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December 2, 2009
United States Oil and Gas Corp.
Symbol USO5MPDBSNF%5DCFDDhil22ureaiaauoas veatF--riiimcralallWWivrrlayyykdto eeibC l eoeee(HLVnsa eYot'nuee tot0o Oriee Cd kksgOw P0lafou ua hCfLHY0rur ftpim Pil co sPi tiScoEsiesrgitwterehhesanltiahid ceanaanc dl e i nrretd( z eed TaihsniTtn)oigM ogl (dn )'e0 (r0Ms0 $o s)nh Rareecso)r d 2,5913090$11928901$$$$$1-,30,,0.0,0036900.D01......N90170028000e%.AG172781647233c Cohen Short Term Price Target Index $0.08 Cohen Long Term Price Target Index $0.15
INVESTMENT THESIS & RECOMMENDATION
United States Oil and Gas Corp. is a growing company in the oil and gas service segment. Their growth strategy
involves acquisition, integration and collaboration of already operating and profitable small to mid-sized oil and gas
services companies. The Company intends to leverage the established customer base and market share, strong
revenue, and proven management of the acquired companies to gain traction in the O&G service sector. The
Company has acquired one company, Turnbull Oil. USOG is in the process of making its second acquisition and
expects to close by the end of the year.
USOG also develops innovative proprietary oil and gas exploration and extraction technologies enabling higher
production efficiency at minimal environmental impact. USOG provides an excellent opportunity to invest in the oil
and gas sector with reduced risk from volatile oil and gas prices or exploration.
Our growth estimates assume the Company successfully raises approximately $10.0 million of funds between 2009
and 2010 and another $10-$15 over the rest of the forecast period. We believe USOG’s acquisition strategy has the
potential to rapidly drive top line sales for the intermediate term. We project a short term price target of $0.08 while
our long term price target is $0.15 per share. At $0.024 per share, we recommend USOG as a BUY for long-term,
non-risk averse investors.
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EXECUTIVE SUMMARY
? United State s Oil and Gas Corp. is a holding company in the oil and gas services sector. The Company
is engaged in the acquisition of profitable oil and gas drilling and service companies and also the
development of drilling technology.
? USOG’s proprietary technologies are intended to help increase oil and gas extraction and production
with the smallest environmental footprint. USOG has two patents pending for technologies including a
simple fiberoptic seismometer for rugged environments and an automated leveling system for portable
drilling rigs.
? The Company’s growth strategy focuses on rapid growth and increased market presence through
acquisition of existing businesses with existing customer base and a strong revenue stream. The
Company intends to leverage its proprietary prospecting system to identify and acquire companies
with historically profitable operations and strong balance sheets.
? USOG expects to capitalize on its expertise by providing financial and marketing opportunities to the
acquired firms. The Company also expects to gain from the cost and revenue synergies by optimizing
operations of the various acquired businesses.
? USOG has signed a letter of intent to acquire a private North Dakota-based provider of oil and gas
products that owns a bulk storage plant, a fleet of tanker trucks, and a retail outlet. This acquisition
should add considerable strength to USOG’s financials with projected 2009 revenues of $8 million.
? USOG is in the process of listing itself on the NASD over-the-counter (OTC) exchange and expects to
move to a more senior exchange in due course to provide investors with better trading environment.
? Oil and gas market fundamentals are turning attractive with demand recovery in most markets. Crude
oil prices are hovering around the $73 per barrel range and producers have begun ramping up drilling
activity in anticipation of better prices. The EIA’s International Energy Outlook 2009 projects the
price of light sweet crude oil in the United States to increase to $110 per barrel in 2015 and $130 per
barrel in 2030.
? Risks: Access to capital, integration of acquisitions, regulatory risks, and management’s execution of
its business plan.
Financials and Valuations:
? USOG is currently profitable and has been able to show continued growth even in a downward
economy. Wholly owned USOG subsidiary Turnbull Oil generated $16.5 million in revenues and
$447,000 in EBITDA in fiscal 2008.
? USOG just announced new sales contracts during the third quarter to add an estimated $1.2 million in
annual revenue. Wholly owned subsidiary Turnbull Oil has signed six new customers contracted to
purchase a combination of refined fuel and lubricants over the next twelve months.
? We expect robust revenue growth from $10.3 million in 2009 to $114.7 in 2013 representing a CAGR
of 82.4%. Our model assumes the Company raises capital through equity/debt of approximately $10.0
million between 2009 and 2010. We expect the Company to raise another $10 - $15 million over the
remaining forecast period as it pursues its growth strategy and acquires more companies.
? Operating margins are expected to increase from 24.3% in 2009 to 41.9% in 2013.
? We have valued the stock using our Discounted Cash flow (DCF) method to arrive at our long term
price target of $0.15, reflecting forward P/E multiples of 87.9x and 58.3x our estimated 2010 and 2011
EPS, respectively. Our short-term price target of $0.08 is based on price/earnings, price/book, and
Price/Capital employed ratios. We believe our valuation is conservative.
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BULL CASE
? The US Department of Energy projects world marketed energy consumption will increase 44%
by 2030. The world demand for energy in the near term is expected to move to the upward
within the next 12 to 24 months. Fossil fuels are expected to continue to be the largest source of
energy worldwide as most alternative energy sources are in nascent growth stages.
