BIG SKY INDUSTRIAL INC.

Previous wording

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “U.S. Energy”, and “U.S. Energy Corp.” refer specifically to U.S. Energy Corp. and its consolidated subsidiaries.

Current wording

Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Big Sky Industrial Inc.”, and “Big Sky Industrial” refer specifically to Big Sky Industrial Inc. and its consolidated subsidiaries.

Previous wording

We file annual, quarterly, and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC like us athttps://www.sec.gov (our filings can be found athttps://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000101594) and on the “Investors– SEC Filings” page of our website athttps://usnrg.com. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.

Current wording

We file annual, quarterly, and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC like us athttps://www.sec.gov (our filings can be found athttps://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000101594) and on the “Investors– SEC Filings” page of our website athttps://bigskyindustrialinc.com. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.

Previous wording

U.S. Energy Corp. (collectively with its wholly-owned subsidiaries are referred to as the “Company”) is incorporated in the State of Delaware. The Company’s principal business activities are focused on the acquisition, exploration, and development of industrial gases, oil and natural gas properties in the United States.

Current wording

Big Sky Industrial Inc. (collectively with its wholly-owned subsidiaries are referred to as the “Company”) is incorporated in the State of Delaware. The Company’s principal business activities are focused on the acquisition, exploration, and development of industrial gases, oil and natural gas properties in the United States.

Previous wording

During the first quarter of 2026, the Company reached a final investment decision (“FID”) for the construction of its processing facility at the Big Sky Carbon Hub in Montana and executed a fixed-scope engineering, procurement and construction agreement, initiating capital deployment for the project. The planned facility is designed with an initial inlet capacity of approximately 8.0 MMCF/d, targeting approximately 12 MMCF of annual helium production and 125,000 metric tons of refined CO₂ per year. The Company expects to commence gathering pipeline installation in spring 2026, with commissioning targeted for the third quarter of 2026 and initial helium sales and carbon management operations anticipated in 2027.

Current wording

During the first quarter of 2026, the Company reached a final investment decision (“FID”) for the construction of its processing facility at the Big Sky Carbon Hub ("Big Sky") in Montana and executed a fixed-scope engineering, procurement and construction agreement, initiating capital deployment for the project. The planned facility is designed with an initial inlet capacity up to 8.0 MMCF/d, targeting approximately 14.4 MMCF of annual helium production and 125,000 metric tons of refined CO₂ per year. The Company expects to commence gathering pipeline installation in spring 2026, with commissioning targeted for the third quarter of 2026 and initial gas processing and helium sales and carbon management operations anticipated in 2027.

Previous wording

In anticipation of reaching FID, during three months ended March 31, 2026, the Company generated $17.2 million in proceeds from equity issuances. Additionally, on April 17, 2026, the Company entered into an amendment to its Credit Facility with FirstBank Southwest that among other things, (i) increased the borrowing base from $10.0 million to $20.0 million, (ii) revised the applicable margin on outstanding borrowings to a fixed 2.00% per annum, and (iii) suspended testing of financial covenants through the fiscal quarter ending March 31, 2027. The Credit Facility maturity date remains May 31, 2029.

Current wording

In anticipation of reaching FID, during the six months ended June 30, 2026, the Company generated $17.2 million in proceeds from equity issuances. Additionally, on April 17, 2026, the Company entered into an amendment to its Credit Facility with FirstBank Southwest that among other things, (i) increased the borrowing base from $10.0 million to $20.0 million, (ii) revised the applicable margin on outstanding borrowings to a fixed 2.00% per annum, and (iii) suspended testing of financial covenants through the fiscal quarter ending March 31, 2027. The Credit Facility maturity date remains May 31, 2029.

Previous wording

On April 27, 2026, the Company executed a five-year helium sales agreement with an investment-grade global industrial gas company for the sale of contained helium to be produced at the Company’s Big Sky Carbon Hub in Montana. The Agreement provides for a 100% take-or-pay commitment by the Counterparty for up to approximately 1.2 MMCF per month (14.4 MMCF annually) of helium production, with fixed pricing of $285 per MCF at the plant gate, subject to annual (consumer price index) CPI-based escalation beginning March 1, 2028, and includes a price redetermination mechanism in year three with a right of first refusal.

