FORM 10-Q Filing Information [Registrant Information](index=1&type=section&id=Registrant%20Information) U.S. Energy Corp.'s Q2 2021 report details its Wyoming registration, Houston headquarters, and non-accelerated filer status - U.S. Energy Corp. is a Wyoming-registered company headquartered in Houston, Texas[4](index=4&type=chunk) - The company is designated as a non-accelerated filer and a smaller reporting company[5](index=5&type=chunk) - As of August 10, 2021, the company had **4,676,301** shares of common stock outstanding[6](index=6&type=chunk) Cautionary Note About Forward-Looking Statements [Forward-Looking Statements](index=4&type=section&id=Forward-Looking%20Statements) This report includes forward-looking statements on future operations and financial conditions, subject to risks and uncertainties - Forward-looking statements cover the company's future operations, financial condition, prospects, and business strategies[11](index=11&type=chunk) - These statements are based on current expectations and assumptions, subject to risks and uncertainties that may cause actual results to differ materially from expectations[11](index=11&type=chunk) - The company undertakes no obligation to revise or publicly release any revisions, unless required by law[13](index=13&type=chunk) - Examples of forward-looking statements include planned oil and gas exploration capital expenditures, potential drilling locations, cash flow forecasts, changes in oil and gas production, acquisition opportunities, and the impact of the COVID-19 pandemic[12](index=12&type=chunk) Part I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=6&type=section&id=Item%201.%20Financial%20Statements) This section presents the company's unaudited condensed consolidated financial statements and notes for Q2 and H1 2021 [Condensed Consolidated Balance Sheets (unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(unaudited)) Condensed Consolidated Balance Sheet Key Data (as of June 30, 2021 vs December 31, 2020) | Metric (thousand USD) | June 30, 2021 | December 31, 2020 | Change (thousand USD) | Change Rate | | :-------------------- | :------------ | :---------------- | :-------------------- | :---------- | | **Assets** | | | | | | Cash and Equivalents | 6,582 | 2,854 | 3,728 | 130.69% | | Total Current Assets | 8,985 | 4,708 | 4,277 | 90.84% | | Net Oil and Gas Properties | 8,388 | 7,438 | 950 | 12.77% | | Total Assets | 17,627 | 12,363 | 5,264 | 42.58% | | **Liabilities** | | | | | | Total Current Liabilities | 1,569 | 2,209 | (640) | -28.97% | | Total Non-Current Liabilities | 1,576 | 1,587 | (11) | -0.69% | | Total Liabilities | 3,145 | 3,796 | (651) | -17.15% | | **Shareholders' Equity** | | | | | | Total Shareholders' Equity | 14,482 | 8,567 | 5,915 | 69.04% | - As of June 30, 2021, the company's cash and equivalents significantly increased by **130.69%** to **$6,582 thousand**, primarily due to common stock issuance[16](index=16&type=chunk) - Total assets grew by **42.58%** to **$17,627 thousand**, while total liabilities decreased by **17.15%** to **$3,145 thousand**, indicating an improved financial position[16](index=16&type=chunk) [Condensed Consolidated Statements of Operations (unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(unaudited)) Condensed Consolidated Statements of Operations Key Data (for the Three and Six Months Ended June 30, 2021) | Metric (thousand USD) | 2021 Q2 | 2020 Q2 | Change (QoQ) | Change Rate (QoQ) | 2021 H1 | 2020 H1 | Change (YoY) | Change Rate (YoY) | | :-------------------- | :------ | :------ | :----------- | :---------------- | :------ | :------ | :----------- | :---------------- | | **Revenue** | | | | | | | | | | Oil | 1,507 | 201 | 1,306 | 650.00% | 2,639 | 1,056 | 1,583 | 150.00% | | Natural Gas and Liquids | 149 | (12) | 161 | N/A | 228 | 56 | 172 | 307.14% | | **Total Revenue** | 1,656 | 189 | 1,467 | 775.93% | 2,867 | 1,112 | 1,755 | 157.82% | | **Operating Expenses** | | | | | | | | | | Lease Operating Expenses | 477 | 333 | 144 | 43.24% | 1,045 | 742 | 303 | 40.84% | | Production Taxes | 131 | 13 | 118 | 907.69% | 210 | 80 | 130 | 162.50% | | Depreciation, Depletion, Amortization & Impairment | 146 | 99 | 47 | 47.47% | 264 | 210 | 54 | 25.71% | | Impairment of Oil and Gas Properties | - | 1,794 | (1,794) | -100.00% | - | 1,794 | (1,794) | -100.00% | | General and Administrative Expenses | 812 | 367 | 445 | 121.25% | 1,547 | 939 | 608 | 64.75% | | **Total Operating Expenses** | 1,566 | 2,606 | (1,040) | -39.91% | 3,066 | 3,765 | (699) | -18.57% | | **Operating Income (Loss)** | 90 | (2,417) | 2,507 | N/A | (199) | (2,653) | 2,454 | N/A | | **Other Income (Expense)** | | | | | | | | | | Loss on Derivatives | (317) | - | (317) | N/A | (210) | - | (210) | N/A | | **Net Loss** | (207) | (3,651) | 3,444 | -94.33% | (369) | (3,957) | 3,588 | -90.67% | | **Basic and Diluted Loss Per Share** | (0.04) | (2.68) | 2.64 | -98.51% | (0.09) | (3.01) | 2.92 | -96.99% | - Total revenue for Q2 2021 increased by **775.93%** year-over-year to **$1,656 thousand**, driven primarily by higher oil prices and increased production[19](index=19&type=chunk) - Net loss for H1 2021 significantly narrowed by **90.67%** to **$369 thousand**, mainly due to reduced oil and gas asset impairment and revenue growth[19](index=19&type=chunk) [Condensed Consolidated Statements of Changes in Shareholders' Equity (unaudited)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20(unaudited)) Condensed Consolidated Statements of Changes in Shareholders' Equity Key Data (for the Six Months Ended June 30, 2021) | Metric (thousand USD) | June 30, 2021 | December 31, 2020 | Change (thousand USD) | Change Rate | | :-------------------- | :------------ | :---------------- | :-------------------- | :---------- | | Common Stock Shares | 4,676,301 | 3,317,893 | 1,358,408 | 40.94% | | Common Stock Amount | 47 | 33 | 14 | 42.42% | | Additional Paid-in Capital | 148,922 | 142,652 | 6,270 | 4.40% | | Accumulated Deficit | (134,487) | (134,118) | (369) | 0.27% | | Total Shareholders' Equity | 14,482 | 8,567 | 5,915 | 69.04% | - As of June 30, 2021, total shareholders' equity increased to **$14,482 thousand**, a **69.04%** rise from year-end 2020, primarily due to common stock issuance and related capital increases[21](index=21&type=chunk) - Common stock shares increased by **40.94%**, mainly due to an underwritten offering, conversion of related-party secured notes, and settlement of legal fees[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows (unaudited)](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)) Condensed Consolidated Statements of Cash Flows Key Data (for the Six Months Ended June 30, 2021) | Cash Flow Type (thousand USD) | 2021 H1 | 2020 H1 | Change (thousand USD) | Change Rate | | :---------------------------- | :------ | :------ | :-------------------- | :---------- | | Operating Activities Cash Flow | (591) | (470) | (121) | 25.74% | | Investing Activities Cash Flow | (877) | (133) | (744) | 559.40% | | Financing Activities Cash Flow | 5,196 | (152) | 5,348 | N/A | | Net Increase (Decrease) in Cash and Equivalents | 3,728 | (755) | 4,483 | N/A | | Cash and Equivalents, End of Period | 6,582 | 777 | 5,805 | 747.10% | - In H1 2021, financing activities provided **$5,196 thousand** in cash, primarily from common stock issuance, reversing the cash outflow seen in the prior year period[22](index=22&type=chunk) - Cash outflow from investing activities significantly increased to **$877 thousand**, mainly for oil and gas capital expenditures, particularly for reactivating idle wells in the Liberty County field[22](index=22&type=chunk) - Cash and equivalents at period-end increased to **$6,582 thousand**, a significant rise from **$2,854 thousand** at year-end 2020[22](index=22&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=1.%20ORGANIZATION,%20OPERATIONS%20AND%20SIGNIFICANT%20ACCOUNTING%20POLICIES) U.S. Energy Corp. acquires and develops US oil and gas assets, preparing GAAP financial statements with management estimates - U.S. Energy Corp., founded in 1966, focuses on acquiring, exploring, and developing oil and gas assets in the United States[24](index=24&type=chunk) - Financial statement preparation involves significant estimates and assumptions regarding oil and gas reserves, commodity prices, and warrant valuations, which may be materially affected by market changes[27](index=27&type=chunk) - The company does not designate commodity derivative contracts as cash flow hedges, with fair value changes recognized directly in the statements of operations[28](index=28&type=chunk) [2. ACQUISITIONS](index=13&type=section&id=2.%20ACQUISITIONS) In 2020, the company acquired multiple oil and gas assets, significantly expanding its operational footprint and interests - On March 1, 2020, the company acquired New Horizon Resources, gaining operating producing assets in North Dakota, including **9** gross wells (**5** net wells) and approximately **1,300** net acres[31](index=31&type=chunk) New Horizon Resources Acquisition Consideration and Net Assets (thousand USD) | Item | Amount (thousand USD) | | :-------------------- | :-------------------- | | Cash Consideration | 150 | | Common Stock Issued (59,498 shares) | 240 | | Less: Cash Acquired | (28) | | **Total Consideration** | **362** | | Net Assets Acquired | 362 | - On September 25, 2020, the company acquired FieldPoint Petroleum's oil and gas assets in New Mexico and Wyoming for a total consideration of **$597 thousand**, primarily mature proved developed producing reserves[33](index=33&type=chunk) - On December 1, 2020, the company acquired Liberty County Properties, gaining operating producing assets in Texas, including **41** wells and approximately **680** net acres, for **$326 thousand**[35](index=35&type=chunk) [3. REAL ESTATE HELD FOR SALE](index=15&type=section&id=3.%20REAL%20ESTATE%20HELD%20FOR%20SALE) The company plans to sell its Riverton, Wyoming property, recognizing a **$1,054 thousand** reclassification loss in 2020 - The company plans to sell its office building and land in Riverton, Wyoming, with the transaction expected to close in 2021[36](index=36&type=chunk) - In 2020, the company recognized a **$1,054 thousand** loss due to reclassifying the property as held for sale[36](index=36&type=chunk) Estimated Fair Value of Real Estate Held for Sale (thousand USD) | Item | Amount (thousand USD) | | :-------------------- | :-------------------- | | Estimated Selling Price of Building and Land | 800 | | Estimated Selling Price of Additional Land | 275 | | Estimated Costs to Sell | (100) | | **Estimated Net Proceeds** | **975** | [4. REVENUE RECOGNITION](index=16&type=section&id=4.