? Producers in the United States and across the globe have begun ramping up operations as oil and
gas prices are beginning to recover. The US rig count for October 2009 was 1,044, up 35 from
the 1,009 counted in September 2009 as per Baker Hughes. The worldwide rig count for October
2009 was 2,271, up 68 from the 2,203 counted in September 2009. Gas production from shales
has boomed with new drilling technology that makes it easier to extract gas from dense rock
formations. Natural gas is likely to experience a boom market for the demand for clean energy
fuels. The graph below depicts increased drilling for natural gas.
Source: Baker Hughes, Rig count based on Drilling activity
? USOG acquires established companies with significant revenue, proven track records and
experienced management reducing the risk of trial and error. The Company targets oil and gas
distributors and suppliers that are already well placed in the market with substantial operations
and are able to generate positive cash flows even during economic downturns. The Company
intends to capitalize on the already profitable businesses of its subsidiaries by streamlining
operations. The acquisition strategy will bring accretive revenues and stability to the business
model.
? Growing environmental awareness globally is mandating the development of ecological integrity
in the extraction of oil and gas. USOG is developing proprietary technologies to enable more
environmentally friendly oil and natural gas search, discovery and extraction. The Company
currently has two pending patent applications for eco-drilling and small footprint technologies.
The proprietary technology is expected to provide a significant competitive advantage once
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patented. USOG plans to leverage the technology to increase benefits from acquisitions through
optimization of operations. The Company can also license the technology for profit.
? USOG’s management team has extensive experience accelerating business growth in a variety of
industries. The Company also leverages the deep operational expertise of its subsidiaries. When
USOG makes an acquisition it keeps the company’s proven management team under contract for
a minimum of two years, capitalizing on its oil and gas experience, local knowledge of
competitors and operating climate, and loyal customer relationships.
? USOG is an established business with stable and sustainable base providing operating revenue,
geographical diversification and access to an expanded customer base.
BEAR CASE
? The current economic environment may pose difficulties for the Company in executing its
acquisition strategy. The worldwide credit squeeze has resulted in a tight financing situation and
has made raising funds difficult. The Company must continually have access to the capital
markets to raise funds for operations, and acquisitions.
? The Company’s growth strategy involves multiple acquisitions and integration of the same poses
a considerable risk. Acquisition growth also is fast paced and can be unstructured. The
management’s experience and expertise will play an important role in eliminating such potential
pitfalls.
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Unites States Oil & Gas Corporation
Business Model:
USOG’s has a unique business model that effectively leverages its managerial expertise and green
technology to capitalize on the reviving demand for oil and gas. The Company seeks to create value
through providing financing and operating expertise to already profitable firms in the sector.
The Company deploys its proprietary prospecting system to identify companies that fit its strategy. The
system incorporates successful middle-American companies that are not acquisition targets of large
conglomerates. These companies can be purchased with substantial equity positions. The system allows
for the review of 500 to 2000 companies a month and identifies, selects target companies for potential
acquisition. The business model taps into the established distribution channel and sales force of the
acquired companies and the operating expertise of the management to create profits and gain traction in
the market. The model expects cost and revenue synergies from the multiple acquisitions through
streamlined processes. This growth strategy will provide the Company volume and economies
associated with its large scale operations.
Ultimately, the Company intends to acquire or deploy proprietary technologies that will aid in the
exploration and extraction of oil and gas with minimal environmental impact. USOG may develop
advanced technologies platforms with low capital cost and low operating cost that can rapidly and
economically be deployed to the site.
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Subsidiaries:
USOG
USOG is a holding company and generates revenues through its subsidiaries. The Company currently
has one wholly owned subsidiary, Turnbull and its Kansas based subsidiary Basinger Propane. The
Company is in the process of acquiring a North-Dakota based regional provider of oil and gas products
including propane, diesel and gasoline.
Turnbull & Basinger Propane
Turnbull, founded in 1965, is a regional distributor of oil and gas products including propane, diesel,
gasoline, and lubricants. The Company owns two bulk storage plants, a fleet of tankers, both propane
and fuel bobtails, as well as office, warehouses, and maintenance facilities. The Company is a distributor
of gasoline, diesel, propane, and lubricants to a mix of rural and small city gas stations, farms, oil
industry, construction needs, and residential customers. The Company has been operational for over 44
years and has over 300 customers.
The Company delivers three brands of gasoline in addition to its branded and unbranded lubricants. The
Company has maintained a consistent level of service and is widely recognized for its superior customer
service and excellent facility maintenance, including meeting all federal and local environmental
regulations. USOG acquired the Company in May 2009.
Expected Acquisition
A North Dakota-based regional
provider of oil and gas
products including propane,
diesel and gasoline
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Technology:
USOG is also developing proprietary technologies to enable novel solutions for efficient, cost-effective
and environmentally friendly processes for oil and natural gas search, discovery and extraction. The
Company currently has two pending patent applications for eco-drilling and small footprint
technologies.
The Company has filed a patent application for an automated leveling system for portable drilling rigs.
Current technologies have a manual leveling system. The new technology will allow for correct
automatic leveling for portable drilling rigs. The technology is designed to save setup time and increase
precision drilling efficiencies with the smallest footprint to minimize environmental degradation.
