US ENERGY CORP

Previous wording

In the fourth quarter of 2023, the Company closed on a series of individual divestitures for a total of $7.0 million in net proceeds before transaction costs of $0.4 million. The divestitures included the Company’s non-operated interests in 152 wells across North Dakota, New Mexico, and Texas, and overriding royalty interests in seven wells in Karnes County, Texas. These divestitures did not have a significant impact to reserves volumes or the full cost pool depletion rate. As such, the Company recorded the proceeds, net of transaction costs and purchase price adjustments, to the full cost pool with no gain or loss recognized. Relief of associated asset retirement obligations of $0.5 million were also recorded to the full cost pool. The net proceeds from these divestitures were used to repay a portion of the outstanding balance on our credit facility, bringing the balance as of December 31, 2023 to $5.0 million.

Current wording

In the fourth quarter of 2023, the Company closed on a series of individual divestitures for a total of $7.0 million in net proceeds before transaction costs of $0.4 million. The divestitures included the Company’s non-operated interests in 152 wells across North Dakota, New Mexico, and Texas, and overriding royalty interests in seven wells in Karnes County, Texas. These divestitures did not have a significant impact to reserves volumes or the full cost pool depletion rate. As such, the Company recorded the proceeds, net of transaction costs and purchase price adjustments, to the full cost pool with no gain or loss recognized. Relief of associated asset retirement obligations of $0.5 million were also recorded to the full cost pool. The net proceeds from these divestitures were used to repay a portion of the outstanding balance on our credit facility.

Previous wording

On September 12, 2023, the Company entered into crude oil swap agreements, agreeing to pay the monthly average NYMEX WTI price the month of settlement and receive a fixed price. The contracts were for a total of 187,620 barrels of oil, extending from October 2023 through December 2024 with weighted average prices of $86.64 for the 2023 swaps and $81.16 for the 2024 swaps. In addition, on April 2, 2024, the Company entered into crude oil swap agreements, agreeing to pay monthly the average NYMEX WTI price for the month of settlement and receive a fixed price. The contracts are for a total of 164,125 barrels of oil, extending from January 2025 to December 2025 with a weighted average fixed price of $73.71.

Current wording

On April 2, 2024, the Company entered into crude oil swap agreements, agreeing to pay monthly the average NYMEX WTI price for the month of settlement and receive a fixed price. The contracts are for a total of 164,125 barrels of oil, extending from January 2025 to December 2025 with a weighted average fixed price of $73.71.

Previous wording

During the three months ended March 31, 2024, the Company repurchased 318,200 shares for $337 thousand, at a weighted average price of $1.06 per share. There were no share repurchases during the three months ended March 31, 2023. As of March 31, 2024, a total of $4.2 million remained available under the repurchase program for future repurchases.

Current wording

During the six months ended June 30, 2024, the Company repurchased 463,500 shares for $505 thousand, at a weighted average price of $1.09 per share. During the six months ended June 30, 2023. the Company repurchased 163,300 shares for $240 thousand at a weighted average price of $1.47 per share. As of June 30, 2024, a total of $4.1 million remained available under the repurchase program for future repurchases.

Previous wording

The reserves used in the ceiling test incorporate assumptions regarding pricing and discount rates over which management has no influence in the determination of present value. In the calculation of the ceiling test as of March 31, 2024, the Company used $77.48 per barrel for oil and $2.45 per one million British Thermal Units (MMbtu) for natural gas (as further adjusted for property, specific gravity, quality, local markets and distance from markets) to compute the future cash flows of the Company’s producing properties. The discount factor used was 10%.

Current wording

The reserves used in the ceiling test incorporate assumptions regarding pricing and discount rates over which management has no influence in the determination of present value. In the calculation of the ceiling test as of June 30, 2024, the Company used $79.00 per barrel for oil and $2.33 per one million British Thermal Units (MMbtu) for natural gas (as further adjusted for property, specific gravity, quality, local markets and distance from markets) to compute the future cash flows of the Company’s producing properties. The discount factor used was 10%.