%20REVENUE%20RECOGNITION) The company recognizes oil and gas sales revenue upon control transfer, with operating revenue significantly increasing to **32%** of total revenue in H1 2021 - The company's revenue primarily derives from oil and gas sales, with non-operator revenues and expenses recorded based on operator-provided information[38](index=38&type=chunk) - Following the acquisition of operating assets in 2020, the company directly sells oil and gas, recognizing revenue when control transfers to the buyer[40](index=40&type=chunk) Operating Revenue as a Percentage of Total Revenue | Period | Operating Revenue as % of Total Revenue | | :-------------------- | :-------------------------- | | 2021 Q2 | 32% | | 2020 Q2 | 14% | | 2021 H1 | 32% | | 2020 H1 | 3% | Oil and Gas Revenue by State (thousand USD) | State | 2021 Q2 | 2020 Q2 | 2021 H1 | 2020 H1 | | :-------------------- | :------ | :------ | :------ | :------ | | North Dakota | 766 | 125 | 1,369 | 663 | | Texas | 695 | 64 | 1,216 | 449 | | New Mexico | 98 | - | 212 | - | | Other | 97 | - | 70 | - | | **Total Revenue** | **1,656** | **189** | **2,867** | **1,112** | [5. LEASES](index=17&type=section&id=5.%20LEASES) The company added **$82 thousand** in right-of-use assets and lease liabilities in H1 2021 for a new Houston office - In H1 2021, the company added **$82 thousand** in right-of-use assets and operating lease liabilities due to a new Houston office lease agreement[46](index=46&type=chunk) Lease Assets and Liabilities Balances (thousand USD) | Item | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :---------------- | | Right-of-Use Assets (Operating Leases) | 167 | 127 | | Short-Term Operating Lease Liabilities | 107 | 65 | | Long-Term Operating Lease Liabilities | 78 | 78 | | **Total Lease Liabilities** | **185** | **143** | Lease Costs (thousand USD) | Item | 2021 Q2 | 2020 Q2 | 2021 H1 | 2020 H1 | | :-------------------- | :------ | :------ | :------ | :------ | | Operating Lease Costs | 17 | 27 | 51 | 34 | | Short-Term Lease Costs | 6 | 12 | 18 | 10 | | Sublease Income | (11) | (16) | (32) | (16) | | **Total Lease Costs** | **12** | **23** | **37** | **28** | - As of June 30, 2021, the weighted-average lease term was **1.7 years**, and the weighted-average discount rate was **9.26%**[49](index=49&type=chunk) [6. OIL AND NATURAL GAS PRODUCTION ACTIVITIES](index=20&type=section&id=6.%20OIL%20AND%20NATURAL%20GAS%20PRODUCTION%20ACTIVITIES) The company sold undeveloped land for **$30 thousand** in H1 2021 and recorded no oil and gas asset impairment, unlike **$1.8 million** in H1 2020 - In H1 2021, the company sold undeveloped land in Texas, generating **$30 thousand**[52](index=52&type=chunk) - No oil and gas asset impairment was recorded in H1 2021, compared to **$1.8 million** in H1 2020[53](index=53&type=chunk) - The ceiling test used an oil price of **$49.78 per barrel**, a natural gas price of **$2.43 per MMBtu**, and a **10%** discount rate[53](index=53&type=chunk) [7. DEBT](index=20&type=section&id=7.%20DEBT) In March 2021, the company converted **$375 thousand** in related-party secured notes and interest into **97,962** common shares - On March 4, 2021, the company converted **$375 thousand** of related-party secured notes and accrued interest into **97,962** shares of common stock, valued at **$438 thousand**[54](index=54&type=chunk) - This debt conversion resulted in **$25.5 thousand** in interest expense[54](index=54&type=chunk) [8. COMMODITY DERIVATIVE](index=20&type=section&id=8.%20COMMODITY%20DERIVATIVE) The company recorded **$317 thousand** and **$210 thousand** in commodity derivative losses in Q2 and H1 2021, respectively, due to rising oil prices - The company entered into a fixed-price swap commodity derivative contract to hedge **100 barrels** of crude oil per day from March 1 to December 31, 2021, at **$61.90 per barrel**[55](index=55&type=chunk) - This contract is not designated as a cash flow hedge, and its fair value changes are recognized in the statements of operations[55](index=55&type=chunk) Commodity Derivative Losses (thousand USD) | Item | 2021 Q2 | 2020 Q2 | 2021 H1 | 2020 H1 | | :-------------------- | :------ | :------ | :------ | :------ | | Settlements | (38) | - | (40) | - | | Change in Fair Value of Unsettled Derivatives | (279) | - | (170) | - | | **Total Commodity Derivative Losses** | **(317)** | **-** | **(210)** | **-** | - Losses primarily resulted from the decrease in the fair value of the fixed-price swap contract due to rising crude oil prices[55](index=55&type=chunk) [9. COMMITMENTS, CONTINGENCIES AND RELATED-PARTY TRANSACTIONS](index=21&type=section&id=9.%20COMMITMENTS,%20CONTINGENCIES%20AND%20RELATED-PARTY%20TRANSACTIONS) The company faces an employment claim arbitration from its former CEO and settled a lawsuit with APEG II by issuing common stock for legal fees - The company is facing an employment claim arbitration from former CEO David Veltri, incurring **$117 thousand** in defense costs[57](index=57&type=chunk) - A lawsuit with APEG II was settled in 2020, with the company issuing **90,846** common shares (valued at **$406 thousand**) to APEG on March 4, 2021, to reimburse legal fees[58](index=58&type=chunk) [10. PREFERRED STOCK](index=21&type=section&id=10.%20PREFERRED%20STOCK) The company redeemed all **50,000** Series A convertible preferred shares for **$3.2 million** by December 31, 2020 - The company's certificate of incorporation authorizes the issuance of up to **100,000** shares of preferred stock[59](index=59&type=chunk) - As of December 31, 2020, the company redeemed all **50,000** issued Series A convertible preferred shares for a total redemption price of **$3.2 million** (**$2.0 million** cash + **328,000** common shares)[60](index=60&type=chunk) - These preferred shares were originally issued in 2016 in connection with the disposition of the company's mining operations and carried a **12.25%** annual quarterly dividend[61](index=61&type=chunk) [11. SHAREHOLDERS' EQUITY](index=22&type=section&id=11.%20SHAREHOLDERS'%20EQUITY) As of June 30, 2021, the company had **4,676,301** common shares outstanding, with **$5.3 million** net proceeds from a February 2021 offering - As of June 30, 2021, the company had **4,676,301** shares of common stock outstanding[62](index=62&type=chunk) - On February 17, 2021, the company sold **1,131,600** shares of common stock through an underwritten offering, generating **$5.3 million** in net proceeds[62](index=62&type=chunk) Warrant Information (as of June 30, 2021 vs December 31, 2020) | Item | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :---------------- | | Remaining Warrants Outstanding | 50,000 | 50,000 | | Fair Value (thousand USD) | 119 | 95 | | Exercise Price | $3.92 | $3.92 | - As of June 30, 2021, unrecognized restricted stock compensation cost was **$650 thousand**, expected to be amortized over **2.6 years**[68](index=68&type=chunk) [12. ASSET RETIREMENT OBLIGATIONS](index=23&type=section&id=12.%20ASSET%20RETIREMENT%20OBLIGATIONS) The company records asset retirement obligations (AROs) for future plugging and abandonment of proved assets, valued using various assumptions - The company has asset retirement obligations (AROs) for the future plugging and abandonment of proved assets[69](index=69&type=chunk) Asset Retirement Obligations Changes (thousand USD) | Item | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :---------------- | | Beginning Balance | 1,408 | 819 | | Accretion | 40 | 43 | | Acquisitions | 44 | 558 | | **Ending Balance** | **1,492** | **1,408** | - ARO fair value calculations involve assumptions and judgments on ultimate abandonment costs, inflation, credit-adjusted risk-free discount rates, timing, and legal, regulatory, environmental, and political changes[70](index=70&type=chunk) [13. INCOME TAXES](index=23&type=section&id=13.%20INCOME%20TAXES) The company maintained a full valuation allowance against all deferred tax assets, resulting in a **0%** effective tax rate for H1 2021 and 2020 - The company's estimated effective tax rate was **0%** for H1 2021 and 2020[73](index=73&type=chunk) - The company maintains a full valuation allowance against all deferred tax assets (DTAs), thus no DTAs were recorded as of June 30, 2021[74](index=74&type=chunk) - The company is evaluating if recent common stock issuance triggered Section 382 loss limitations, but currently, there is no impact on the statements of operations due to the valuation allowance[75](index=75&type=chunk) [14. LOSS PER SHARE](index=25&type=section&id=14.%20LOSS%20PER%20SHARE) Basic and diluted net loss per share are identical due to net losses, making all potential dilutive securities anti-dilutive Basic and Diluted Loss Per Share (for the Three and Six Months Ended June 30, 2021) | Metric | 2021 Q2 | 2020 Q2 | 2021 H1 | 2020 H1 | | :-------------------- | :------ | :------ | :------ | :------ | | Loss Attributable to Common Stockholders (thousand USD) | (207) | (3,754) | (369) | (4,160) | | Basic Weighted-Average Common Shares (thousand shares) | 4,676 | 1,399 | 4,305 | 1,380 | | Dilutive Effect | - | - | - | - | | Diluted Weighted-Average Common Shares (thousand shares) | 4,676 | 1,399 | 4,305 | 1,380 | | **Basic Loss Per Share** | **(0.04)** | **(2.68)** | **(0.09)** | **(3.01)** | | **Diluted Loss Per Share** | **(0.04)** | **(2.68)** | **(0.09)** | **(3.01)** | - Due to net losses during the reporting periods, all potentially dilutive securities (such as stock options, restricted stock, and warrants) are considered anti-dilutive, resulting in identical basic and diluted loss per share[77](index=77&type=chunk) [15. FAIR VALUE MEASUREMENTS](index=26&type=section&id=15.