USOG has also filed a patent application for a simple fiber optic seismometer for rugged environments
that the Company believes will dramatically reduce the cost of seismic sensor arrays, having the fidelity
and reliability necessary for permanent down-hole and seafloor installations. Once it has been fully
developed and tested, the advancement promises to make big oil techniques for oilfield production
management and exploration techniques available to middle market players.
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Offshore, it is advantageous for a seismic sensor array to be reliable enough to be deployed once and not
need maintenance. USOG’s patent pending technology is intended to transcend the intrinsic limitation of
existing sensing seismic sensing technology by the elimination of physical connections to remote optical
fibers in addition to a non-electric solution. The simplicity of this new device raises opportunities for
seismic sensors that have lifetimes exceeding ten years in deepwater applications.
Evolution:
The Company was incorporated in January 1988 and has been a developmental stage company through
the years till 2008. In March 2008, The Company became public through a reverse merger with
Sustainable Energy Development, Inc. The Company changed its name to United States Oil and Gas
Corp. to reflect the present nature of its business operations. Following its growth strategy, USOG
completed its first acquisition of Turnbull Oil in May 2009. The Company expects to complete its
second acquisition by the end of this year.
Growth Strategy:
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USOG’s growth strategy includes,
? Acquisition Strategy: Finding and negotiating with successful family owned small to mid-sized
businesses in the oil and gas industry. The Company seeks to provide financial security for the
owners while leading further growth through technological advancement. USOG offers business
management experience to identify operating efficiencies, linking companies together to exploit
synergies, and providing technical expertise and technology to their already successful
businesses. The target markets is scanned based on the following criteria;
o Have established market presence
o Healthy profits
o Scalable business models with growth potential
o Strong and capable management team
o Little or no debt
? Green Technology: The Company focuses on developing green technology that will improve
efficiency and reduce damage to the environment. USOG has developed and maintains a
portfolio of pending patents and patent applications for proprietary green oil and gas exploration
and extraction technologies.
? Gain Synergies: USOG intends to apply its advanced technology and to achieve superior returns
through synergies provided by the multiple acquisitions. USOG will use its technology to
improve the operations of the companies acquired while gaining from consolidation of
complementary companies. The Company will also license its technology to create revenue with
minimal additional cost.
? Increase Market Awareness: The Company has provided updated information to the investing
public and other such groups and continues to work towards increasing market awareness. The
Company intends to move the stock to larger public markets. USOG is working towards moving
to the Bulletin Board or Amex markets in 2009 or 2010. Increasing volume through rapid
acquisitions will allow the company meet market capital criteria of such markets.
Industry:
The rate of increase in use of global use of energy has been on a rise. There has been talk of new and
alternative energy sources but none have shown any potential to replace fossil fuel. A growing world
will further ensure that oil and gas demand and these commodities are likely to remain critical energy
sources for the next several decades. The United States is the world’s largest energy consumer and
depends largely on oil producing nations such as the Middle East countries and Venezuela. A significant
percentage of the foreign oil is derived from countries that are either politically unstable or downright
hostile to the US boosting demand for domestic production. These reasons above have led to an increase
in sourcing of oil from domestic regions.
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US Demand for Oil & Gas
The United States is expected to account for 89.5% of North American regional oil demand by 2013,
while contributing 65.75% to supply as per the latest US Oil & Gas Report from BMI. In North
America, overall oil consumption is expected to rise to around 21.84mn barrels per day by 2013. Net
imports for the region are expected to be 10.89mn barrels per day in 2013, declining from 11.74mn
barrels per day in2008. North America consumed 757.2bn cubic metres (bcm) of natural gas in 2008.
BMI forecasts demand of 792.4bcm for 2013 representing 4.6% growth. The US share of gas
consumption is forecast to be 86.82% with 74.38% of production. On the whole, the US remains a
dominant player in the oil and gas markets in the northern region. Rig Count
The Oil & Gas service industry is significantly affected by the level of energy industry spending for the
exploration, development, and production of oil and natural gas reserves. Spending by oil and natural
gas exploration and production companies is dependent upon the forecasts regarding the expected future
supply and future demand for oil and natural gas products. The estimated risk-adjusted costs to find,
develop, and produce reserves and the anticipated price also plays an important role. The rig count and
other measures reflect the demand and spending on exploration activities.
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The US rig count is showing an upward trend after bottoming out with the recent economic crisis. The
land rig count has been creeping steadily higher after bottoming in early June at 823 rigs, and now
stands about 29% (241 rigs) above the last point. The outlook for 2010 remains promising with rising oil
prices and anticipated global recovery egging demand for oil and gas. There has been an increased focus
on gas rigs since 2002. More recently the trend seems to be reversing. The mix shift towards oil appears
likely to hold and possibly strengthen near-term given a variety of factors including better crude oil price
performance.
Oil and Gas Prices
Current prices are hovering over the $73 mark. Prices are expected to trend upwards around the $80-$90
region for the near future. High prices encourage exploration activity.
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Value Proposition:
The USOG value proposition lies in the Company’s ability to collaborate and consolidate small
profitable companies with complementary businesses. The Company’s advanced technology also
provides a competitive advantage in streamlining operations for efficiency and higher output.