Previous wording

The Company recorded a $5.4 million ceiling test write-down of its oil and gas properties during the three months ended March 31, 2024, due to a reduction in the value of proved oil and natural gas reserves primarily as a result of a decrease in crude oil and natural gas prices, as well as reserves revisions related to wells shut-in during the first quarter of 2024 and updates to the decline curves for certain wells.

Current wording

The Company recorded a $5.4 million ceiling test write-down of its oil and gas properties during the six months ended June 30, 2024, due to a reduction in the value of proved oil and natural gas reserves primarily as a result of a decrease in crude oil and natural gas prices, as well as reserves revisions related to wells shut-in during the first quarter of 2024 and updates to the decline curves for certain wells.

Previous wording

Depending on actual commodity prices, estimated price differentials, lease operating costs, revisions to reserve estimates, and the amount and timing of capital expenditures, additional write-downs could be incurred in the future.

Current wording

We expect to record a further write-down of our oil and gas properties in the third quarter of 2024 due to the sale of the Karnes County, Texas properties, which closed on July 31, 2024 and lower commodity prices used in the calculation of the ceiling test as higher third quarter 2023 commodity prices will be removed from the ceiling test calculation and replaced with what we expect to be lower third quarter 2024 commodity prices. Depending on actual commodity prices, estimated price differentials, lease operating costs, revisions to reserve estimates, and the amount and timing of capital expenditures, the write-down could be approximately $1 million to $3 million in the third quarter of 2024.

Previous wording

The decrease in our oil and gas revenue of $2.9 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was primarily due to a decrease of 29% in production quantities, as well as a decrease in realized commodity pricing of 8% on a per BOE basis. For the three months ended March 31, 2024, we produced 109,800 BOE, or an average of 1,207 BOE per day, as compared to 155,316 BOE or an average of 1,726 BOE per day during the comparable period in 2023. The decrease in our production quantities relates to the divestiture of substantially all of our non-operated properties in the fourth quarter of 2023, as well as temporary weather-related events, such as flooding and winter weather, and natural production declines. During the three months ended March 31, 2024, our production was 62% oil and 38% natural gas and liquids compared to 59% oil and 41% natural gas and liquids produced during the three months ended March 31, 2023.

Current wording

The decrease in our oil and gas revenue of $1.9 million for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, was primarily due to a decrease of 38% in production quantities, which were partially offset by an increase in realized commodity pricing of 22% on a per barrel of oil equivalent (BOE) basis. For the three months ended June 30, 2024, we produced 111,090 BOE, or an average of 1,221 BOE per day, as compared to 178,303 BOE or an average of 1,959 BOE per day during the comparable period in 2023. The decrease in our production quantities relates to the divestiture of substantially all of our non-operated properties in the fourth quarter of 2023, as well as temporary weather-related events, such as flooding and winter weather, and natural production declines. During the three months ended June 30, 2024, our production was 64% oil and 36% natural gas and liquids compared to 64% oil and 36% natural gas and liquids produced during the three months ended June 30, 2023.

Previous wording

For the three months ended March 31, 2024, gathering, transportation, and treating costs were $64 thousand, a decrease of $50 thousand, or 44%, compared to the comparable period of 2023. This decrease was attributable to the divestiture of substantially all of our non-operated activities in the fourth quarter of 2023.

Current wording

For the three months ended June 30, 2024, gathering, transportation, and treating costs were $63 thousand, a decrease of $75 thousand, or 54%, compared to the comparable period of 2023. This decrease was attributable to the divestiture of substantially all of our non-operated activities in the fourth quarter of 2023.

Previous wording

For the three months ended March 31, 2024, production taxes were $343 thousand, a decrease of $177 thousand, or 34%, compared to the comparable period of 2023. This decrease was attributable to the decrease in revenue of 35% discussed above as production taxes remained flat at 6% of revenue.