%20FAIR%20VALUE%20MEASUREMENTS) The company measures financial instruments using a three-level fair value hierarchy, with warrants, equity securities, and derivatives valued accordingly - Fair value measurements are categorized into three levels: Level 1 (active market quotes), Level 2 (observable inputs), and Level 3 (unobservable inputs)[79](index=79&type=chunk)[80](index=80&type=chunk)[81](index=81&type=chunk) - Warrants are classified as Level 3 liabilities, valued using the Black-Scholes model, with a fair value of **$119 thousand** as of June 30, 2021[82](index=82&type=chunk)[92](index=92&type=chunk) - Tradable equity securities (Anfield Energy) are classified as Level 1 based on active market quotes, with a fair value of **$254 thousand** as of June 30, 2021[84](index=84&type=chunk)[85](index=85&type=chunk)[92](index=92&type=chunk) - Commodity derivative contracts (fixed-price swaps) are classified as Level 2 using income valuation techniques, with a fair value of **$170 thousand** as of June 30, 2021[87](index=87&type=chunk)[92](index=92&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial condition, operating results, and cash flows, including its shift to an operating model and COVID-19 impacts [General Overview](index=31&type=section&id=General%20Overview) U.S. Energy Corp. acquires and develops US oil and gas assets, transitioning from a non-operator to a partial operating model - U.S. Energy Corp., founded in 1966, is an independent energy company focused on acquiring and developing oil and gas producing assets in the continental United States[100](index=100&type=chunk) - The company's operations are primarily concentrated in South Texas, North Dakota's Williston Basin, Lea County, New Mexico, and Converse County, Wyoming[100](index=100&type=chunk) - The company has transitioned from a historical non-operator model to a partial operating model, beginning to operate a small portion of its producing assets through 2020 acquisitions[101](index=101&type=chunk) [Plan of Operations and Strategy](index=31&type=section&id=Plan%20of%20Operations%20and%20Strategy) The company plans to pursue additional oil and gas opportunities, including acquisitions and reactivating idle wells, while strategically deploying capital - The company plans to pursue additional oil and gas industry opportunities in 2021 and beyond, including asset acquisitions, exploration and development partnerships, company acquisitions, and purchasing producing assets[102](index=102&type=chunk) - The company plans to increase production by performing workover operations on idle wells acquired in 2020 to bring them back online[102](index=102&type=chunk) - Key strategic elements include conservative and strategic capital deployment to maintain liquidity, and continuous evaluation and pursuit of value-enhancing transactions[104](index=104&type=chunk) [Recent Developments](index=31&type=section&id=Recent%20Developments) COVID-19 significantly impacted oil demand and prices in 2020, with future financial performance and accounting estimates still potentially affected - The COVID-19 pandemic caused a significant decline in crude oil demand and prices in 2020, negatively impacting the company's operating results and cash flows[103](index=103&type=chunk) - Although recent demand and commodity prices have recovered to pre-pandemic levels, future financial performance may still be affected by the ongoing pandemic[104](index=104&type=chunk) - Pandemic uncertainties affect management's accounting estimates and assumptions, potentially leading to greater volatility in areas like investments, receivables, and forward-looking guidance[104](index=104&type=chunk) [Critical Accounting Policies and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Financial statement preparation requires management estimates, and the company's crude oil derivative swap contract is not designated for hedge accounting - Financial statement preparation requires management to make assumptions and estimates affecting reported amounts of assets, liabilities, revenues, and expenses, with actual results potentially differing[105](index=105&type=chunk) - In H1 2021, the company entered into a crude oil derivative swap contract to manage price volatility, but it is not designated as a cash flow hedge, with fair value changes recognized in the statements of operations[106](index=106&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) The company's net loss significantly narrowed in Q2 and H1 2021 due to substantial oil and gas revenue growth and reduced impairment [Comparison of our Statements of Operations for the Three Months Ended June 30, 2021 and 2020](index=32&type=section&id=Comparison%20of%20our%20Statements%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030,%202021%20and%202020) 2021 Q2 vs 2020 Q2 Revenue, Production, and Average Sales Price | Metric | 2021 Q2 | 2020 Q2 | Change | Change Rate | | :-------------------- | :------ | :------ | :----- | :---------- | | **Revenue (thousand USD)** | | | | | | Oil | 1,507 | 201 | 1,306 | 650% | | Natural Gas | 149 | (12) | 161 | N/A | | **Total Revenue** | **1,656** | **189** | **1,467** | **776%** | | **Production** | | | | | | Oil (barrels) | 24,077 | 11,710 | 12,367 | 106% | | Natural Gas (thousand cubic feet) | 47,979 | 13,124 | 34,855 | 266% | | Oil Equivalent (BOE) | 32,073 | 13,897 | 18,176 | 131% | | Average Daily BOE (BOE/day) | 352 | 153 | 199 | | | **Average Sales Price** | | | | | | Oil (USD/barrel) | 62.59 | 17.18 | 45.41 | 264% | | Natural Gas (USD/thousand cubic feet) | 3.10 | (0.95) | 4.05 | N/A | | Oil Equivalent (USD/BOE) | 51.62 | 13.58 | 38.04 | 280% | - Q2 2021 oil and gas revenue increased by **$1,467 thousand** (**776%**), primarily driven by a **264%** rise in oil prices and a **106%** increase in oil production[110](index=110&type=chunk) - Production increases are mainly attributable to assets acquired in H2 2020 and the reactivation of idle wells in H1 2021[110](index=110&type=chunk) 2021 Q2 vs 2020 Q2 Oil and Gas Production Costs (thousand USD) | Item | 2021 Q2 | 2020 Q2 | Change | Change Rate | | :-------------------- | :------ | :------ | :----- | :---------- | | Production Taxes | 131 | 13 | 118 | 908% | | Lease Operating Expenses | 477 | 333 | 144 | 43% | | **Total** | **608** | **346** | **262** | **76%** | - Oil and gas asset impairment expense was **zero** in Q2 2021, compared to **$1.8 million** in the prior year period[114](index=114&type=chunk) - General and administrative expenses increased by **$445 thousand** (**121%**), primarily due to professional services (accounting, tax, legal) and the hiring of a new VP of Operations[114](index=114&type=chunk)[115](index=115&type=chunk) - In non-operating income/loss, Q2 2021 saw **$317 thousand** in commodity derivative losses, compared to none in Q2 2020, while tradable equity securities generated **$23 thousand** in unrealized gains, reversing prior year losses[116](index=116&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) [Comparison of our Statements of Operations for the Six Months Ended June 30, 2021 and 2020](index=34&type=section&id=Comparison%20of%20our%20Statements%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030,%202021%20and%202020) 2021 H1 vs 2020 H1 Revenue, Production, and Average Sales Price | Metric | 2021 H1 | 2020 H1 | Change | Change Rate | | :-------------------- | :------ | :------ | :----- | :---------- | | **Revenue (thousand USD)** | | | | | | Oil | 2,639 | 1,056 | 1,583 | 150% | | Natural Gas | 228 | 56 | 172 | 307% | | **Total Revenue** | **2,867** | **1,112** | **1,755** | **158%** | | **Production** | | | | | | Oil (barrels) | 45,949 | 32,014 | 13,935 | 44% | | Natural Gas (thousand cubic feet) | 72,173 | 53,437 | 18,736 | 35% | | Oil Equivalent (BOE) | 57,978 | 40,920 | 17,058 | 42% | | Average Daily BOE (BOE/day) | 320 | 225 | 95 | | | **Average Sales Price** | | | | | | Oil (USD/barrel) | 57.43 | 32.99 | 24.44 | 74% | | Natural Gas (USD/thousand cubic feet) | 3.16 | 1.04 | 2.12 | 204% | | Oil Equivalent (USD/BOE) | 49.44 | 27.17 | 22.27 | 82% | - H1 2021 oil and gas revenue increased by **$1,755 thousand** (**158%**), primarily due to a **74%** rise in oil prices and a **44%** increase in oil production[123](index=123&type=chunk) - Production increases are mainly attributable to assets acquired in H2 2020 and the reactivation of idle wells in H1 2021[124](index=124&type=chunk) 2021 H1 vs 2020 H1 Oil and Gas Production Costs (thousand USD) | Item | 2021 H1 | 2020 H1 | Change | Change Rate | | :-------------------- | :------ | :------ | :----- | :---------- | | Production Taxes | 210 | 80 | 130 | 163% | | Lease Operating Expenses | 1,045 | 742 | 303 | 41% | | **Total** | **1,255** | **822** | **433** | **53%** | - Oil and gas asset impairment expense was **zero** in H1 2021, compared to **$1.8 million** in the prior year period[128](index=128&type=chunk) - General and administrative expenses increased by **$608 thousand** (**65%**), primarily due to legal fees (reimbursement of **$406 thousand** to APEG II) and increased compensation and benefits[129](index=129&type=chunk) - In non-operating income/loss, H1 2021 saw **$210 thousand** in commodity derivative losses, while tradable equity securities generated **$73 thousand** in unrealized gains, reversing prior year losses[131](index=131&type=chunk)[132](index=132&type=chunk)[133](index=133&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity significantly improved in H1 2021, with working capital increasing to **$7.4 million** due to a **$5.3 million** common stock offering Liquidity Key Metrics (as of June 30, 2021 vs December 31, 2020) | Metric (thousand USD) | June 30, 2021 | December 31, 2020 | Change (thousand USD) | | :-------------------- | :------------ | :---------------- | :-------------------- | | Cash and Equivalents | 6,582 | 2,854 | 3,728 | | Working Capital | 7,416 | 2,499 | 4,917 | | Total Assets | 17,627 | 12,363 | 5,264 | | Total Shareholders' Equity | 14,482 | 8,567 | 5,915 | | Current Ratio | 5.7:1.0 | 2.2:1.0 | | - Working capital increased by **$4.9 million** to **$7.4 million**, primarily attributable to **$5.3 million** in net proceeds from a February 2021 common stock offering[138](index=138&type=chunk)[141](index=141&type=chunk) - The company is considering various capital enhancement options, including a reserve-based credit facility, selling non-operating oil and gas assets, selling tradable equity securities, or issuing additional common stock[142](index=142&type=chunk) Cash Flow Summary (for the Six Months Ended June 30, 2021) | Cash Flow Type (thousand USD) | 2021 H1 | 2020 H1 | Change (thousand USD) | | :---------------------------- | :------ | :------ | :-------------------- | | Operating Activities Cash Flow | (591) | (470) | (121) | | Investing Activities Cash Flow | (877) | (133) | (744) | | Financing Activities Cash Flow | 5,196 | (152) | 5,348 | - In H1 2021, financing activities provided **$5.2 million** in cash, primarily from common stock issuance, contrasting with a cash outflow in the prior year period[145](index=145&type=chunk) - Cash used in investing activities increased to **$877 thousand**, mainly for oil and gas capital expenditures, particularly for reactivating idle wells in the Liberty County field[144](index=144&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a "smaller reporting company," the company is exempt from providing quantitative and qualitative market risk disclosures - As a "smaller reporting company," the company is not required to provide quantitative and qualitative disclosures about market risk under Regulation S-K Item 305(e)[148](index=148&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls and procedures were deemed ineffective due to insufficient segregation of duties in accounting and system