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Projects, Sales, Earnings Margin 5 Year Forecast
Revenue Forecast
$000 2009E 2010E 2011E 2012E 2013E Comparable Growth Oil & Gas & Propane Revenue 1
1,399 2 1,974 4 5,678 7 5,120 %Ac gqruoiwsitthion Growth 10.0% 14.0% 20.0% 25.0% Oil & Gas & Propane Revenue 1 0,363 2 7,151 2 8,780 3 4,450 3 9,548 % growth 0.0% 162.0% 6.0% 19.7% 14.8% Total Revenue 1 0,363 3 8,550 5 0,754 8 0,128 1 14,669 % Growth NM 272.0% 31.7% 57.9% 43.1%
Sales, Margins and Earnings Forecast
all figures in $ 000s; unless otherwise 2009E 2010E 2011E 2012E 2013E Revenues 10,363 38,550 50,754 80,128 114,669 % growth NM 272.0% 31.7% 57.9% 43.1% EBIT 403 2,628 4,307 8,049 12,019 EBIT Margin 3.9% 6.8% 8.5% 10.0% 10.5% EBITDA 497 3,053 4,974 9,343 14,764 EBITDA Margin 4.8% 7.9% 9.8% 11.7% 12.9% Net Profit 533 1,709 2,602 5,158 7,880 Net Profit Margin 5.1% 4.4% 5.1% 6.4% 6.9% EFraeren iCnagssh P Felro Swh ator eF -ir Dmiluted 03.4080 0 9.0205 1 0,9.4030 4 0,4.0213 6 0,3.0615
United States Oil & Gas provides technology services and systems and for drilling, formation evaluation, and
completion and production to the oil and natural gas industry. The Company has two pending patents on
technologies for extraction and exploration of oil and gas using green technology. The technology is expected to
leave a small environmental footprint while allowing for low capital investment and low operating expenses.
Given the recent impetus on green technologies, we believe the Company’s new technology will enable a larger
market share combined with its acquisition strategy.
USOG also engages in sales of oil and gas and related products through its subsidiaries. The Company envisions
market penetration through accretive acquisitions. USOG intends to acquire already operating and profitable
small to mid size companies. The Company expects to tap into the client base, local knowledge and operating
expertise of such acquisitions. We expect rapid adoption of the technology as a result of cost advantages can
bring.
The Oil and Gas service industry is expected to gain from the rebounding world markets in 2010. USOG intends
to capitalize on this opportunity through multiple acquisitions enabling aggressive growth. The Company focuses
on acquisitions that are too small for large conglomerates, effectively eliminating direct competition with them.
USOG’s recent acquisition of Turnbull Oil, Inc. provided the Company with a substantial customer base and
significant revenues. The Company intends to leverage its technology through such appropriate acquisitions.
The Company’s scalable business model should help faster penetration providing a significant boost to revenues.
Our projections reflect a strong and positive outlook for USOG in the intermediate-to-long term. The favorable
market dynamics for the Company’s products and technologies enhances our outlook.
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Valuation (Discounted Cash Flow Valuation – DCF)
LONG TERM PRICE TARGET $0.15
We have used our Discounted Cash Flow Valuation (DCF) method to create our Per Share Price Target.
Using an assumed long term sustainable growth rate of 2.0%, our Base Case target price is a
conservative $0.15 per share. Note our three assumed cases: Base, Optimistic, and Pessimistic.
1% 2% 3% 4%
Optimistic Case $0.151 $0.172 $0.202 $0.247
Base Case $0.131 $0.150 $0.176 $0.215
Pessimistic Case $0.118 $0.135 $0.158 $0.193
$0.000
$0.050
$0.100
$0.150
$0.200
$0.250
$0.300
Price Targets Vs. Long Term Growth Rates
SHORT TERM PRICE TARGET $0.08
Our Short Term Price Target is based on the average industry multiples for price/earnings, price/book value and
price/capital employed ratios. The Company functions in the basic materials industry which has an average
Price/Earnings multiple of 27.7x and Price/Book Value multiple of 3.5x. Capital employed ratios are not readily
available; hence we have assumed a company multiple of 76.8x based on our capital projection and long term
price target from DCF valuation model. We have awarded equal weighting to all the three multiples to arrive at
our Short Term Target Price of $0.08 per share.
Industry Averages 27.7x PEBCP%rraao iiprWoccnikeetei anBtVilogg aaE hsTslmu tePoaedetpg a Prelolo eS nCyrh eMa Sadphru iePatltareilepr E lSemhsaprleo y(eleds s(c foinmapnacninyg)) $$$000...000000 $03.035% $033.03.51%x $7036.13N.89%Ax Short term Price Target per Share $0.08
Short Term Price Target
Company
Values 2010
PricetoEarnings
PricetoBook
Value
PricetoCap.
Employ.
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Short term price targets can be heavily influenced by investor awareness campaigns. In general, we believe the
more money spent on such campaigns, the greater the probability for short term price increases. Long term price
targets assume capital raising functions and 5 year Income Statement, Balance Sheet and Cash Flow forecasting.
In a perfect world, these assumptions may be realized. We do not give investment advice. However, in the
practical/real world, it is very difficult for a small company to reach our theoretical 5 year projections.
Note: How do we calculate our Price Targets?
The Cohen Long Term Price Index is calculated by our Discounted Cash Flow Analysis (DCF) methodology.
This method creates a long term price target and values a company today, based on projections of how much
future cash will be generated from a company. Future cash is generated by projected future sales. Both future
cash and future sales are normally a function of raising capital.
