose I characterize it as fear mongers where they are trying to characterize modern mining techniques with the 1900’s where some of the things that were put into rivers that they were not cleaned up because we didn’t have the environmental concerns that we have today. They are portraying any modern mine as they are portrayed in the 1900’s and it’s just not true. Our job, as an industry, and as a company is to educate these people and the locals to say it can be done right, it can be done environmentally sensitive with the win win for everybody involved including the locals, the state and the national government.

Our next question comes from Ken Cramer from Smith Barney. Ken Cramer – Smith Barney: My question has already been answered.

Our next question comes from George Whiteside from SWS Financial Services. George Whiteside – SWS Financial Services: I’ve got a couple of questions, one you have remarked on the book value for the price of the stock relative to the cash position. What is the current inclusive book value of the stock?

It depends on how you want to calculate that. If you want to look at shareholders equity we have $115 million in shareholder equity and we’ve got 23 million shares out, right around $4.75 or $5.00. George Whiteside – SWS Financial Services: I think it’s helpful for everybody to be aware of that. In other words there is quite a bit of value there and that value in terms of assets other than cash are very likely, on a long term basis, to be pretty dramatically under stated.

I think that you are correct there. That’s our job and we are frustrated as you are and that’s why we are out telling the story we see the huge value in the molybdenum project. In the meantime, we are trying to develop cash flow in some more less riskier shorter time frame areas and it’s a matter of getting the word out there. That’s why I was in Vancouver, I’ve been in Toronto, we plan on being in Chicago, New York and so forth to get the word out there and get people to believe in our story. I’m pleased that some of the institutions have increased their ownership in our company. [Correandy] is up over two million shares, Spot Asset Management which is a big believer and molybdenum is up around 1.8 million. Dynamic Advisors peaked six. Kleinholds Capital all are long term holders and believers in the structure of the company obviously or they wouldn’t have a strong position. As we move forward I expect that we will get more interest. As we tell our story and get the word out that we will not be classified with the other mineral companies, I can tell you this, and if you look at some of the other mineral site companies they are similar to our situation where their valuations are very low. They road the way last year of high valuations and their stock prices specifically in uranium and now they are trading at more reasonable numbers and what we see is an opportunity. In talking to a couple of opportunities now in the uranium sector which we are very familiar with and I think that shareholders are going to be pleased if we move forward with some of these opportunities which is something that we’ve had great success with in the past. George Whiteside – SWS Financial Services: My second question deals with the uranium situation and Uranium One. If I understood what you had commented on, obviously they’ve encountered a number of challenges, shall we say including change of management. If I understood what you had remarked on evidently there are challenges in other areas are such that its unlikely that they are going to move forward aggressively with our project and therefore we don’t expect royalties to flow from that obligation any time in the near future. Is that a proper interpretation?

If you go back and look at their historical statements they’ve indicated that they plan on having the Shootering mill under production by 2010, 2011. The royalties that you refer to come off of the income stream of up to $12.5 million, $7.5 million when they ship the first ore. My understanding is they are drilling and developing several of the projects that we sold to them. We are not being aggressive saying we are going to receive any money this year but I think it’s reasonable to expect that 2010, 2011 timeframe to begin to receive monies from those contracts, up to $40 million. There’s no reason to believe after buying these U.S. assets and the Shootering mill being one of only four licensed mills in the U.S. that that’s unreasonable to anticipate. Being conservative the 2010, 2011 time frame for those cash flows to start coming in I believe are reasonable. George Whiteside – SWS Financial Services: In the meantime is there an opportunity somewhere in this total situation where with a more reasonable prices and values that perhaps there is a way for you to capitalize on that situation whereby you could increase your potential cash flow in the future?

There is, we are looking at various uranium opportunities. I can give you a general statement that a year ago I looked at some opportunities where people were thinking that they were going to get $10 or $15 a pound in the ground I identified. With the recent down turn in the prices specifically of these Canadian juniors that have picked up historical resources they’ve become much more reasonable. We have a great relationship with Dennison which owns the only operating mill in the U.S. as well as Codder Corp, Real Tempo here. I think that everybody is aware of it Real Tempos stated goal is to sell the Sweetwater Mill and the Green Mountain project here in Wyoming which we have a 4% net profits royalty. We are encouraged by those. I’ve heard that there is up to 15 companies that are vying for that property. That will open up certainly some of the opportunities at Sheet Mountain here of which we may receive that initial $7.5 million payment if they get that mill up and running. There are opportunities out there. The trick and the key is going out and identifying the ones that are real, that have the good grade, that have the vicinity to a mill all of which we are very familiar with and we’ve been in the industry a long time and its just finding that jewel in the rough.