Current wording

For the three months ended June 30, 2024, production taxes were $367 thousand, a decrease of $171 thousand, or 32%, compared to the comparable period of 2023. This decrease was attributable to the decrease in revenue of 24% discussed above, as production taxes remained flat at 6% of revenue.

Previous wording

*Depreciation, Depletion and Amortization.*Our depreciation, depletion and amortization (“DD&A”) was $2.2 million and $2.4 million for the three months ended March 31, 2024 and 2023, respectively. Depletion expense on our oil and gas properties is the primary driver of DD&A expense. Our depletion rate was $15.90 per BOE and $13.52 per BOE for the three months ended March 31, 2024 and 2023, respectively. Our depletion rate can fluctuate because of acquisitions, changes in drilling and completion costs, impairments, revisions in asset retirement obligation cost estimates or timing, divestitures, changes in the mix of our production, the underlying proved reserve volumes and estimated future development costs.

Current wording

*Depreciation, Depletion and Amortization.*Our depreciation, depletion and amortization (“DD&A”) was $2.2 million and $2.9 million for the three months ended June 30, 2024 and 2023, respectively. Depletion expense on our oil and gas properties is the primary driver of DD&A expense. Our depletion rate was $15.30 per BOE and $14.39 per BOE for the three months ended June 30, 2024 and 2023, respectively. Our depletion rate can fluctuate because of acquisitions, changes in drilling and completion costs, impairments, revisions in asset retirement obligation cost estimates or timing, divestitures, changes in the mix of our production, the underlying proved reserve volumes and estimated future development costs.

Previous wording

General and administrative expenses decreased by $566 thousand for the three-month period ended March 31, 2024, as compared to the prior year period. The decrease was primarily attributable to a decrease stock-based compensation expense. The value of the restricted stock awards being amortized for the three months ended March 31, 2024 was lower than those being amortized during the three months ended March 31, 2023.

Current wording

General and administrative expenses decreased by $1.3 million for the three months ended June 30, 2024, as compared to the prior year period. The decrease was primarily attributable to a decrease in both professional fees, insurance, and other due to lower accounting, consulting, and recruitment fees. Compensation and benefits were lower due to a reduction in headcount. The value of the restricted stock awards being amortized for the three months ended June 30, 2024 was lower than those being amortized during the three months ended June 30, 2023due to a decrease in our stock price

Previous wording

Interest expense primarily represents the interest on our credit facility with FirstBank Southwest. The decrease in interest expense is primarily driven by the decrease in the balance outstanding period over period. As of March 31, 2024, we had borrowed $5.0 million on the credit facility as compared to $12.0 million borrowed as of March 31, 2023. The average interest rate increased to 9.1% per annum for the three months ended March 31, 2024, as compared to 8.5% per annum for the three months ended March 31, 2023.See Note 6 Debtin the notes to the unaudited Condensed Consolidated Financial Statements.

Current wording

Interest expense primarily represents the interest on our credit facility with FirstBank Southwest. The decrease in interest expense is primarily driven by the decrease in the balance outstanding period over period. As of June 30, 2024, we had borrowed $7.0 million on the credit facility as compared to $12.0 million borrowed as of June 30, 2023. The average interest rate increased to 9.0% per annum for the three months ended June 30, 2024, as compared to 8.9% per annum for the three months ended June 30, 2023.See Note 6 Debtin the notes to the unaudited Condensed Consolidated Financial Statements.

Previous wording

For the three months ended March 31, 2024, we recorded a net loss of $9.5 million, which was primarily due to oil and natural gas property impairment expense of $5.4 million from reduced commodity prices used in the full cost pool ceiling test and lower production resulting in reduced revenue for the period. In the following sections we discuss our revenue, operating expenses, and other income (expense) for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

Current wording

For the six months ended June 30, 2024, we recorded a net loss of $11.5 million which was primarily due to oil and natural gas property impairment expense of $5.4 million from reduced commodity prices used in the full cost pool ceiling test and lower production resulting in reduced revenue for the period. In the following sections we discuss our revenue, operating expenses, and other income (expense) for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

Previous wording

For the three months ended March 31, 2024, lease operating expenses were $3.2 million or $29.02 per BOE, a decrease of $1.2 million when compared to the $4.4 million or $28.39 per BOE for the three months ended March 31, 2023. The decrease in lease operating expense was due almost entirely to a reduction in well workover activity in 2024 when compared to 2023. The increase on a per BOE basis is the result of lower production volumes being compared to relatively fixed recurring lease operated expenses.