Current wording

On April 27, 2026, the Company executed a five-year helium sales agreement with an investment-grade global industrial gas company for the sale of contained helium to be produced at the Company’s Big Sky Carbon Hub in Montana. The Agreement provides for a 100% take-or-pay commitment by the counterparty for up to approximately 1.2 MMCF per month (14.4 MMCF annually) of helium production, with fixed pricing of $285 per MCF, which includes counterparty transport from the plant gate, subject to annual (consumer price index) CPI-based escalation beginning March 1, 2028, and includes a price redetermination mechanism in year three with a right of first refusal.

Previous wording

During the remainder of 2026 and beyond, we intend to pursue opportunities across the industrial gas sector, with a strategic emphasis on the next phase of development and monetization of our helium and carbon dioxide resources. While we will continue to operate oil and gas assets, our primary focus is on maximizing value from associated industrial gases. Our activities may include the acquisition of assets, participation with industry partners in development projects, acquisition of existing companies, and the purchase or development of industrial gas-related assets. Planned operations include construction of processing facilities, negotiating operating arrangements, finalizing gathering and infrastructure designs, and pursuing the use of a portion of produced CO₂ in tertiary recovery operation in our Montana oil operations

Current wording

During the remainder of 2026 and beyond, we intend to pursue opportunities across the industrial gas sector, with a strategic emphasis on the next phase of development and monetization of our helium and carbon dioxide resources. While we plan to continue to operate oil and gas assets, our primary focus is on maximizing value from associated industrial gases. Our activities may include the acquisition of assets, participation with industry partners in development projects, acquisition of existing companies, and the purchase or development of industrial gas-related assets. Planned operations include construction of processing facilities, negotiating operating arrangements, finalizing gathering and infrastructure designs, and pursuing the use of a portion of produced CO₂ in tertiary recovery operations in our Montana oil operations.

Previous wording

For the three months ended March 31, 2026, we recorded a net loss of $3.2 million, which was primarily due to lower production resulting from divestitures in prior periods. In the following sections, we discuss our revenue, operating expenses, and other income (expense) for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

Current wording

For the three months ended June 30, 2026, we recorded a net loss of $2.3 million, which was primarily due to lower production resulting from divestitures in prior periods. In the following sections, we discuss our revenue, operating expenses, and other income (expense) for the three months ended June 30, 2026 compared to the three months ended June 30, 2025.

Previous wording

For the three months ended March 31, 2026, lease operating expenses were $0.9 million or $26.54 per BOE. While lease operating expenses decreased by $0.7 million when compared to $1.6 million or $34.57 per BOE for the three months ended March 31, 2025, the cost on a BOE basis decreased as the mix of properties changed as a result of the divestment of our Wyoming and West Texas properties.

Current wording

For the three months ended June 30, 2026, lease operating expenses were $1.0 million or $29.48 per BOE. While lease operating expenses decreased by $0.5 million when compared to $1.5 million or $31.14 per BOE for the three months ended June 30, 2025, the cost on a BOE basis decreased as the mix of properties changed as a result of the divestment of our Wyoming and West Texas properties.

Previous wording

Exploration expense increased$101 thousand, which was attributable to an increase in exploration activities for our industrial gas development, namely professional services supporting resource estimation and analysis and legal work.

Current wording

Exploration expense increased$70 thousand, which was attributable to an increase in exploration activities for our industrial gas development, namely professional services supporting resource estimation and analysis and legal work.

Previous wording

*Depreciation, Depletion and Amortization.*Our depreciation, depletion, and amortization (“DD&A”) was $0.6 million and $1.1 million for the three months ended March 31, 2026 and 2025, respectively. Depletion expense on our oil and natural gas properties is the primary driver of DD&A expense. Our depletion rate was $10.94 per BOE and $13.35 per BOE for the three months ended March 31, 2026 and 2025, respectively. Our depletion rate can fluctuate modestly 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 $0.6 million and $1.1 million for the three months ended June 30, 2026 and 2025, respectively. Depletion expense on our oil and natural gas properties is the primary driver of DD&A expense. Our depletion rate was $11.83 per BOE and $10.94 per BOE for the three months ended June 30, 2026 and 2025, respectively. Our depletion rate can fluctuate modestly because of 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

The decrease in our oil and natural gas revenue of $0.6 million for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025, was primarily due to a decrease of 27% in production quantities. For the three months ended March 31, 2026, we produced 34,290 BOE, or an average of 381 BOE per day, as compared to 47,008 BOE or an average of 522 BOE per day during the comparable period in 2025. The decrease in our production quantities primarily relates to the divestitures of our properties in Wyoming and West Texas and the natural decline in production in remaining producing assets. During the three months ended March 31, 2026, 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 March 31, 2025.