A DCF analysis assumes that a company is worth all of the cash that it can make available to investors in the
future. It is called a "discounted" cash flow because cash in the future is worth less than cash today, and therefore
must be discounted to today. We forecast various line items to calculate the free cash flow we expect a company
to generate during our 5 year forecasted time period. After using a formula to discount free cash flow, we divide
the total forecasted equity of the company by the shares of stock outstanding to calculate our DCF (Discounted
Cash Flow) valuation, or price per share target. We forecast three assumptions, Base, Optimistic and Pessimistic
cases because companies change during 5 years.
Note: What is our formula used to calculate your DCF Price Targets?
Our formula is on page 17. Some line items include free cash flow to the firm, the weighted average cost of
capital (WACC), the total enterprise value of the business less its debt, total equity value, total shares outstanding,
and our projected price per share. A DCF cannot be academically calculated without projecting the 5 year cash
flow statement.
Risks of DCF Analysis for Creating a Long Term Price Target:
Both our short and long term price targets are academic theory. They should not be relied on to make an
investment decision. Investors should do their own research. Our Short Term Price Target also assumes capital
will be raised in a micro/small cap Company. The majority of these companies need capital to reach our 5 year
sales and cash flow projections. In the academic world, The Gordon Growth Model justifies an analyst's decision
to forecast for 5 years. We forecast the three statements for 5 years in 3 cases. However, in the practical/real
world, buying a micro cap stock based on 5 year forecasting, short term or long term is highly risky.
If smaller companies are able to raise capital, our theoretical price targets in a perfect world might be justified,
providing the Company executes on its business model. If an investor believes that a given Company cannot raise
the necessary capital to reach our projections, then any short or long term investment becomes highly risky.
The investor should consider the possibilities of a given Company being able to raise capital and execute over 5
years. Few micro/small cap companies are able to raise enough cash and execute over an extended period of time,
primarily due to competition, management competence, access to capital, and execution of their master budget.
USOG’s growth through acquisition model is highly intelligent. To date they have performed in the acquisition
business. If they are able to raise additional capital to buy additional assets, their growth model is very interesting
and promising.
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Cohen Growth Drivers
Annual Revenues, Margins, Assets, Turns
all figures in $ 000s 2009E 2010E 2011E 2012E 2013E Revenue ONEEFCWLTTDoraPBoopSeoesnttSOtIeeraah Tg rMk- llaD C TiDDAatnaAeirisesnglrgsbuh gmCeitt n FtMae sDlpdoaeiwrtbag tlitno Firm 11 1026002 ,.,,,,45440430433 ..1094509768313178310373%% 31 3890683 (, ,,.,,74900006598 ..4250008521944532009603%%) 153 ( 2049112014 ,.,,,,,,,52947095573 ..4414070058147361340044%%) 1814 ( 0943205564 .,,,,,,,,65 034251503 .. 3042002075473533708068%%) 1 11161 ( 7066458044 , .,,,,,,,61003572246 ..3066460066993854400289%%) Percentage Change in Annual Revenues, Margins, Assets, Turns
2009E 2010E 2011E 2012E 2013E TTDRONEEFCWLroaPBooepSeoesnvttSOtIeeraah Teg rMk- llanD C TiDDAatunaAeirsiesneglrgsbhus gmCeit tn FtMae sDlpdoaeiwrtbagtlin 3--31013652015062.....NNNNNNN49240%%%%%MMMMMMM -25222--9512109117-73303301842...........N34572809930%%%%%%%%%%%M 121130556553040656827801............673393851705%%%%%%%%%%%% 111-2233283945731411670637............623068958396%%%%%%%%%%%% 1412515043-303710810344............479460031971%%%%%%%%%%%%
USOG derives revenue from service to oil and gas producers as well as from the sale of oil, gas and
propane. The Company also intends to create a revenue stream from licensing of its technology in the
near future. The market scope of oil and gas service firms are increasing rapidly as more and more rigs
are being explored and exploited in anticipation of higher energy prices. World demand for energy is
expected to see a rapid increase as most of the developing and developed markets are seeing their way
out of the recession.
We expect a series of acquisitions in a ready market to catapult top line growth higher. USOG is
expected to deliver impressive revenue growth. Turnbull Oil, the Company’s wholly owned subsidiary,
has signed six new customers contracted to purchase a combination of refined fuel and lubricants over
the next twelve months. Revenues are expected to grow from $10.3 million in 2009 to $114.7 million by
2013, representing a compounded annual growth rate of 82.4 percent.
We expect significant cost and revenue synergies from the combination of multiple businesses. Going
forward, acquisition growth will provide volume and create economies of scale for the Company. We
expect operating margins to improve from approximately 24% in 2009 to 42% in 2013. We estimate the
Company might be cash flow positive from 2010 onwards primarily due to robust sales in the fiscal
year. The growth story is exciting.
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Alex Tawse is the CEO and President of USOG. Alex has ten years of experience in implementing lean
strategies and continuous improvement culture. He has served in both manufacturing and service
companies with a focus on delivering goods and services. We believe the Company has effective
leadership to drive the pace of growth.
Management Bio’s
Alex Tawse, CEO/CFO
Prior to taking the reins of USOG in 2008, Alex Tawse spent ten years as CFO and Vice President of
Operations for the Kaizen Institute; an international consulting company whose mission is to lead the
implementation of lean strategy and continuous improvement culture. Clients included Nike, Dannon,
Kraft, BioMerieux, JB Poindexter, Hella Lighting and Bacardi. Mr. Tawse has saved customers millions
of dollars and increased their competitive advantage through improved system performance and
reliability, greater process flexibility, and increased production capacity without investment in new
equipment.