Current wording

For the six months ended June 30, 2024, lease operating expenses were $6.2 million or $28.35 per BOE, a decrease of $1.8 million when compared to the $8.1 million or $24.42 per BOE for the six months ended June 30, 2023. The decrease in lease operating expense was due almost entirely to a reduction in well workover activity in 2024 , when compared to 2023. The increase on a per BOE basis is the result of lower production volumes being compared to relatively fixed recurring lease operated expenses.

Previous wording

Impairment of oil and natural gas properties. Impairment of $5.4 million was driven by a reduction in value of oil and gas reserves. The reduction was primarily due to lower commodity prices used in the full cost pool ceiling test, as well as reserves revisions related to wells shut-in during the first quarter of 2024 and updates to the decline curves for certain wells.

Current wording

Impairment of oil and natural gas properties. Impairment of $5.4 million for the six months ended June 30, 2024 was driven by a reduction in value of oil and gas reserves. The reduction was primarily due to lower commodity prices used in the full cost pool ceiling test, as well as reserves revisions related to wells shut-in during the first quarter of 2024 and updates to the decline curves for certain wells.

Previous wording

Commodity derivative gain (loss), net, is the result of changes in derivative fair values associated with fluctuations in forward price curves for the commodities underlying our outstanding derivative contracts and the monthly cash settlements of our derivative positions during the period. For the three months ended March 31, 2024, we recognized losses on commodity derivative contracts of $1.4 million, primarily as the result of a decrease in the fair value of our outstanding commodity derivative contracts from settlements of open positions and higher WTI prices as compared to December 31, 2023.See Note 7 Commodity Derivativesin the notes to the unaudited Condensed Consolidated Financial Statements.

Current wording

Commodity derivative gain (loss), net, is the result of changes in derivative fair values associated with fluctuations in forward price curves for the commodities underlying our outstanding derivative contracts and the monthly cash settlements of our derivative positions during the period. For the six months ended June 30, 2024, we recognized losses on commodity derivative contracts of $1.5 million, primarily as the result of a decrease in the fair value of our outstanding commodity derivative contracts from settlements of open positions and higher WTI prices as compared to December 31, 2023.See Note 7 Commodity Derivativesin the notes to the unaudited Condensed Consolidated Financial Statements.

Previous wording

We have a 2024 capital budget of $2.4 million. Our capital budget is typically comprised of return to production workovers, repairs and maintenance, plugging and abandonment costs, and similar activities to support our asset base. We view some of these investments as discretionary for which we can control both the timing and amount of these expenditures. Other activities, such as some repairs and maintenance and plugging activities, may be required from time to time by regulatory bodies. We also expect to incur approximately $0.2 million on lease commitments and approximately $0.5 million on interest expense assuming no material changes to interest rates over the next 12 months and the outstanding balance of our credit facility remains at $5.0 million. We anticipate our expenditures will be funded primarily by operating cash flows. In the event that our operating cash flows are not sufficient to fund these expenditures, we have access to our credit facility and equity markets if such a need arises.

Current wording

For the remainder of 2024 our capital budget of will be allocated substantially to the development of our recently acquired helium acreage. We plan to spend approximately $2.8 million to drill two exploratory wells. In addition, we plan to incur costs for plugging and abandonment ranging from $0.6 million to $1.0 million, depending on timing, regulatory requirements and weather. We view some of these investments as discretionary for which we can control both the timing and amount of the expenditures. Other activities, such as some repairs and maintenance and plugging activities, may be required from time to time by regulatory bodies. For the next twelve months, we also expect to incur approximately $0.2 million on lease commitments and approximately $0.6 million on interest expense assuming no material changes to interest rates over the next twelve months. We will actively manage the outstanding balance of our credit facility. We anticipate our expenditures will be funded primarily by operating cash flows, borrowings under our credit facility and proceeds from divestitures of oil and gas properties. In the event that readily available sources of cash flow are insufficient to fund our capital needs, we may utilize equity and credit markets as a funding mechanism.