access - As of June 30, 2021, the company's disclosure controls and procedures were deemed ineffective[150](index=150&type=chunk) - Key material weaknesses include insufficient segregation of duties due to limited accounting personnel and resources, and inadequate segregation of duties for logical access to accounting systems[151](index=151&type=chunk)[153](index=153&type=chunk) - The company has developed a remediation plan and is taking steps to address these material weaknesses[153](index=153&type=chunk) - There were no significant changes in internal control over financial reporting during the quarter[152](index=152&type=chunk) Part II. OTHER INFORMATION [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) Legal proceedings information is disclosed in Note 9 to the financial statements, "Commitments, Contingencies and Related-Party Transactions" - Legal proceedings information is disclosed in Note 9 to the financial statements[157](index=157&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) The company's risk factors remain consistent with its 2020 annual report, which investors should consult for potential material impacts - The company's risk factors have not materially changed from those disclosed in its 2020 annual report[158](index=158&type=chunk) - Investors should consult the risk factors in the annual report, as various factors could materially and adversely affect the company's business, financial condition, operating results, and stock price[158](index=158&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No previously undisclosed unregistered equity securities sales occurred during the quarter or up to the report filing date - No unregistered sales of equity securities not previously disclosed in annual or 8-K reports occurred during the quarter ended June 30, 2021, or up to the report filing date[159](index=159&type=chunk) [Item 3. Defaults Upon Senior Securities](index=41&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Not applicable [Item 4. Mine Safety Disclosures](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) Not applicable [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the report, including the 2021 Equity Incentive Plan and CEO/CFO certifications - Exhibits include the 2021 Equity Incentive Plan, CEO and CFO 302 and 13a-14(b) certifications, and XBRL files[164](index=164&type=chunk) SIGNATURES [Report Signatures](index=43&type=section&id=Report%20Signatures) This report was formally signed and submitted by Ryan L. Smith, CEO and CFO of U.S. Energy Corp., on August 12, 2021 - This report was signed by Ryan L. Smith, Chief Executive Officer and Chief Financial Officer of U.S. Energy Corp., on August 12, 2021[170](index=170&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2021 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 000-06814 (Exact Name of Registrant as Specified in its Charter) | Wyoming | | 83-0205516 | | --- | --- | --- | | (State or othe ...

Part I [Business](index=9&type=section&id=Item%201.%20Business) The company is an independent energy firm acquiring and developing oil and gas properties, recently expanding into operated assets - The company is an independent energy company focused on the acquisition and development of oil and natural gas properties, primarily operating through a non-operator model but **expanded into operated properties in 2020**[43](index=43&type=chunk)[44](index=44&type=chunk) Key Operational and Reserve Data (as of Dec 31, 2020) | Metric | Value | | :--- | :--- | | Estimated Proved Reserves | 1,255,236 BOE (78% oil) | | Standardized Measure Value | $8.6 million | | Gross / Net Acres | 90,136 / 6,064 | | Gross / Net Producing Wells | 134 / 30.7 | | Average Net Production (2020) | 218 BOE per day | - In 2020, the company acquired operated properties in the Williston Basin, Permian Basin, Powder River Basin, and Gulf Coast, which represented **42.6% of the PV-10 value** of its reserves at year-end[49](index=49&type=chunk) - The company's business strategy focuses on disciplined capital deployment, growing production by performing workovers on operated idle wells, and continuously evaluating strategic acquisition opportunities[91](index=91&type=chunk)[94](index=94&type=chunk) - In February 2021, the company raised net proceeds of **$5.3 million** from an underwritten stock offering and in March 2021, it converted **~$413,000 of debt** to equity and hedged 100 barrels of crude oil per day at $61.90[111](index=111&type=chunk)[112](index=112&type=chunk)[114](index=114&type=chunk) [Risk Factors](index=21&type=section&id=Item%201A%20Risk%20Factors) The company faces significant risks from commodity price volatility, capital needs, operational hazards, and regulatory changes - The business is highly sensitive to volatile oil and gas prices, with the COVID-19 pandemic causing a **drastic decline in demand and prices**, adversely affecting revenues[119](index=119&type=chunk)[124](index=124&type=chunk)[126](index=126&type=chunk) - The company may need to raise additional capital for future acquisitions and operations, and failure to do so could force a **scale-back of the business plan**[116](index=116&type=chunk)[117](index=117&type=chunk) - **Material weaknesses in internal control** over financial reporting were identified as of December 31, 2020, related to inadequate segregation of duties[194](index=194&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) - The company is subject to the full cost accounting "ceiling test," which resulted in a **$2.9 million non-cash write-down** of oil and gas properties in 2020[189](index=189&type=chunk)[192](index=192&type=chunk) - The company's common stock may be **delisted from The Nasdaq Capital Market** if it fails to meet continued listing requirements, such as a minimum $1.00 stock price[215](index=215&type=chunk) - Operations are subject to extensive environmental regulations that can restrict activities and impose **significant compliance costs and liabilities**[203](index=203&type=chunk)[204](index=204&type=chunk)[209](index=209&type=chunk) [Unresolved Staff Comments](index=42&type=section&id=Item%201B%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments - None[234](index=234&type=chunk) [Properties](index=42&type=section&id=Item%202.%20Properties) The company's proved reserves increased due to acquisitions, while 2020 production declined due to shut-ins and natural declines Proved Oil and Natural Gas Reserves (BOE) | Year | Proved Developed | Proved Non-producing | Total Proved Reserves | | :--- | :--- | :--- | :--- | | **2020** | 1,150,368 | 104,868 | 1,255,236 | | **2019** | 995,720 | 0 | 995,720 | | **2018** | 874,260 | 0 | 874,260 | Annual Production Volumes | Year | Oil (Bbls) | Natural Gas (Mcfe) | Total (BOE) | Average (BOE/day) | | :--- | :--- | :--- | :--- | :--- | | **2020** | 60,469 | 116,082 | 79,816 | 218 | | **2019** | 110,090 | 209,518 | 145,010 | 397 | | **2018** | 75,003 | 286,692 | 122,785 | 336 | - The company did not participate in any development or exploratory drilling activities in 2020[247](index=247&type=chunk) - As of December 31, 2020, the company held **90,136 gross (6,064 net) acres**, with the majority being developed and held by production[251](index=251&type=chunk) - The company is in the process of selling a 30,400 square-foot office building and an adjacent 14-acre tract in Riverton, Wyoming[252](index=252&type=chunk) [Legal Proceedings](index=46&type=section&id=Item%203.%20Legal%20Proceedings) The company is contesting an arbitration claim from its former CEO and has resolved prior litigation with a major shareholder - In July 2020, former CEO David Veltri filed a request for arbitration, claiming breach of his employment agreement, which the company is vigorously contesting[423](index=423&type=chunk) - From February 2019 to August 2020, the company was involved in litigation with former CEO David Veltri and its largest shareholder, APEG II, which has since been dismissed[424](index=424&type=chunk) [Mine Safety Disclosures](index=47&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[260](index=260&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=48&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on NASDAQ, no dividends are planned, and all Series A preferred stock was redeemed in 2020 - The company's common stock is traded on the NASDAQ Capital Market under the symbol **"USEG"**[262](index=262&type=chunk) - The company did not pay cash dividends in fiscal 2020 or 2019 and does not intend to in the foreseeable future[265](index=265&type=chunk) - On December 31, 2020, the company **redeemed all 50,000 outstanding shares of Series A preferred stock** by paying $2.0 million in cash and issuing 328,000 shares of common stock[267](index=267&type=chunk) [Selected Financial Data](index=48&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is not required for smaller reporting companies - This Item is not required for smaller reporting companies[268](index=268&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue and production fell sharply in 2020, leading to a significant net loss, though liquidity improved via financing activities Comparison of Operations (2020 vs. 2019) | Metric | 2020 (in thousands) | 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $2,330 | $6,573 | -65% | | Total Operating Expenses | $7,700 | $7,363 | +5% | | Operating Loss | ($5,370) | ($790) | +580% | | Net Loss | ($6,439) | ($550) | +1071% | - The **65% decrease in revenue** was caused by a 45% decrease in production quantities and a 37% decrease in the average oil sales price[293](index=293&type=chunk) - The company recorded a **$2.9 million impairment** of oil and natural gas properties in 2020 due to the full cost ceiling limitation[298](index=298&type=chunk) - General and administrative expenses **decreased by 40% to $2.6 million**, mainly due to a $1.7 million reduction in professional fees[298](index=298&type=chunk) Cash Flow Summary (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by Operating Activities | ($717) | $638 | | Net cash used in Investing Activities | ($1,109) | ($281) | | Net cash provided by (used in) Financing Activities | $3,148 | ($1,165) | - Working capital surplus **increased by $1.0 million to $2.5 million** at year-end 2020, primarily due to $4.5 million in proceeds from common stock offerings[309](index=309&type=chunk) [Financial Statements and Supplementary Data](index=56&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited financial statements, with the auditor's report highlighting three critical audit matters - The independent auditor, Plante & Moran, PLLC, issued an **unqualified opinion** on the financial statements[343](index=343&type=chunk) - The audit identified **three critical audit matters**: 1) Impact of proved reserve estimates on property valuation, 2) Assessment of unevaluated properties, and 3) Accounting for property acquisitions[349](index=349&type=chunk)[352](index=352&type=chunk)[354](index=354&type=chunk) Consolidated Balance Sheet Highlights (as of Dec 31, in thousands) | Account | 2020 | 2019 | | :--- | :--- | :--- | | Cash and equivalents | $2,854 | $1,532 | | Net oil and natural gas properties | $7,438 | $8,454 | | Total Assets | $12,363 | $13,467 | | Total Liabilities | $3,796 | $2,257 | | Total Shareholders' Equity | $8,567 | $9,210 | - Supplemental disclosures show a standardized measure of discounted future net cash flows from proved reserves of **$8.6 million** at year-end 2020, down from $10.3 million at year-end 2019[470](index=470&type=chunk) - Subsequent to year-end, the company completed a **$5.3 million stock offering**, converted $413k in debt to equity, and entered a new hedging contract[472](index=472&type=chunk)[473](index=473&type=chunk)[475](index=475&type=chunk)[476](index=476&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=57&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants - None[322](index=322&type=chunk) [Controls and Procedures](index=57&type=section&id=Item%209A%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective due to two material weaknesses in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were **not effective** as of December 31, 2020[324](index=324&type=chunk) - **Two material weaknesses** were identified in internal control over financial reporting: 1) Inadequate segregation of duties due to limited staff, and 2) Inadequate segregation of duties for system access[327](index=327&type=chunk) - As a smaller reporting company, an **attestation report from the independent registered public accounting firm is not included**[330](index=330&type=chunk) [Other Information](index=58&type=section&id=Item%209B%20Other%20Information) The company reports no other information under this item - None[331](index=331&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=59&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item will be **incorporated by reference** from the company's 2021 Proxy Statement[335](index=335&type=chunk) [Executive Compensation](index=59&type=section&id=Item%2011.%20Executive%20Compensation) Information is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item will be **incorporated by reference** from the company's 2021 Proxy Statement[336](index=336&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=59&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item will be **incorporated by reference** from the company's 2021 Proxy Statement[337](index=337&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=59&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item will be **incorporated by reference** from the company's 2021 Proxy Statement[338](index=338&type=chunk) [Principal Accounting Fees and Services](index=59&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information is incorporated by reference from the company's 2021 Proxy Statement - Information required by this item will be **incorporated by reference** from the company's 2021 Proxy Statement[339](index=339&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=92&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements from Item 8 and all exhibits filed with or incorporated into the Form 10-K - This section lists the financial statements contained in Item 8 and all exhibits filed with the report[478](index=478&type=chunk)[479](index=479&type=chunk) - Filed exhibits include the Consent of the Independent Registered Public Accounting Firm and the Consent of the Reserve Engineer[479](index=479&type=chunk) - The Reserve Report Summary from Don Jacks, PE is filed as **Exhibit 99.1**[479](index=479&type=chunk) [Form 10-K Summary](index=94&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no summary under this item - None[483](index=483&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION For the Quarterly Period Ended September 30, 2020 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 000-06814 U.S. ENERGY CORP. (Exact Name of Registrant as Specified in its Charter) | Wyoming | 83-0205516 | | --- | --- | | (State or other jurisdiction of | (I.R.S. Employer | | incorporation or organization) | Identification No.) | | 675 Bering Dr, Suite 100, H ...

[Part I. FINANCIAL INFORMATION](index=4&type=section&id=Part%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, cash flows, and detailed notes on accounting policies and key financial areas [Condensed Consolidated Balance Sheets (unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20(unaudited)) Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | Change (in thousands) | Percentage Change | | :-------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------------------ | | Total Assets | $9,690 | $13,467 | $(3,777) | -28.05% | | Total Liabilities | $2,092 | $2,257 | $(165) | -7.31% | | Total Shareholders' Equity | $5,598 | $9,210 | $(3,612) | -39.22% | | Cash and equivalents | $777 | $1,532 | $(755) | -49.28% | | Net oil and natural gas properties | $7,057 | $8,454 | $(1,397) | -16.52% | - The company's **total assets decreased by $3,777 thousand, or 28.05%**, from December 31, 2019, to June 30, 2020, primarily driven by a decrease in **cash and equivalents** and **net oil and natural gas properties**[13](index=13&type=chunk)[14](index=14&type=chunk) [Condensed Consolidated Statements of Operations (unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20(unaudited)) Statements of Operations - Three Months Ended June 30 (in thousands) | Metric | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Change (in thousands) | Percentage Change | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | :------------------ | | Total Revenue | $189 | $1,872 | $(1,683) | -89.80% | | Operating Loss | $(2,417) | $(199) | $(2,218) | 1114.57% | | Net (Loss) Income | $(3,651) | $20 | $(3,671) | -18355.00% | | Basic and Diluted Loss Per Share | $(2.68) | $(0.05) | $(2.63) | 5260.00% | Statements of Operations - Six Months Ended June 30 (in thousands) | Metric | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Change (in thousands) | Percentage Change | | :-------------------------------- | :---------------------------------- | :---------------------------------- | :-------------------- | :------------------ | | Total Revenue | $1,112 | $3,433 | $(2,321) | -67.61% | | Operating Loss | $(2,653) | $(219) | $(2,434) | 1111.42% | | Net (Loss) Income | $(3,957) | $35 | $(3,992) | -11405.71% | | Basic and Diluted Loss Per Share | $(3.01) | $(0.11) | $(2.90) | 2636.36% | - The company experienced a significant decline in **total revenue** and a substantial increase in **net loss** for both the three and six months ended June 30, 2020, primarily due to **lower oil and natural gas prices** and **impairment charges**[16](index=16&type=chunk) [Condensed Consolidated Statements of Changes in Shareholders' Equity (unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity%20(unaudited)) Changes in Shareholders' Equity (in thousands) | Metric | December 31, 2019 (in thousands) | June 30, 2020 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------------------- | :--------------------------- | :-------------------- | | Total Shareholders' Equity | $9,210 | $5,598 | $(3,612) | | Accumulated Deficit | $(127,679) | $(131,636) | $(3,957) | | Shares Issued in Acquisition | - | 59,498 | 59,498 | | Share-based Compensation | - | $106 | $106 | - **Shareholders' equity decreased by $3,612 thousand**, primarily driven by a **net loss of $3,957 thousand** for the six months ended June 30, 2020. The company issued **59,498 shares** for the acquisition of New Horizon Resources and recognized **$106 thousand in share-based compensation**[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows (unaudited)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20(unaudited)) Cash Flow Activities (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Change (in thousands) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | | Net cash used in operating activities | $(470) | $(179) | $(291) | | Net cash used in investing activities | $(134) | $(201) | $67 | | Net cash used in financing activities | $(152) | $(1,076) | $924 | | Net decrease in cash and equivalents | $(755) | $(1,456) | $701 | | Cash and equivalents, end of period | $777 | $884 | $(107) | - **Cash used in operating activities increased by $291 thousand**, while **cash used in financing activities significantly decreased by $924 thousand**, primarily due to the repayment of the credit facility in the prior year. Overall, the **net decrease in cash and equivalents was $755 thousand** for the six months ended June 30, 2020[20](index=20&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Organization, Operations and Significant Accounting Policies](index=10&type=section&id=1.%20Organization,%20Operations%20and%20Significant%20Accounting%20Policies) - U.S. Energy Corp. is an **oil and natural gas acquisition, exploration, and development company**. The financial statements are prepared in accordance with GAAP and SEC interim reporting rules, with certain disclosures condensed or omitted[24](index=24&type=chunk)[25](index=25&type=chunk) - On January 6, 2020, the Company completed a **one-for-ten reverse stock split**, with all financial statements adjusted retrospectively[27](index=27&type=chunk) - As of June 30, 2020, the Company had **$0.8 million in cash** and **$1.3 million in working capital**, including **$725 thousand from real estate held for sale**. Management believes existing cash and resources, including expected proceeds from asset sales, will fund operations for the next twelve months, despite significant declines in commodity prices[28](index=28&type=chunk) - The Company adopted **ASU No. 2018-13 on January 1, 2020**, which changed fair value measurement disclosures for warrants, removing process disclosures and adding quantitative information on unobservable inputs[32](index=32&type=chunk) [2. Acquisition of New Horizon Resources](index=12&type=section&id=2.%20Acquisition%20of%20New%20Horizon%20Resources) - On March 1, 2020, the Company acquired New Horizon Resources, gaining operated producing properties in North Dakota, consisting of **nine gross wells (five net wells)** and approximately **1,300 net acres**[33](index=33&type=chunk) Acquisition Consideration and Assets (in thousands) | Consideration/Assets | Amount (in thousands) | | :------------------------------------ | :-------------------- | | Fair value of net assets acquired | $362 | | Cash consideration | $150 | | Issuance of common stock (59,498 shares) | $240 | | Cash acquired | $(28) | | Total fair value of consideration transferred | $362 | - For the six months ended June 30, 2020, New Horizon properties contributed **$33 thousand in revenues** and **$69 thousand in lease operating expenses**[34](index=34&type=chunk) [3. Real Estate Held for Sale](index=12&type=section&id=3.