U.S. Energy (USEG) - 2021 Q2 - Quarterly Report

FORM 10-Q Filing Information Registrant Information 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] - The company is designated as a non-accelerated filer and a smaller reporting company[5] - As of August 10, 2021, the company had 4,676,301 shares of common stock outstanding[6] Cautionary Note About Forward-Looking Statements Forward-Looking Statements 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] - 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] - The company undertakes no obligation to revise or publicly release any revisions, unless required by law[13] - 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] Part I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements and notes for Q2 and H1 2021 Condensed Consolidated Balance Sheets (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] - 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] Condensed Consolidated Statements of Operations (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] - 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] Condensed Consolidated Statements of Changes in Shareholders' Equity (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] - 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] Condensed Consolidated Statements of Cash Flows (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] - 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] - Cash and equivalents at period-end increased to $6,582 thousand, a significant rise from $2,854 thousand at year-end 2020[22] Notes to Condensed Consolidated Financial Statements 1. ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES 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] - 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] - The company does not designate commodity derivative contracts as cash flow hedges, with fair value changes recognized directly in the statements of operations[28] 2. ACQUISITIONS 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] 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] - 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] 3. REAL ESTATE HELD FOR SALE 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] - In 2020, the company recognized a $1,054 thousand loss due to reclassifying the property as held for sale[36] 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 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] - Following the acquisition of operating assets in 2020, the company directly sells oil and gas, recognizing revenue when control transfers to the buyer[40] 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 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] 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] 6. OIL AND NATURAL GAS PRODUCTION ACTIVITIES 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] - No oil and gas asset impairment was recorded in H1 2021, compared to $1.8 million in H1 2020[53] - 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] 7. DEBT 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] - This debt conversion resulted in $25.5 thousand in interest expense[54] 8. COMMODITY DERIVATIVE 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] - This contract is not designated as a cash flow hedge, and its fair value changes are recognized in the statements of operations[55] 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] 9. COMMITMENTS, CONTINGENCIES AND RELATED-PARTY TRANSACTIONS 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] - 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] 10. PREFERRED STOCK 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] - 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] - 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] 11. SHAREHOLDERS' EQUITY 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] - 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] 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] 12. ASSET RETIREMENT OBLIGATIONS 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] 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] 13. INCOME TAXES 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] - The company maintains a full valuation allowance against all deferred tax assets (DTAs), thus no DTAs were recorded as of June 30, 2021[74] - 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] 14. LOSS PER SHARE 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] 15. FAIR VALUE MEASUREMENTS 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][80][81] - 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][92] - 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][85][92] - 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][92] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - The company's operations are primarily concentrated in South Texas, North Dakota's Williston Basin, Lea County, New Mexico, and Converse County, Wyoming[100] - 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] Plan of Operations and Strategy 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] - The company plans to increase production by performing workover operations on idle wells acquired in 2020 to bring them back online[102] - Key strategic elements include conservative and strategic capital deployment to maintain liquidity, and continuous evaluation and pursuit of value-enhancing transactions[104] Recent Developments 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] - Although recent demand and commodity prices have recovered to pre-pandemic levels, future financial performance may still be affected by the ongoing pandemic[104] - Pandemic uncertainties affect management's accounting estimates and assumptions, potentially leading to greater volatility in areas like investments, receivables, and forward-looking guidance[104] Critical Accounting Policies and Estimates 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] - 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] Results of Operations 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 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] - Production increases are mainly attributable to assets acquired in H2 2020 and the reactivation of idle wells in H1 2021[110] 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] - 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][115] - 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][117][118] Comparison of our Statements of Operations for the Six Months Ended June 30, 2021 and 2020 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] - Production increases are mainly attributable to assets acquired in H2 2020 and the reactivation of idle wells in H1 2021[124] 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] - 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] - 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][132][133] Liquidity and Capital Resources 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][141] - 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] 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] - 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] - 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][153] - The company has developed a remediation plan and is taking steps to address these material weaknesses[153] - There were no significant changes in internal control over financial reporting during the quarter[152] Part II. OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] - 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities Not applicable Item 4. Mine Safety Disclosures Not applicable Item 5. Other Information Not applicable Item 6. Exhibits 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] SIGNATURES Report Signatures 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]