Previous wording

For the three months ended March 31, 2024, we funded our capital expenditures with cash on hand and cash flows from operating activities. In future quarters, if cash flows are not sufficient to fund our capital expenditures and operations, we may also use borrowings under our credit facility or raise funds through new equity offerings or from other sources of financing and re-evaluate our capital spend program as economic conditions warrant. Additionally, we may enter into carrying cost and sharing arrangements with third parties for certain development programs. All of our sources of liquidity can be affected by the changes in economic conditions, rising interest rate, changes in debt and equity markets, force majeure events, fluctuations in commodity prices, operating costs, tax law changes, and volumes produced, all of which would affect us and our industry.

Current wording

For the six months ended June 30, 2024, we funded our capital expenditures with cash on hand, cash flows from operating activities, proceeds from the divestiture of oil and gas producing properties and borrowings under our credit facility. In future quarters, if cash flows are not sufficient to fund our capital expenditures and operations, we may also raise funds through new equity offerings or from other sources of financing and re-evaluate our capital spend program as economic conditions warrant. Additionally, we may enter into carrying cost and sharing arrangements with third parties for certain development programs. All of our sources of liquidity can be affected by the changes in economic conditions, rising interest rate, changes in debt and equity markets, force majeure events, fluctuations in commodity prices, operating costs, tax law changes, and volumes produced, all of which would affect us and our industry.

Previous wording

We have no control over the market prices for oil and gas, although we may be able to influence the amount of our realized revenues from oil and gas through the use of commodity derivative contracts as part of our commodity price risk management program. Commodity derivative contracts may limit the prices we receive from our oil and gas sales if oil and gas prices rise substantially over the price established by the commodity derivative contract. See Note 7-Commodity Derivatives in Part I, Item 1 of this report for additional information about our oil and gas commodity derivative contracts currently in place and the timing of the settlement of those contracts.

Current wording

We have no control over commodity prices, although we may be able to influence the amount of our realized revenues from oil and gas through the use of commodity derivative contracts as part of our commodity price risk management program. Commodity derivative contracts may limit the prices we receive from our oil and gas sales if oil and gas prices rise substantially over the price established by the commodity derivative contract. See Note 7-Commodity Derivatives in Part I, Item 1 of this report for additional information about our oil and gas commodity derivative contracts currently in place and the timing of the settlement of those contracts.

Previous wording

Cash flows provided by our operating activities, proceeds received from divestitures of properties, capital markets activities, and our capital expenditures, including acquisitions, all impact the amount we borrow under our revolving Credit Agreement. The amount outstanding on the Credit Agreement as of March 31, 2024, was $5.0 million.

Current wording

Cash flows provided by our operating activities, proceeds received from divestitures of properties, capital markets activities, and our capital expenditures, including acquisitions, all impact the amount we borrow under our revolving Credit Agreement. The amount outstanding on the Credit Agreement as of June 30, 2024, was $7.0 million. With the proceeds from the sale of our Karnes County, Texas properties, we repaid $5.0 million on the Credit Agreement, reducing the amount outstanding to $2.0 million.

Previous wording

We use cash for the acquisition and development of oil and gas properties, workovers and capital expenditures, operating and general and administrative costs, settlements of commodity derivative contracts, debt obligations including interest, and share repurchases. During the three months ended March 31, 2024, we spent approximately $0.1 million on capital expenditures.

Current wording

We use cash for the acquisition and development of helium and oil and gas properties, workovers and capital expenditures, operating and general and administrative costs, settlements of commodity derivative contracts, debt obligations including interest, and share repurchases. During the six months ended June 30, 2024, we spent approximately $3.1 million on the acquisition of helium properties and capital expenditures.