Mr. Tawse is a kaizen expert and has trained others in lean tools and principles such as Total Productive
Maintenance, Just In Time Systems, 5S, Lean Accounting, and Total Quality Systems. He has served
both manufacturing and service companies. Mr. Tawse has serviced high profile global customers in the
U.S., China, Russia, Italy, and the U.K. that operate in a variety of industries including specialized oil
drilling equipment, consumer goods, automotive, and pharmaceutical.
Mr. Tawse studied at Oxford University, holds a Bachelor of Arts degree in Economics and
International Relations from Stanford University, an MBA degree from the University of Texas, and is
also a Certified Public Accountant (CPA - inactive).
Jeff Turnbull, Turnbull Oil President
Prior to purchasing Turnbull in 1991, Jeff Turnbull spent ten years honing his executive sales and
managerial skills at several companies in Colorado, Texas and Oklahoma. Since taking over at Turnbull,
he successfully negotiated the purchase of three businesses (including Basinger Propane), selling a
division of one of those companies after seven years of ownership. Mr. Turnbull is an active member of
several organizations including: Petroleum Marketers Association, Plainville Chamber of Commerce,
Propane Marketers Association, Northwest Kansas Economic Development Group Board (and loan
committee), National Propane Gas Association and the Kansas Independent Oil and Gas Association.
Mr. Turnbull received a B.S. in Business and Political Science from Fort Hays State University, Kansas.
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CONCLUSION
USOG is an oil & gas service company focused on the domestic market in United States. The Company
intends to grow through strategic acquisitions. USOG acquires and drives the growth of profitable small
to mid-sized oil & gas services companies with strong revenue, proven management and established
market share. The Company’s selective incremental acquisitions are a key component to the company’s
value proposition.
USOG also develops innovative proprietary oil and gas exploration and extraction technologies that can
increase production while minimizing environmental impact. The Company’s technology is both
efficient and cost effective. The Company expects to leverage its technology through meaningful
acquisitions in the industry while gaining scale and cost synergies from them. We believe USOG should
be able to add immense value from the strategic and targeted acquisitions.
The Company competes on the basis of its advanced technology and managerial expertise to provide
products and services at lower production cost. We are confident of the ability of the Company to
penetrate the market and garner a larger market share. Risks include raising capital, and the execution of
the Company’s proposed acquisition strategy.
We forecast USOG is on a fast paced growth trajectory and believe the Company is a potentially
lucrative investment opportunity for non-risk adverse investors.
PJ/Grass Roots Research and Distribution, Inc.
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LATEST PRESS RELEASE
Source: US Oil & Gas Corp.
Wednesday November 11, 2009
United States Oil & Gas Corp. Board of Directors Approves Share Reduction to Enhance
Shareholder Value and Remains Focused on Upcoming Growth
AUSTIN, TX--(Marketwire - 11/11/09) - United States Oil & Gas Corporation (Pinksheets:USOG -
News), a growing oil and gas products, services and technology company, today announced exciting
news. The Company's Board of Directors as well as a majority of shareholders approved a resolution
that reduces the number of Authorized Common Shares to 1.8 billion from 3.0 billion. The previous
amount was a function of a prior forward split. Furthermore, the company is taking measures to
restructure and possibly reduce the current number of Outstanding Shares (shown on pinksheets.com as
998,677,620 at latest filing) to add shareholder value. It should be noted that a significant portion of the
Outstanding Shares is restricted and held by a small number of loyal investors that remain focused on
the company's long-term strategy and business plan.
Alex Tawse, CEO of the Company, commented, "We are pleased that the Board has taken this step. The
focus remains on following a prudent course of protecting and increasing shareholder value. USOG is
currently profitable and it has been able to show continued growth even in a downward economy.
Nothing has changed in the operations of the Company other than to continue on our growth pattern and
expansion plans."
The resolution has been filed with the State of Delaware, where USOG is incorporated, and is pending
approval. In addition, USOG is in the process of effecting a move off the Pink Sheets and to the OTC
Bulletin Board (OTCBB). The Company intends to list on a more regulated exchange to enhance
communication with shareholders and ensure corporate transparency.
About United States Oil & Gas Corp. (Pinksheets:USOG - News)
United States Oil & Gas Corp. is focused on the domestic oil and gas services sector, acquiring oil and
gas services companies with historically profitable results, strong balance sheets, high profit margins,
and solid management teams in place. USOG also develops innovative technologies to increase oil and
gas extraction with the smallest environmental footprint. Wholly owned subsidiary Turnbull Oil
generated $16.5 million in revenue in fiscal year 2008, and recently announced new sales contracts
during the third quarter to add an estimated $1.2 million in annual revenue. In addition, the company
signed six new customers contracted to purchase a combination of refined fuel and lubricants over the
next twelve months.
This Press Release may contain certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. USOG has tried, whenever possible, to identify these forwardGrass
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Page 20 of 28
looking statements using words such as "anticipates," "believes," "estimates," "expects," "plans,"
"intends," "potential" and similar expressions. These statements reflect USOG's current beliefs and are
based upon information currently available to it. Accordingly, such forward-looking statements involve
known and unknown risks, uncertainties and other factors which could cause USOG's actual results,
performance or achievements to differ materially from those expressed in or implied by such statements.
