U.S. Energy (USEG) - 2025 Q2 - Quarterly Report

Cautionary Note About Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to risks and uncertainties, not guarantees of future results - This report contains forward-looking statements regarding future operations and financial performance, which are subject to risks and uncertainties and are not guarantees of future results[9][10] - Examples of forward-looking statements include plans for capital expenditures, drilling activities, future cash flows, potential acquisitions, and the ability to raise additional financing[12] Part I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for U.S. Energy Corp. as of June 30, 2025, and for the three and six-month periods then ended Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2025, shows a slight increase in total assets to $51.0 million from $49.7 million at year-end 2024, primarily driven by an increase in unevaluated industrial gas properties Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $8,215 | $9,724 | | Oil, natural gas and industrial gas properties, net | $41,718 | $38,455 | | Total Assets | $50,993 | $49,667 | | Total Current Liabilities | $10,767 | $12,348 | | Total Liabilities | $23,033 | $25,846 | | Total Shareholders' Equity | $27,960 | $23,821 | Condensed Consolidated Statements of Operations For Q2 2025, revenue decreased to $2.0 million from $6.0 million in Q2 2024, widening the net loss to $6.1 million due to lower sales and an impairment charge Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $2,028 | $6,046 | $4,222 | $11,437 | | Operating Loss | $(6,239) | $(1,716) | $(9,326) | $(9,738) | | Net Loss | $(6,058) | $(1,974) | $(9,169) | $(11,511) | | Basic and Diluted Loss Per Share | $(0.19) | $(0.08) | $(0.27) | $(0.45) | - The company recorded a $2.8 million impairment charge on oil and natural gas properties in Q2 2025, contributing significantly to the operating loss[18] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $6.1 million for the six months ended June 30, 2025, with financing activities providing $9.6 million from an equity offering Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(6,126) | $326 | | Net cash used in investing activities | $(4,509) | $(2,696) | | Net cash provided by financing activities | $9,641 | $1,242 | | Net decrease in cash and equivalents | $(995) | $(1,128) | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail accounting policies, acquisitions, revenue recognition, including an industrial gas acreage acquisition, an impairment charge, and a January 2025 equity issuance - On January 7, 2025, the Company acquired 24,000 net operated acres in Montana from Synergy Offshore LLC, a related party, for total consideration of $4.7 million, consisting of cash, common stock, and a carried working interest[34][35][36] - A $2.8 million ceiling test write-down of oil and natural gas properties was recorded in Q2 2025 due to a decrease in crude oil prices and reserve reductions from recent divestitures[44] - In January 2025, the Company completed an underwritten offering of 4,871,400 shares of common stock, generating approximately $11.9 million in net proceeds to be used for development of its Montana assets and general corporate purposes[54][55] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a 66% revenue decrease in Q2 2025, driven by lower production and prices, alongside strategic shifts to industrial gas development and an equity offering Material Developments Key events include the acquisition of 24,000 net acres of industrial gas properties, an $11.9 million equity offering, and an extended share repurchase program - Acquired 24,000 net operated acres in the Kevin Dome structure in Montana from Synergy Offshore LLC, a related party[99][100] - Closed an underwritten offering of 4,871,400 shares of common stock on January 23, 2025, generating net proceeds of approximately $11.9 million[103][104] - Extended the ongoing share repurchase program for up to $5.0 million, now scheduled to expire on June 30, 2026, with $3.5 million remaining available as of June 30, 2025[107][109] - Drilled 2 new industrial gas wells in Montana during Q2 2025, targeting first production in 2026[111] Results of Operations Financial results worsened in H1 2025, with Q2 revenue down 66% to $2.0 million and a net loss of $6.1 million, primarily due to divestitures and lower commodity prices Q2 2025 vs Q2 2024 Performance | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $2,028k | $6,046k | (66)% | | Production (BOE) | 48,816 | 111,091 | (56)% | | Average Sales Price ($/BOE) | $41.54 | $54.42 | (24)% | | Lease Operating Expense ($/BOE) | $32.14 | $27.69 | 16% | Six Months 2025 vs Six Months 2024 Performance | Metric | 6M 2025 | 6M 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $4,222k | $11,437k | (63)% | | Production (BOE) | 95,824 | 220,890 | (57)% | | Average Sales Price ($/BOE) | $44.06 | $51.78 | (15)% | | Lease Operating Expense ($/BOE) | $33.16 | $28.35 | 17% | - The decrease in production quantities is primarily attributed to divestitures of properties in the Karnes County, East Texas, and Mid-con regions during the second half of 2024, as well as natural production declines[119][130] Liquidity and Capital Resources Liquidity was strengthened by an $11.9 million equity offering, with planned industrial gas development costs of $1.0-$2.5 million for the remainder of 2025 - The company raised $11.9 million in net proceeds from an equity offering in January 2025 to fund capital expenditures[142] - Anticipated industrial gas development costs for the remainder of 2025 are projected to be between $1.0 million and $2.5 million[141] - As of June 30, 2025, there were no amounts outstanding on the credit facility, which has a borrowing base of $20 million[143][145] - Effective August 1, 2025, the company agreed to an amended Credit Agreement with a reduced borrowing base of $10.0 million and an extended maturity date of May 31, 2029[90][114] Quantitative and Qualitative Disclosures About Market Risk As a "smaller reporting company," U.S. Energy Corp. is exempt from providing market risk disclosures - The Company is a "smaller reporting company" and is not required to provide the information requested by this item[152] Controls and Procedures Management concluded disclosure controls were ineffective as of June 30, 2025, due to a material weakness in the accounting system, now being remediated by outsourcing - Management concluded that disclosure controls and procedures were not effective as of June 30, 2025[154] - The ineffectiveness is due to a material weakness in internal control over financial reporting related to the accounting system, as identified on December 31, 2024[154][155] - In January 2025, the company initiated remediation by outsourcing much of its day-to-day accounting to a third-party provider using a new system, which is expected to resolve the material weakness by year-end 2025[157] Part II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition - The Company is not currently involved in any legal proceedings that it believes could reasonably be expected to have a material adverse effect on its business, prospects, financial condition or results of operations[160] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes have occurred from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[162] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales occurred, but 71,800 shares were repurchased in Q2 2025, and the program was extended to June 30, 2026, with $3.5 million remaining Share Repurchase Activity for Q2 2025 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 1 - April 30, 2025 | 71,800 | $1.153 | | May 1 - May 31, 2025 | — | $— | | June 1 - June 30, 2025 | — | $— | | Total | 71,800 | $1.153 | - The share repurchase program was extended and is scheduled to expire on June 30, 2026, with approximately $3.5 million remaining for repurchases as of April 30, 2025[164] Other Information No directors or officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025 - No directors or officers adopted or terminated any Rule 10b5-1 trading plans during the quarter ended June 30, 2025[168] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - The exhibits filed with this report include certifications from the Chief Executive Officer and Chief Financial Officer, as well as Inline XBRL documents[169] Signatures The report was signed on August 12, 2025, by Ryan L. Smith, Chief Executive Officer, and Mark L. Zajac, Chief Financial Officer - The report was signed on August 12, 2025, by Ryan L. Smith, Chief Executive Officer, and Mark L. Zajac, Chief Financial Officer[172][174]