Current wording

The decrease in our oil and natural gas revenue of $0.5 million for the six months ended June 30, 2026, as compared to the six months ended June 30, 2025, was primarily due to a decrease of 29% in production quantities offset primarily by increases in the oil sales price. For the six months ended June 30, 2026, we produced 68,037 BOE, or an average of 376 BOE per day, as compared to 95,824 BOE or an average of 529 BOE per day during the comparable period in 2025. The decrease in our production quantities primarily relates to the divestitures of our properties in Wyoming and West Texas and the natural decline in production in remaining producing assets.

Previous wording

For the three months ended March 31, 2026, production taxes consistently remain between 6% and 8% of revenue. This decrease in production taxes was attributable to the decrease in revenue of 27% discussed above.

Current wording

For the six months ended June 30, 2026, production taxes consistently remain between 6% and 8% of revenue. This decrease in production taxes was attributable to the decrease in revenue of 11% discussed above.

Previous wording

General and administrative expenses increased by $0.7 million for the three months ended March 31, 2026 as compared to the prior year period. The increase was primarily attributable to the timing of discretionary compensation, which occurred during the three months ended March 31, 2026. Professional fees decreased primarily due to a reduction in acquisition-related costs relative to the activity in the three months ended March 31, 2025.

Current wording

General and administrative expenses increased by $1.1 million for the six months ended June 30, 2026 as compared to the prior year period. The increase was primarily attributable to the timing of discretionary compensation, which occurred during the three months ended March 31, 2026. Professional fees decreased primarily due to a reduction in acquisition-related costs relative to the activity in the six months ended June 30, 2025.

Previous wording

Interest expense primarily represents the interest and fees on our credit facility with FirstBank Southwest. As of December 31, 2025 and March 31, 2026, we had $2.5 million outstanding on our credit facility. For the three months ended March 31, 2026, interest expense included interest incurred on the outstanding loan and fees to maintain our credit facility. For the three months ended March 31, 2025, we had no amounts outstanding under the credit facility and our interest expense comprised of fees to maintain our credit facility.

Current wording

Interest expense primarily represents the interest and fees on our credit facility with FirstBank Southwest. Interest expense of $63 thousand dollars were capitalized as part of the industrial gas processing plant construction expenses during the three months ended June 30, 2026. As of December 31, 2025 and June 30, 2026, we had $2.5 million and $4.5 million, respectively outstanding on our credit facility. For the six months ended June 30, 2026, interest expense included interest incurred on the outstanding loan and fees to maintain our credit facility. For the six months ended June 30, 2025, we had no amounts outstanding under the credit facility and our interest expense comprised of fees to maintain our credit facility.

Previous wording

For the remainder of 2026, the Company’s capital program is designed to advance the Big Sky project toward initial commercial operations targeted for the first quarter of 2027. We anticipate an aggregate near-term capital program to range between $28.0 million and $32.0 million, primarily related to the construction of our gas processing plant, production gathering system, and related infrastructure at our industrial gas development project. In addition, we may incur up to approximately $0.6 million for plugging and abandonment activities, depending on regulatory requirements, timing, and weather conditions. We expect these expenditures to be funded through a combination of cash on hand, operating cash flows, proceeds from the divestiture of oil and natural gas properties, borrowings under our credit facility, additional equity issuances, and potential project-specific financing, including equity and debt capital.

Current wording

For the remainder of 2026, the Company’s capital program is designed to advance the Big Sky project toward initial commercial operations targeted for the first quarter of 2027. We anticipate the remaining aggregate, near-term capital program to range between $20.0 million and $25.0 million, primarily related to the construction of our gas processing plant, production gathering system, and related infrastructure at our industrial gas development project. In addition, we may incur up to approximately $0.5 million for plugging and abandonment activities, depending on regulatory requirements, timing, and weather conditions. We expect these expenditures to be funded through a combination of cash on hand, operating cash flows, proceeds from the divestiture of oil and natural gas properties, borrowings under our credit facility, additional equity issuances, and potential project-specific financing, including equity and debt capital.

Previous wording

For the three months ended March 31, 2026, we funded our capital expenditures primarily through cash on hand and proceeds from equity issuances. During the period, we generated approximately $17.2 million from equity sales and issuances and had cash and cash equivalents of approximately $10.5 million as of March 31, 2026.

Current wording

For the six months ended June 30, 2026, we funded our capital expenditures primarily through cash on hand, proceeds from equity issuances, and draws on our credit facility. During the period, we generated approximately $17.2 million from equity sales, issuances and had cash and cash equivalents of approximately $5.9 million, and $15.5 million available under our credit facility as of June 30, 2026.