%20Real%20Estate%20Held%20for%20Sale) - The Company decided to sell its **14-acre tract with a 30,400 sq ft office building in Riverton, Wyoming**, which previously served as its corporate headquarters[35](index=35&type=chunk) Real Estate Held for Sale Metrics (in thousands) | Metric | Amount (in thousands) | | :------------------------------------ | :-------------------- | | Pre-impairment carrying value | $1,376 | | Estimated net proceeds | $725 | | Loss recognized on real estate held for sale | $651 | - A **loss of $651 thousand** was recognized to adjust the property's value to its **estimated net proceeds of $725 thousand**[37](index=37&type=chunk) [4. Revenue Recognition](index=13&type=section&id=4.%20Revenue%20Recognition) - Revenues are derived from **oil and natural gas sales**, with payments received one to three months after delivery. Variances between estimated and actual revenue are insignificant[38](index=38&type=chunk) - The Company reports **gross revenue from well operators** before production taxes and transportation costs, with production taxes reported separately and transportation costs in lease operating expense[41](index=41&type=chunk) Revenue by Geographic Area (in thousands) | Geographic Area | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :---------------- | :------------------------------------ | :------------------------------------ | :---------------------------------- | :---------------------------------- | | North Dakota | $125 | $679 | $663 | $1,252 | | Texas | $64 | $1,193 | $449 | $2,181 | | Total Revenue | $189 | $1,872 | $1,112 | $3,433 | - **Negative natural gas and liquids revenue for Q2 2020** was due to an over-accrual and negative realized prices[44](index=44&type=chunk) Revenue Concentration by Operator | Operator | 2020 Revenue Concentration | 2019 Revenue Concentration | | :---------------- | :------------------------- | :------------------------- | | CML Exploration LLC | 37% | 52% | | Zavanna LLC | 44% | 29% | [5. Leases](index=14&type=section&id=5.%20Leases) - The Company adopted **ASC 842 on January 1, 2019**, recording a **$228 thousand right-of-use asset** and a **$252 thousand lease liability** for its Denver office operating lease[46](index=46&type=chunk) Lease Balances (in thousands) | Lease Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :-------------------------- | :----------------------------- | :------------------------------- | | Right of use asset balance | $154 | $179 | | Total lease liability | $173 | $200 | Lease Costs and Sublease Income (in thousands) | Lease Cost Type | Three Months Ended June 30, 2020 (in thousands) | Three Months Ended June 30, 2019 (in thousands) | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :------------------ | :------------------------------------ | :------------------------------------ | :---------------------------------- | :---------------------------------- | | Total lease costs | $12 | $21 | $28 | $42 | | Sublease income | $(11) | $- | $(16) | $- | - The Company subleased its Denver office starting March 2020, generating **sublease income**. The **weighted average discount rate for leases is 8.75%**[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) Future Lease Commitments (in thousands) | Future Lease Commitments | Amount (in thousands) | | :----------------------- | :-------------------- | | Remainder of 2020 | $37 | | 2021 | $74 | | 2022 | $76 | | 2023 | $6 | | Total lease payments | $193 | | Less: imputed interest | $(20) | | Total lease liability | $173 | Riverton Office Building Lease Maturities (in thousands) | Riverton Office Building Lease Maturities | Amount (in thousands) | | :---------------------------------------- | :-------------------- | | Remainder of 2020 | $80 | | 2021 | $161 | | 2022 | $165 | | 2023 | $169 | | 2024 | $163 | | Remaining through June 2029 | $695 | | Total lease maturities | $1,433 | [6. Oil and Natural Gas Production Activities](index=16&type=section&id=6.%20Oil%20and%20Natural%20Gas%20Production%20Activities) - The Company recorded a **$1.8 million ceiling test write-down** of its oil and gas properties for the three months ended June 30, 2020, due to **reduced crude oil prices** and the performance of a South Texas well[54](index=54&type=chunk) - The ceiling test calculation as of June 30, 2020, used **$47.17 per barrel for oil** and **$2.07 per MMbtu for natural gas**, with a **10% discount factor**[53](index=53&type=chunk) - An additional **$2.1 million reclassification to the depletable base** of the full cost pool was recorded due to a reduction in the value of certain unevaluated acreage[54](index=54&type=chunk) [7. Debt](index=17&type=section&id=7.%20Debt) - In December 2017, APEG II exchanged **$4.5 million of outstanding borrowings for 581,927 shares of common stock**, representing approximately **42% of the Company's outstanding common stock** as of June 30, 2020[55](index=55&type=chunk) - The credit facility was fully repaid on March 1, 2019, and terminated on July 30, 2019. **Interest expense for the six months ended June 30, 2019, was $20 thousand**, with a **weighted average interest rate of 8.75%**[56](index=56&type=chunk) [8. Write-Off of Deposit](index=17&type=section&id=8.%20Write-Off%20of%20Deposit) - The Company made a **$250,000 option payment** and an additional **$124,000 to CETA in 2017-2018** for an option to acquire shares or lease properties. As of June 30, 2020, **$225,000 has been received**, and an allowance for the remaining **$75,000 due from CETA** has been established due to collection uncertainty[57](index=57&type=chunk) [9. Commitments, Contingencies and Related-Party Transactions](index=17&type=section&id=9.%20Commitments,%20Contingencies%20and%20Related-Party%20Transactions) - The Company was involved in **litigation with APEG II** (its largest shareholder) and its **former CEO, David Veltri**, regarding control of company funds and management termination[58](index=58&type=chunk)[61](index=61&type=chunk)[66](index=66&type=chunk) - The Texas Federal Court ordered APEG to return Company funds, less the outstanding credit facility balance, resulting in the Company receiving approximately **$850 thousand**[62](index=62&type=chunk) - The Colorado Federal Court granted injunctive relief against Mr. Veltri for continuing to act as CEO without authorization and appointed a temporary custodian, C. Randel Lewis, to resolve board deadlock[69](index=69&type=chunk)[70](index=70&type=chunk) - Both the Texas and Colorado litigations were dismissed in July and May 2020, respectively, with the Company expecting all related matters to be formally dismissed in August 2020[65](index=65&type=chunk)[71](index=71&type=chunk) [10. Preferred Stock](index=19&type=section&id=10.%20Preferred%20Stock) - The Company issued **50,000 shares of Series A Convertible Preferred Stock to Mt. Emmons Mining Company (MEM) for $2 million in 2016**, with a liquidation preference increasing by quarterly dividends of **12.25% per annum**[73](index=73&type=chunk) - Each share of Preferred Stock is convertible into **1.33 shares of common stock**, totaling **79,334 shares** as of June 30, 2020, after accounting for the reverse stock split[73](index=73&type=chunk) - Preferred Stock is senior to common stock regarding dividend and liquidation rights, and holders have approval rights on specified matters and the right to demand repurchase upon a change of control[75](index=75&type=chunk) [11. Shareholders' Equity](index=20&type=section&id=11.%20Shareholders'%20Equity) - In December 2016, the Company issued warrants to purchase **100,000 shares of common stock** at an exercise price of **$20.05 per share** (adjusted to **$11.30** due to anti-dilution provisions). The warrants are classified as liabilities due to a redemption option in a 'Fundamental Transaction'[76](index=76&type=chunk) Warrant Fair Value and Revaluation (in thousands) | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :----------------------- | :----------------------------- | :------------------------------- | | Fair value of warrants | $193 | $73 | | Warrant revaluation (loss) gain (6 months) | $(120) | $242 | - **Total stock-based compensation expense related to stock options was $0** for the six months ended June 30, 2020, compared to **$26 thousand in 2019**, as all stock options had vested[78](index=78&type=chunk) - In January 2020, the Company granted **48,000 restricted shares to the CEO** and **28,000 to Board members**, resulting in **$106 thousand in stock compensation expense** for the six months ended June 30, 2020, with **$266 thousand unrecognized**[81](index=81&type=chunk) [12. Asset Retirement Obligations](index=21&type=section&id=12.%20Asset%20Retirement%20Obligations) - The Company has **AROs for future plugging and abandonment of proved properties**, recorded at fair value with a corresponding increase in asset carrying amount[82](index=82&type=chunk) Asset Retirement Obligations (in thousands) | Metric | Six Months Ended June 30, 2020 (in thousands) | Year Ended December 31, 2019 (in thousands) | | :------------------------------------ | :------------------------------------ | :---------------------------------- | | Balance, beginning of period | $819 | $939 | | Liabilities incurred for acquisition of New Horizon wells | $163 | $- | | Balance, end of period | $985 | $819 | - **AROs increased by $163 thousand** due to liabilities incurred from the acquisition of New Horizon wells[84](index=84&type=chunk) [13. Income Taxes](index=22&type=section&id=13.%20Income%20Taxes) - The Company's **effective tax rate for the three and six months ended June 30, 2020 and 2019, was 0%**[85](index=85&type=chunk) - A **full valuation allowance is maintained against all Deferred Tax Assets (DTAs)** due to uncertainty of realization, resulting in no recorded DTAs as of June 30, 2020[87](index=87&type=chunk) - The Company is analyzing the CARES Act but expects **no material impact on its tax position**[89](index=89&type=chunk) [14. Earnings (Loss) Per Share](index=22&type=section&id=14.