USOG undertakes no obligation to update or provide advice in the event of any change, addition or
alteration to the information catered in this Press Release including such forward-looking statements.
Contact:
Investor Relations:
+1-512-464-1255
Email Contact
United States Oil & Gas Corp.
11782 Jollyville Road, Suite 211B
Austin, Texas 78759, USA
www.usaoilandgas.com
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HISTORICAL HEADLINES
Nov 11, 2009 United States Oil & Gas Corp. Board of Directors Approves Share Reduction to
Enhance Shareholder Value and Remains Focused on Upcoming Growth
Nov 9, 2009 United States Oil & Gas Corp. Pending Acquisition in North Dakota Grows
Customer Base for Propane Sales by 30%; Backlog Also Grows
Nov 6, 2009 United States Oil and Gas Corp. Grows Operating Capacity for Refined Fuels by
64% to Create Additional Shareholder Value
Nov 4, 2009 United States Oil and Gas Corp. Takes Advantage of Increased Drilling Activity to
Drive Sales
Nov 4, 2009 USOG Clarifies Recent Market Activity and States Company Is in a Good Position
Nov 3, 2009 United States Oil and Gas Corp. Signs Six New Customers, Expects to Add $1.2
Million in Revenue
Nov 2, 2009 United States Oil & Gas Corp. Reports $3.5 Million in Quarterly Revenue, 29% Sales
Increase & Record Profit
Oct 30, 2009 United States Oil & Gas Corp. Updates Shareholders on Revenue, Acquisitions &
Growth Strategy
Oct 5, 2009 United States Oil & Gas Corp. Target Acquisition Expected to Add $8 Million in
Sales
Aug 27, 2009 USOG Announces 30-1 Forward Stock Split
May 18, 2009 USOG Acquires Turbull Oil Inc.
Aug 6, 2008 United States Oil and Gas files Patent Pending for a Simple Fiber-optic
Seismometer
Sept 12, 2007 Patent Pending for Leveling System
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FINANCIAL EXHIBITS
Income Statement – Base Case
all figures in $ 000s 2009E 2010E 2011E 2012E 2013E
Revenues 10,363 38,550 50,754 80,128 1 14,669 Cost of Revenue 8,705 31,611 40,603 62,500 86,001 Gross Profit 1,658 6,939 10,151 17,628 28,667
Expenses GPDaeeynpreroerlaclil, aSatanioldan raidems &in Bisetnraetfiivtse 46 996473 21 ,, 471208560 31 ,,647652616 152,,,229989487 852,,,447544775 Total Expenses 1,255 4,311 5,843 9 ,579 16,648
Operating Profit/ EBIT 403 2,628 4,307 8 ,049 12,019 IOnttheerre sInt cEoxmpeense, Net 236900 350 590 680 761 Earnings before tax 533 2,278 3,717 7 ,369 11,258 Provision for Taxation - 570 1,115 2,211 3,377 Net Profit/Loss 533 1,709 2,602 5 ,158 7,880 SSEEhhPPaaSSrr --ee DBss aiOOlsuuuitcttessdttaannddiinngg -- BDailsuitced 99 0808.,.,060607071818 11 ,, 00 0033..,,006600772211 11 ,, 00 11 0033..,,007700003388 11 ,, 00 22 0033..,,008800445555 11 ,, 00 33 0044..,,000000888833
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Balance Sheet – Base Case
all figures in $ 000s 2009E 2010E 2011E 2012E 2013E
ASSETS Cash AIDPnrcevescpephoona ustiniodtt r soEy nxR peAeccneqisuveiassbitleions 11 ,,44 75 717 4 ,66 228769 61 ,,45 319568 37 ,, 22 501672 1 60 ,,53 862040 Current Assets 3,339 6,606 10,079 12,975 19,717 IIFnnixtvaeendsgt Amibselsene ttA sisns eStusbsidiary 6 ,36 58 464 1 20 , ,66 28 674 1 55 ,,66 18 654 12 01 ,, 46 18 614 12 37 ,,06 58 664 Total Assets 10,383 19,923 31,384 45,076 60,462
LIABILITIES ANcoctoesu nptasy paabylea b-sleh oarntd t earcmcrued liabilities 41,,439933 62,,703030 83,,400050 1 33,,010205 1 37,,020000 Total Current Liabilities 5,886 8,733 11,405 16,125 20,200 Promisorry notes payable 2,000 6,000 9,500 12,500 15,200 Total Liabilities 7,886 14,733 20,905 28,625 35,400 CCAACooodccnmnduvvimtmeeiorrouttnniilbbaa Sllltee tepo dNPac irckodeot-femiensrp rocreuaedpth sisetttaanonlsc idkvien gloss 2 ( ,4981 2133233601) 13 , ,2017 2502940006 2413 ,,,,0300 2090550806 1248 ,,,, 0085 2006570077 1 1256 ,,,,0054 2009370077 Total Shareholders Equity 1,947 3,940 7,480 13,451 22,062