Our next question comes from Al Shans from MidSouth Capital. Al Shans – MidSouth Capital: I have one brief comment. I can appreciate that you guys have really done a very good job in growing and in protecting shareholder value. The sale of the uranium assets and corresponding sale of stock. That was really good work. Don’t take this next question the wrong way. There’s been some comment and some criticism about the compensation plan for senior management. Could you talk a little bit about that and the justification for it and the levels and what you see going forward in that respect?

That’s a fair question. The total value we received from the sale of the Uranium One we paid out a bonus to senior management and every employee of this company less than 5% of the total value there. This was a difficult time and we’ve been through difficult times in this company. There is also a lot of competition in this sector for the experience that our management team and our personnel have. We felt it appropriate to reward those people that helped us build a value for our shareholders as well as for the company. As far as going forward basis, we paid for the deal, if there is another deal of that type that will be evaluated by the Board of Directors. When and if appropriate then additional compensation will be paid. A lot of people look at this and don’t realize the blood, sweat and tears that went in over the past 15 years of keeping these assets in place which at one time were a huge liability to our shareholders and that we came to appreciate and realize a huge profit. I think it was fair, I’ll defend it, and I’m the one that takes the heat for it if that’s what you would characterize it as. I think it was certainly warranted and we have a good work force here and I see good things coming in the future not only because of that but because of the expert nature of the personnel that we have here at U.S. Energy. Al Shans – MidSouth Capital: Generally in most corporations you don’t have a situation where you get a base salary and then if you get a deal you get a piece of the deal. I can understand the special circumstances that existed. Going forward I guess I have a little bit of an issue with that.

Let me tell you what we are working on at Board of Directors at this time and that is to standardize our performance based bonus or incentive package. In the near future we will disclose what that package is. Then the shareholders will see. There will be various parameters under that and I agree with you and everyone else on the phone, its performance based. If the performance is there then all of our shareholders can see what and how it will be based as well as the people here. If they perform in a standard that increases shareholder value that increases the visibility in the going forward concern of the company then there will be something there. You won’t see the type of compensation that you’ve seen in the past although warranted it will be much more, because of Sarbanes Oxley and other things it will be much more transparent. I appreciate your concerns in that regard. Al Shans – MidSouth Capital: Moving to the oil and gas investments, how would you characterize the realistic risk, I think you said you put about $3.7 million in risk there, as been invested so far, how would you characterize it? I’m pretty familiar with oil and gas business.

I think I understand the question. To reiterate our last update I did a couple of month’s back we look at three areas of risk. The high risk is the mining because of what Phil had mentioned and others on the call there are environmental concerns and so forth and it’s a concern. Its high risk because it takes a long time to get permitted. The moly is our higher risk venture. We see the oil and gas as medium risk, it certainly isn’t development drilling, its exploration which you can hit a dry well, but with the new technology and the partners that we’ve gained access with I’m comfortable that we have a medium risk profile. The company we are with has had 70% to 80% success rate on exploration which is exemplary, I’m sure you’ll agree. We look forward to spudding that first well. The lower risk and part of the reason we’re into there is the real estate. We can build it, we can get permits, and we can see the occupancy rates. Wyoming again being a growth state but its not spectacular 5,000% returns its just cash flow and growth. That’s how I would characterize our oil and gas. Al Shans – MidSouth Capital: You guys have done a great job of putting this company in a cash rich situation and an otherwise cash poor world. That’s good work. Thank you for your efforts.

Thanks, we agree, we’ve had some pressure to get out there and put this money to work. We are very cautious. Our Board is very conservative; we are looking for returns that are very low risk and medium risk and with the right partners, with the right people. I assure you we are out there talking to several entities getting involved in the minerals industry, zinc, silver, uranium and I think with the right opportunity is going to come sooner than later. We are not in a big hurry to do a deal; it has to make sense for our shareholders.