Previous wording

The amount and allocation of our future capital expenditures will depend upon a number of factors, including our cash flows from operating, investing, and financing activities, our ability to execute our development program, and the number and size of acquisitions that we complete. In addition, the impact of oil and gas prices on investment opportunities, the availability of capital, tax law changes, and the timing and results of our development activities may lead to changes in funding requirements for future development. We periodically review our capital expenditure budget to assess if changes are necessary based on current and projected cash flows, acquisition and divestiture activities, and other factors. We will continue to monitor the economic environment through the remainder of the year and adjust our activity level as warranted.

Current wording

The amount and allocation of our future capital expenditures will depend upon a number of factors, including our cash flows from operating, investing, and financing activities, our ability to execute our development program, and the number and size of acquisitions that we complete. In addition, the impact of helium, oil and gas prices on investment opportunities, the availability of capital, tax law changes, and the timing and results of our development activities may lead to changes in funding requirements for future development. We periodically review our capital expenditure budget to assess if changes are necessary based on current and projected cash flows, acquisition and divestiture activities, and other factors. We will continue to monitor the economic environment through the remainder of the year and adjust our activity level as warranted.

Previous wording

The following table summarizes our cash flows for the three months ended March 31, 2024 and 2023:

Current wording

The following table summarizes our cash flows for the six months ended June 30, 2024 and 2023:

Previous wording

Operating Activities. Cash used in operating activities for the three months ended March 31, 2024 was $0.6 million as compared to cash provided by operating activities of $0.2 million for the comparable period in 2023. The decrease in cash provided by operating activities is mainly attributable to a reduction in cash receipts from revenues as a result of a decrease in production during the first quarter of 2024 and payment of expenses in the first quarter of 2024 that were accrued for in the fourth quarter of 2023.

Current wording

Operating Activities. Cash provided by operating activities for the six months ended June 30, 2024 was $0.3 million as compared to cash provided by operating activities of $1.4 million for the comparable period in 2023. The decrease in cash provided by operating activities is mainly attributable to a reduction in cash receipts from revenues as a result of a decrease in production during the six months ended June 30, 2024associated with the sale, during the fourth quarter of 2023, of virtually all of our non-operated properties.

Previous wording

Investing Activities. Cash used in investing activities for the three months ended March 31, 2024 was $0.2 million as compared to $1.4 million for the comparable period in 2023. The primary use of cash in our investing activities for the three months ended March 31, 2024 was capital expenditures. For the three months ended March 31, 2023, the primary use of cash in our investing activities was capital expenditures related to returning idle wells to productions and improvements to our gathering system in East Texas.

Current wording

Investing Activities. Cash used in investing activities for the six months ended June 30, 2024 was $2.7 million as compared to $2.8 million for the comparable period in 2023. The primary use of cash in our investing activities for the six months ended June 30, 2024 was the acquisition of helium properties and capital expenditures. For the six months ended June 30, 2023, the primary use of cash in our investing activities was capital expenditures related to returning idle wells to production and improvements to our gathering system in East Texas.

Previous wording

Financing Activities. Cash used in financing activities for the three months ended March 31, 2024 was $0.6 million as compared to $0.9 million for the comparable period in 2023. Cash used in financing activities during the three months ended March 31, 2024 was primarily attributable to share repurchases of $0.4 million. Cash used in financing activities during the three months ended March 31, 2023 primarily related to cash dividends paid of $0.6 million.

Current wording

Financing Activities. Cash provided by financing activities for the six months ended June 30, 2024 was $1.2 million as compared cash used in financing activities of $1.9 million for the comparable period in 2023. Cash provided by financing activities during the six months ended June 30, 2024 was primarily attributable to borrowings of $2 million under our credit facility to fund the acquisition of our recently acquired helium properties, which were partially offset by share repurchases of $0.6 million. Cash used in financing activities during the six months ended June 30, 2023 primarily related to cash dividends paid of $1.2 million.