%20Earnings%20(Loss)%20Per%20Share) - Basic and diluted net loss per common share are calculated by dividing net loss attributable to common shareholders by the weighted-average common shares outstanding[90](index=90&type=chunk) Earnings (Loss) Per Share Data (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss applicable to common shareholders (in thousands) | $(3,754) | $(71) | $(4,160) | $(143) | | Basic and Diluted Loss Per Share | $(2.68) | $(0.05) | $(3.01) | $(0.11) | | Basic and Diluted Weighted Average Common Shares Outstanding (in thousands) | 1,399 | 1,341 | 1,380 | 1,341 | - All potentially dilutive securities (stock options, restricted stock, warrants, Series A preferred stock) were **anti-dilutive** and excluded from diluted EPS calculations due to the net loss[90](index=90&type=chunk)[93](index=93&type=chunk) [15. Fair Value Measurements](index=23&type=section&id=15.%20Fair%20Value%20Measurements) - Fair value measurements are categorized into a hierarchy: **Level 1 (quoted prices in active markets)**, **Level 2 (observable inputs other than Level 1)**, and **Level 3 (unobservable inputs)**[94](index=94&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk) - Warrants are classified as **Level 3 liabilities** and valued using a Lattice model, with fair values of **$193 thousand at June 30, 2020**, and **$73 thousand at December 31, 2019**. Key inputs include volatility, probability of down-round events, and risk-free interest rates[97](index=97&type=chunk)[99](index=99&type=chunk) - Marketable equity securities (investment in Anfield) are classified as **Level 1** due to quoted market prices on the TSX Venture Exchange[100](index=100&type=chunk) - Oil and gas properties and real estate assets held for sale are valued on a non-recurring basis using **Level 3 inputs**, such as estimated future discounted cash flows, production, prices, operating costs, and capitalization rates[101](index=101&type=chunk)[102](index=102&type=chunk) [16. Subsequent Events Update](index=25&type=section&id=16.%20Subsequent%20Events%20Update) - On July 22, 2020, the Company sold **1,210,455 shares of Anfield Energy Inc. for approximately $45 thousand**, retaining **2,420,910 shares** which it expects to sell in Q3 2020[105](index=105&type=chunk) - On July 30, 2020, the Company filed a Notice of Voluntary Dismissal in its lawsuit against former CEO David Veltri, expecting all Texas Litigation matters to be dismissed in August 2020[106](index=106&type=chunk) - In July 2020, the Company received an arbitration request from a former employee for breach of employment agreement. The Company has accrued **$100 thousand for its insurance deductible**, believing the insurance carrier will settle the claim[107](index=107&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the Company's financial condition and operational results, covering COVID-19 impacts, legal proceedings, accounting policies, and analysis of revenue, expenses, liquidity, and cash flows [General Overview](index=26&type=section&id=General%20Overview) - U.S. Energy Corp. is an **independent energy company focused on acquiring and developing oil and natural gas properties** in South Texas and the Williston Basin in North Dakota[110](index=110&type=chunk) - The Company operates under a **non-operator business model**, relying on partners for drilling, completion, production, and marketing of oil and natural gas[111](index=111&type=chunk) [Recent Developments](index=26&type=section&id=Recent%20Developments) - On July 22, 2020, the Company sold **1,210,455 common shares of Anfield Energy Inc. for approximately $45 thousand** and expects to sell the remaining **2,420,910 shares** during Q3 2020[112](index=112&type=chunk) [Impacts of COVID-19 Pandemic and Effect on Economic Environment](index=26&type=section&id=Impacts%20of%20COVID-19%20Pandemic%20and%20Effect%20on%20Economic%20Environment) - The COVID-19 pandemic led to a **drastic decline in global demand** and an **oversupply of crude oil**, causing spot and future prices to fall to historic lows in Q2 2020[113](index=113&type=chunk) - Operators in North Dakota significantly decreased drilling and completion activity and shut in or curtailed production, impacting the Company's revenues[113](index=113&type=chunk) - The Company recorded a **$1.8 million ceiling test write-down** at June 30, 2020, due to lower crude oil prices affecting proved reserve values. Further write-downs are likely if depressed prices continue[114](index=114&type=chunk) [Legal Proceedings](index=28&type=section&id=Legal%20Proceedings) - Litigation with APEG II and former CEO David Veltri is expected to be formally dismissed in August 2020, following voluntary dismissals filed by both parties in July 2020[116](index=116&type=chunk) - In July 2020, the Company received an arbitration request from a former employee for breach of employment agreement and has accrued **$100 thousand for its insurance deductible**[117](index=117&type=chunk) [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - The preparation of financial statements requires management to make assumptions and estimates that affect reported amounts, with actual results potentially differing under various conditions[118](index=118&type=chunk) [Recently Issued Accounting Standards](index=28&type=section&id=Recently%20Issued%20Accounting%20Standards) - Information on recently issued accounting standards and adoption plans is detailed in Note 1 of the financial statements[119](index=119&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) [Comparison of our Statements of Operations for the Three Months Ended June 30, 2020 and 2019](index=29&type=section&id=Comparison%20of%20our%20Statements%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030,%202020%20and%202019) Statements of Operations Comparison - Three Months Ended June 30 (in thousands, except per share and price data) | Metric | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Total Revenue | $189 | $1,872 | $(1,683) | -90% | | Oil Production (Bbls) | 11,710 | 29,386 | (17,676) | -60% | | Gas Production (Mcfe) | 13,124 | 60,141 | (47,017) | -78% | | Average Oil Price (Bbls) | $17.18 | $59.89 | $(42.73) | -71% | | Average Gas Price (Mcfe) | $(0.95) | $1.86 | $(2.82) | -151% | | BOE Production | 13,897 | 39,410 | (25,513) | -65% | - **Total revenue decreased by 90%** due to a **60% decrease in oil production** and a **71% decrease in realized oil prices**, primarily caused by reduced demand from the COVID-19 pandemic and operators shutting in North Dakota production[122](index=122&type=chunk)[123](index=123&type=chunk) Production Costs Comparison - Three Months Ended June 30 (in thousands) | Production Costs | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Production taxes | $13 | $118 | $(105) | -89% | | Lease operating expense | $333 | $471 | $(138) | -29% | | Total Production Costs | $346 | $589 | $(243) | -41% | - **Production taxes decreased by 89%** due to lower oil revenues, and **lease operating expenses decreased by 29%** due to production shut-ins and cost-cutting measures[125](index=125&type=chunk) - **DD&A rate increased to $6.45 per BOE from $4.98 per BOE**, impacted by a **$2.1 million reclassification of unevaluated properties** and reduced reserve quantities[126](index=126&type=chunk) - An **impairment of $1.8 million** was recorded for oil and natural gas properties due to the net capitalized cost exceeding the full cost ceiling limitation[127](index=127&type=chunk) G&A Expenses Comparison - Three Months Ended June 30 (in thousands) | G&A Expenses | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Total G&A Expenses | $367 | $1,280 | $(913) | -71% | | Professional fees, insurance and other | $71 | $1,064 | $(993) | -91% | | Compensation and benefits | $296 | $188 | $108 | 57% | - **General and administrative expenses decreased by 71%**, primarily due to a **$931 thousand reduction in legal fees** (including removal of **$250 thousand for litigation settlement accruals**), partially offset by a **$108 thousand increase in compensation and benefits** from stock-based awards[128](index=128&type=chunk) Non-Operating Items Comparison - Three Months Ended June 30 (in thousands) | Non-Operating Items | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Total other (expense) income | $(1,234) | $219 | $(1,453) | -663% | | Loss on real estate held for sale | $(651) | $- | $(651) | N/A% | | Impairment of real estate | $(403) | $- | $(403) | N/A% | | Warrant revaluation (loss) gain | $(114) | $234 | $(348) | -149% | | Unrealized loss on marketable equity securities | $(46) | $(8) | $(38) | -475% | - **Non-operating expense increased significantly** due to a **$651 thousand loss on real estate held for sale**, a **$403 thousand impairment of other real estate**, and a **$114 thousand warrant revaluation loss**[129](index=129&type=chunk)[130](index=130&type=chunk)[132](index=132&type=chunk) [Comparison of our Statements of Operations for the Six Months Ended June 30, 2020 and 2019](index=31&type=section&id=Comparison%20of%20our%20Statements%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030,%202020%20and%202019) Statements of Operations Comparison - Six Months Ended June 30 (in thousands, except per share and price data) | Metric | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Total Revenue | $1,112 | $3,433 | $(2,321) | -68% | | Oil Production (Bbls) | 32,014 | 54,739 | (22,725) | -42% | | Gas Production (Mcfe) | 53,437 | 113,402 | (59,965) | -53% | | Average Oil Price (Bbls) | $32.99 | $58.00 | $(25.02) | -43% | | Average Gas Price (Mcfe) | $1.04 | $2.28 | $(1.24) | -54% | | BOE Production | 40,920 | 73,639 | (32,719) | -44% | - **Total revenue decreased by 68%** for the six months, driven by a **42% decrease in oil production** and a **43% decrease in realized oil prices**, primarily due to the COVID-19 pandemic and production shut-ins in North Dakota[136](index=136&type=chunk)[137](index=137&type=chunk) Production Costs Comparison - Six Months Ended June 30 (in thousands) | Production Costs | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Production taxes | $80 | $216 | $(136) | -63% | | Lease operating expense | $742 | $938 | $(196) | -21% | | Total Production Costs | $822 | $1,154 | $(332) | -29% | - **Production taxes decreased by 63%** due to lower oil revenues, and **lease operating expenses decreased by 21%** due to production shut-ins and cost-cutting measures[139](index=139&type=chunk) - **DD&A rate was $4.76 per BOE**, slightly lower than **$4.87 per BOE in 2019**, impacted by a **$2.1 million reclassification of unevaluated properties** and reduced reserve quantities[140](index=140&type=chunk) - An **impairment of $1.8 million** was recorded for oil and natural gas properties due to the net capitalized cost exceeding the full cost ceiling limitation[141](index=141&type=chunk) G&A Expenses Comparison - Six Months Ended June 30 (in thousands) | G&A Expenses | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Total G&A Expenses | $939 | $2,128 | $(1,189) | -56% | | Professional fees, insurance and other | $420 | $1,620 | $(1,200) | -74% | | Compensation and benefits | $519 | $480 | $39 | 8% | - **General and administrative expenses decreased by 56%**, primarily due to a **$1,232 thousand reduction in legal fees** (including removal of **$250 thousand for litigation settlement accruals**), partially offset by a **$39 thousand increase in compensation and benefits** from stock-based awards[142](index=142&type=chunk) Non-Operating Items Comparison - Six Months Ended June 30 (in thousands) | Non-Operating Items | June 30, 2020 (in thousands) | June 30, 2019 (in thousands) | Change (in thousands) | Percent Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------------- | | Total other (expense) income | $(1,304) | $254 | $(1,558) | -613% | | Loss on real estate held for sale | $(651) | $- | $(651) | N/A% | | Impairment of real estate | $(403) | $- | $(403) | N/A% | | Warrant revaluation (loss) gain | $(120) | $242 | $(362) | -150% | | Unrealized (loss) gain on marketable equity securities | $(121) | $5 | $(126) | -2,520% | - **Non-operating expense increased significantly** due to a **$651 thousand loss on real estate held for sale**, a **$403 thousand impairment of other real estate**, and a **$120 thousand warrant revaluation loss**[144](index=144&type=chunk)[145](index=145&type=chunk)[147](index=147&type=chunk) [Non-GAAP Financial Measures- Adjusted EBITDAX](index=34&type=section&id=Non-GAAP%20Financial%20Measures-%20Adjusted%20EBITDAX) - Adjusted EBITDAX is a non-GAAP measure used to evaluate performance, excluding items like DDA, impairment, stock-based compensation, unrealized gains/losses, and interest expense[150](index=150&type=chunk)[151](index=151&type=chunk) Adjusted EBITDAX (Non-GAAP) (in thousands) | Metric | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Income (loss) from continuing operations (GAAP) | $(3,957) | $35 | | Adjusted EBITDAX (Non-GAAP) | $(550) | $204 | - **Adjusted EBITDAX decreased from a gain of $204 thousand in 2019 to a loss of $550 thousand in 2020**, reflecting the operational challenges and impairments[152](index=152&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity and Capital Resources Metrics (in thousands) | Metric | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | Change (in thousands) | | :-------------------- | :----------------------------- | :------------------------------- | :-------------------- | | Cash and equivalents | $777 | $1,532 | $(755) | | Working capital | $1,343 | $1,470 | $(127) | | Total assets | $9,690 | $13,467 | $(3,777) | | Total shareholders' equity | $5,598 | $9,210 | $(3,612) | | Current ratio | 2.7 to 1.0 | 2.2 to 1.0 | N/A | - **Working capital decreased by $127 thousand**, primarily due to cash used in operating activities and the New Horizon acquisition, partially offset by the reclassification of real estate held for sale[154](index=154&type=chunk) - The Company had **$777 thousand in cash and equivalents** as of June 30, 2020, and **$783 thousand** as of August 7, 2020[155](index=155&type=chunk) - Lower crude oil prices, which remained historically low in Q2 2020, negatively impact revenues and may lead to additional ceiling test write-downs. The Company currently lacks commodity derivative contracts[156](index=156&type=chunk)[157](index=157&type=chunk) - The Company is actively pursuing the sale of its Riverton, Wyoming office building, with an estimated realizable value between **$700 thousand and $900 thousand**[158](index=158&type=chunk) - Potential financing alternatives for 2020 include refinancing credit facilities, selling oil and natural gas assets, or issuing common stock[160](index=160&type=chunk) [Cash Flows](index=36&type=section&id=Cash%20Flows) Cash Flow Activities Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2020 (in thousands) | Six Months Ended June 30, 2019 (in thousands) | Change (in thousands) | | :-------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | | Operating activities | $(470) | $(179) | $(291) | | Investing activities | $(134) | $(201) | $67 | | Financing activities | $(152) | $(1,076) | $924 | - **Cash used in operating activities increased by $291 thousand** due to decreased revenues, partially offset by reduced operating expenses and changes in working capital[162](index=162&type=chunk) - **Cash used in investing activities decreased by $67 thousand**, with the primary use in 2020 being the **$122 thousand net cash for the New Horizon acquisition**[163](index=163&type=chunk) - **Cash used in financing activities significantly decreased by $924 thousand**, mainly due to the repayment of the credit facility in 2019, compared to smaller repayments on insurance premium notes and the New Horizon credit facility in 2020[164](index=164&type=chunk) [Off-Balance Sheet Arrangements](index=37&type=section&id=Off-Balance%20Sheet%20Arrangements) - The Company has not participated in transactions generating relationships with unconsolidated entities or special purpose entities (SPEs) for off-balance sheet arrangements during the reporting periods[165](index=165&type=chunk)[166](index=166&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, U.S. Energy Corp. is exempt from providing quantitative and qualitative disclosures about market risk - The Company is exempt from providing quantitative and qualitative disclosures about market risk as a smaller reporting company[167](index=167&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of disclosure controls and internal control over financial reporting, highlighting identified material weaknesses and remediation efforts [Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.](index=38&type=section&id=Conclusion%20Regarding%20the%20Effectiveness%20of%20Disclosure%20Controls%20and%20Procedures.) - As of June 30, 2020, the CEO and CFO determined that the Company's **disclosure controls and procedures were not effective**[170](index=170&type=chunk) - Material weaknesses in internal control over financial reporting include **inadequate segregation of duties** due to limited accounting staff and **inadequate controls over physical and logical access to IT systems**[171](index=171&type=chunk)[174](index=174&type=chunk) [Changes in Internal Control over Financial Reporting.](index=38&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting.) - There were **no changes to the internal control over financial reporting** during the three months ended June 30, 2020, that materially affected or are reasonably likely to materially affect the system of controls[172](index=172&type=chunk) - The Company has designed and is implementing a remediation plan to strengthen internal controls and improve disclosure controls and procedures[173](index=173&type=chunk) [Part II. OTHER INFORMATION](index=39&type=section&id=Part%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the detailed discussion of legal proceedings, including litigation with APEG II and former CEO David Veltri, as outlined in the financial statement notes - Legal proceedings involving APEG II and former CEO David Veltri are detailed in Note 9 of the financial statements[176](index=176&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.Risk%20Factors) As a smaller reporting company, U.S. Energy Corp. is exempt from providing a separate discussion of risk factors in this quarterly report - The Company is exempt from providing risk factor information as a smaller reporting company[177](index=177&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company reported no unregistered sales of equity securities or use of proceeds during the reporting period - No unregistered sales of equity securities or use of proceeds occurred[178](index=178&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities during the reporting period - No defaults upon senior securities were applicable[178](index=178&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The Company reported no mine safety disclosures during the reporting period - Mine safety disclosures were not applicable[179](index=179&type=chunk) [Item 5. Other Information](index=39&type=section&id=Item%205.%20Other%20Information) The Company reported no other information requiring disclosure under this item - No other information was applicable[180](index=180&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate documents, agreements, and certifications - The exhibits include various corporate documents such as Amended and Restated Articles of Incorporation, Bylaws, Certificate of Designation for Series A Convertible Preferred Stock, Common Stock Purchase Warrant, and several stock compensation and incentive plans[182](index=182&type=chunk)[183](index=183&type=chunk) - Key agreements listed are the Mt. Emmons Mining Company Acquisition Agreement, Series A Convertible Preferred Stock Purchase Agreement, Investor Rights Agreement, and the Exchange Agreement with APEG Energy II, L.P.[182](index=182&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk) - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to the Sarbanes-Oxley Act are also included[184](index=184&type=chunk) [Signatures](index=42&type=section&id=Signatures) The report is duly signed by Ryan L. Smith, Chief Executive Officer and Chief Financial Officer, on August 14, 2020 - The report was signed by Ryan L. Smith, Chief Executive Officer and Chief Financial Officer, on August 14, 2020[188](index=188&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2020 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 000-06814 U.S. ENERGY CORP. (Exact Name of Registrant as Specified in its Charter) | Wyoming | 83-0205516 | | --- | --- | | (State ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION U.S. ENERGY CORP. (Exact Name of Company as Specified in its Charter) Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2019 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 000-06814 Wyoming 83-0205516 (State or other jurisdiction of incor ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 2019 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 000-06814 U.S. ENERGY CORP. (Exact Name of Registrant as Specified in its Charter) | Wyoming | | 83-0205516 | | --- | --- | --- ...

(Mark One) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 2019 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 000-06814 U.S. ENERGY CORP. (Exact Name of Registrant as Specified in its Charter) | Wyoming | 83-0205516 | | --- | --- | | (State o ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended March 31, 2019 [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 000-06814 U.S. ENERGY CORP. | Wyoming | 83-0205516 | | --- | --- | | (State or other jurisdiction of | (I.R.S. Employer | | incorpo ...