Our next question comes from George Gasper from R.W. Baird. George Gasper – R.W. Baird: My question is on the real estate side. Looking at the 10-K you have an arrangement, apparently with Basin Electric on leasing the apartments that you are completing. What percentage of the initial nine buildings comes under this particular indicated arrangement?

That’s interesting, George, they actually have about 20 units currently that they don’t even have people in. I’m sure over the next six months they are going to gear up. Over a five year period, at their peak in year three they will have half of our units. George Gasper – R.W. Baird: So 50% is designated on this?

That’s correct and it’s pretty much a guarantee if you are in Gillette you can see that they’ve broken ground. This is about a $2 billion plant; it’s a mine, coal fire electrical generation facility. They’ve got all the permits and there’s no place to live in Gillette. We are very pleased that that’s in place. If it wasn’t the response we’ve had from people in the area we are pre-leasing these units before they are even completed. George Gasper – R.W. Baird: You apparently have acquired nearly 14 acres in Riverton across from your headquarters with the implication of maybe trying to develop that in some fashion. Can you speak to that at all?

As we mentioned we are looking at various other real estate. I think the opportunities in Riverton are much less than they are in Gillette. We are very cautiously and conservatively taking a look at it. We acquired the land also for protection around our office; it is adjacent to our office building here. We see it as a longer term hold. A lot of work to be done on it before we pull the trigger. Riverton is not Gillette, although there is a lot of growth opportunity here in the oil and gas industry and the town is growing. We don’t see the rent at the current time that supports that type of construction we have in Gillette. George Gasper – R.W. Baird: On aircraft situation, you’ve got an existing aircraft up for sale with the implication that it was going to be sold by the second quarter. Do you have a new aircraft in the company that you are using?

We do have an aircraft. We’ve had an aircraft since our inception. We have a remote location. It’s my opinion that the aircraft is provided safety and security for the company because to transport into other remote areas so that we can evaluate additional opportunities. The other aircraft is for sale and I’m still confident we will have that liquidated before the end of next quarter.

We have an additional question, this comes from [Karen Zvorak] from KLP Capital Management. [Karen Zvorak] - KLP Capital Management: I came very late to the call so I apologize if this has been asked already. Can you give me the employee count and also the amount of cash you are spending quarterly?

Currently we have 20 employees and our cash burden is around $1.5 million per quarter.

We have a follow up question from George Gasper from R.W. Baird. George Gasper – R.W. Baird: On the stock repurchase that you’ve spoken to, we are down about 20% from the average price of what you paid for the first 228,000 shares. It would seem realistic, and I know you’ve got certain parameters to operate under. It would seem that the company should be aggressively seeking to participate at this price level relative to what was purchased before.

I have to be very cautious because of the rules and regulations surrounding the buy back of your own stock. I can tell you that I support the purchase of the stock that were under valued and that I’m a strong believer. That’s up to the Board of Directors but I think generally I support the Board that it’s a good move. Are we going to go in and can we get the price up, we cannot. I’m sure everyone is probably familiar with a certain restriction that surround the buy back of your own stock, 228,000 shares may not seem like a lot of shares to a lot of people here but with the volumes we trade at I think its reasonable and again I support the buy back. George Gasper – R.W. Baird: Do you still owe taxes on the original sale from last year?

All of our taxes have been paid and are current. The cash numbers that we put out there are net of taxes. George Gasper – R.W. Baird: Net of taxes for the year end?

That’s correct.

At this time I would like to turn the call back over to Keith Larsen, CEO for closing remarks.

Ladies and gentlemen on the call I want to again thank you for participating. I want to reiterate that my line is always open if you want to call me and have a personal conversation about your company, about the direction we are going, about any aspect of the financial statements or the state of growth that we stated here today or that we have disclosed in our 10-K. I appreciate all of the shareholders support. I understand some of the frustration with the share price but I think if you look at some of the other participants in this sector you’ll see a similarity. I think in the longer term you are going to see more value and the value is going to come by performance of management and other excellent personnel that we have working for us. I’m proud to say that our employees are dedicated, that we all have the same stated goal in mind and that’s to build this into a very large company that creates value for our shareholders. Thank you very kindly, my line remains open and I look forward to another update in the next quarter.

[Operator Instructions] This concludes today’s conference call you may now disconnect your lines.