Total Liabilities, Shareholders Equity, MI 10,383 19,923 31,384 45,076 60,462
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Cash Flow Statement – Base Case
all figures in $ 000s 2009E 2010E 2011E 2012E 2013E
Operating Activity Net Income 533 1,709 2,602 5,158 7,880 Adjustments to Reconcile Cash Flows IID(((
CnnIIIhennnccapcccrrnrrrreeeeeegaacaaaessissse eaieee nt(()))i dd/ doddeeDneeeccp eccrr&ocrree reesaaAeiaasstmassee osee))oen iriii nnnnitAni zapaic:naccqrvtcceuieoopoinsuuanitnnitodittor sseyn prxepaceyenaibsvelaeb alend ( 11 ( ,, 334 ( 59485 164821))) ( 53 ( ,, 4319 ( 225471056065))) ( 11 ( ,, 6697 - 6767(96262))) 1 4 ( ( ,, 4267 ( -2792140004))) ( 324 ( ,,, 21 70(-5204724559))) Change in Working Capital (472) 1,286 (1,075) 3,616 691 Cash Flow from Operating Activities 1 55 3 ,419 2 ,194 1 0,068 1 1,316
Investing Activity CAacpquitiasli tEioxpnesnditures ((649401)) ((24,,609090)) ((33,,605040)) ((66,,009000)) ((56,,308090)) Cash Flow from Investing Activities ( 1,130) ( 6,698) ( 6,654) ( 12,090) ( 11,389)
Financing Activity CPPPPrrrraooooshcccceeee peeeeaddddissssd ffof trrrfoooo c mmnao cNm qccoooumtnnierovvesnee PS rrsttEahiiybbGaaelVreb e p clnsero oemtfeemsr rooenud t ssstttoaocnckkding 1 , 4014-39922031 1 ,551 2-07287095 21 ,,0 975-03500700 3 ,8 0 - --1020 2 ,7 7---3010 Cash Flow from Financing Activities 2 ,135 2 ,491 5 ,187 3 ,812 3 ,431
Net Change in Cash 1 ,160 ( 788) 7 27 1 ,791 3 ,357
Opening Cash Balance 317 1 ,477 6 89 1 ,416 3 ,207
Ending Cash Balance 1 ,477 6 89 1 ,416 3 ,207 6 ,564
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DCF Valuation – Base Case
all figures in $ 000s 2009E 2010E 2011E 2012E 2013E Net Income per share NInotenr-eCsats Pho Asdt jTuasxtm peenr ts hpaerre share 000...000000010 000...000000200 000...000000310 000...000000510 000...000000831 CCCNaahOppaPiinttLgaaAell TEEinxm pWpelnoordykietidun rgpe eC pra epsrhi tsaahrle apreer share (( 0000....000000000012)) ( 0000....000000001223) ( 0000....000000004254) ( 0000....000000007446) ( 0000....000010001135) TTFroeertamel CiFnaraeslhe C CFaaslohshw f lF otlowo w Epq etuor i sEthyqa uprieetyr sphera rsehare 00 .. 00-0022 00 .. 00-0033 00 .. 00-0077 00 .. 00- 0088 000...101617707 PV of Cash Flows per share 0.002 0.003 0.006 0.007 0.130 ATdodta: lC Eanshte preprr Sishea rVealue per share 00..104081 Price Target per Share $0.150
$0.15 7% 8% 9% 10%
1% $0.15 $0.13 $0.11 $0.10 2% $0.18 $0.15 $0.13 $0.11 3% $0.22 $0.18 $0.15 $0.12 4% $0.29 $0.21 $0.17 $0.14 Terminal Growth Rates
Cost of Equity
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Financial Summary – Base Case
Sales Metrics 2009E 2010E 2011E 2012E 2013E G&A/Sales (%) 6.4% 7.0% 6.8% Receivables/Sales (%) 14.0% 12.0% 13.0% 96..06%% 97..04%% SLRhoeoncergti v TTaeebrrmlmes F Fpooerrrww daaarrydd o PPf/ /SEEa MlMeusu l(lttDiippallyees) 12 58 20 5..741xx 48 77 4..994xx 35 18 4..837xx 12 69 3..273xx 11 09 3..763xx Profitability Metrics 2009E 2010E 2011E 2012E 2013E EPrBeI TTDaxA pMroarfigti Mnargin 54..18%% 57..99%% 79..38%% 191..27%% 192..89%% NEfefte cptriovfei tT Maxa rRgaitne 05..01%% 254..04%% 305..01%% 306..04%% 306..09%%
Performance Metrics 2009E 2010E 2011E 2012E 2013E RReettuurrnn oonn AEqssueittys( ( RROOAE)) 257..14%% 483..64%% 384..38%% 1318..44%% 1335..07%% Return on Invested Capital (ROI) 5.1% 8.6% 8.3% 11.4% 13.0% Per Share Data 2009E 2010E 2011E 2012E 2013E SCaalsehs ppeerr SShhaarree $$00..000110 $$00..000318 $$00..000510 $$00..000738 $$00..010161 CTuortarel nAts sAestsse ptse rp eSrh aSrheare $$00..001003 $$00..002007 $$00..003110 $$00..004143 $$00..005189 TLoanngg iTbeler mBo Doekb Vt a- lpueer p Sehra Srheare $$00..000180 $$00..001250 $$00..002311 $$00..002484 $$00..003548 WFroeerk Cinasgh C Falpoiwta lp peer rS Shhaarere $$00..000020 -$$00..000031 -$$00..000037 -$$00..000068 -$$00..000170
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