Previous wording

On April 17, 2026, the Company entered into an amendment to its credit facility with FirstBank Southwest, which, among other things, increased the borrowing base from $10.0 million to $20.0 million, revised the applicable margin on outstanding borrowings to a fixed 2.00% per annum, and suspended testing of financial covenants through the fiscal quarter ending March 31, 2027. The maturity date of the credit facility remains May 31, 2029. The increased borrowing base provides us access to an additional $17.5 million of capital.

Current wording

On April 17, 2026, the Company entered into an amendment to its credit facility with FirstBank Southwest, which, among other things, increased the borrowing base from $10.0 million to $20.0 million, revised the applicable margin on outstanding borrowings to a fixed 2.00% per annum, and suspended testing of financial covenants through the fiscal quarter ending March 31, 2027. The maturity date of the credit facility remains May 31, 2029. The increased borrowing base provides us access to an additional $15.5 million of capital.

Previous wording

We use cash primarily for the development of our industrial gas assets, including construction of processing and gathering infrastructure, as well as for operating expenses, general and administrative costs, and debt service obligations. During the three months ended March 31, 2026, we spent approximately $4.4 million on the acquisition and development of industrial gas properties and expect to continue allocating capital to the Big Sky project for the remainder of the year.

Current wording

We use cash primarily for the development of our industrial gas assets, including construction of processing and gathering infrastructure, as well as for operating expenses, general and administrative costs, and debt service obligations. During the six months ended June 30, 2026, we spent approximately $9.6 million on the acquisition and development of industrial gas properties and expect to continue allocating capital to the Big Sky project for the remainder of the year.

Previous wording

The following table summarizes our cash flows for the three months ended March 31, 2026 and 2025:

Current wording

The following table summarizes our cash flows for the six months ended June 30, 2026 and 2025:

Previous wording

Operating Activities. Cash used in operating activities of $2.5 million for the three months ended March 31, 2026 was mainly due to a $3.2 million net loss and a reduction of working capital of $0.3 million and$0.6 million of depreciation, depletion, accretion. Cash used by operating activities of $4.5 million for the three months ended March 31, 2025, was mainly due to a net loss of $3.1 million, reduction of payables of $2.6 million offset by $1.1 million of depreciation, depletion, accretion, and amortization.

Current wording

Operating Activities. Cash used in operating activities of $3.3 million for the six months ended June 30, 2026 was mainly due to a $5.5 million net loss and a reduction of working capital of $0.2 million offset by$1.2 million of depreciation, depletion, accretion. Cash used by operating activities of $6.1 million for the six months ended June 30, 2025, was mainly due to a net loss of $9.2 million and a reduction of payables of $3.8 million offset by $2.2 million of depreciation, depletion, accretion, and amortization.

Previous wording

Investing Activities. Cash used in investing activities for the three months ended March 31, 2026 was $4.4 million as compared to cash used in investing activities of $2.4 million for the comparable period in 2025. The primary use of cash in our investing activities for the three months ended March 31, 2026 was attributable to initial plant construction costs. For the three months ended March 31, 2025, the cash investment was primarily attributed to the Synergy acquisition discussed inNote 2 - Acquisitions and Divestitures.

Current wording

Investing Activities. Cash used in investing activities for the six months ended June 30, 2026 was $10.1 million as compared to cash used in investing activities of $4.5 million for the comparable period in 2025. The primary use of cash in our investing activities for the six months ended June 30, 2026 was attributable to initial plant construction costs. For the six months ended June 30, 2025, the cash investment was primarily attributed to the Synergy acquisition discussed inNote 2 - Acquisitions and Divestitures.

Previous wording

Financing Activities. Cash provided by financing activities for the three months ended March 31, 2026 was $16.9 million as compared to $9.8 million for the comparable period in 2025. The primary drivers of this cash inflow were equity issuances of $17.2 million during the three months ended March 31, 2026, compared to $11.9 million in the prior period, which in the prior period were reduced by a related party share repurchase of $1.6 million.

Current wording

Financing Activities. Cash provided by financing activities for the six months ended June 30, 2026 was $18.9 million as compared to $9.6 million for the comparable period in 2025. The primary drivers of this cash inflow were equity sales of $17.2 million during the six months ended June 30, 2026, compared to $11.9 million in the prior period, which in the prior period were reduced by a related party share repurchase of $1.6 million.