UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2023
	or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from _____________ to _____________________

Commission File Number 000-06814

(Exact Name of Registrant as Specified in its Charter)

Delaware		83-0205516
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

1616 S. Voss Road, Suite 725, Houston, Texas		77057
(Address of principal executive offices)		(Zip Code)

(346) 509-8734

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbol(s)		Name of each exchange on which registered
Common stock, par value $0.01		USEG		NASDAQ Stock Market LLC (Nasdaq Capital Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company ☒
		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

The registrant had 25,234,672 shares of its common stock, par value $0.01 per share, outstanding as of May 10, 2023.

TABLE OF CONTENTS

		Page
Cautionary Note About Forward-Looking Statements		3

Part I.	FINANCIAL INFORMATION	4

Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets (unaudited)	4
	Condensed Consolidated Statements of Operations (unaudited)	5
	Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)	6
	Condensed Consolidated Statements of Cash Flows (unaudited)	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

Part II.	OTHER INFORMATION	28

Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30

Signatures		31

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report” or “Form 10-Q”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are forward-looking statements.

Examples of forward-looking statements in this Report include:

	●	planned capital expenditures for oil and natural gas exploration and environmental compliance;
	●	potential drilling locations and available spacing units, and possible changes in spacing rules;
	●	cash expected to be available for capital expenditures and to satisfy other obligations;
	●	recovered volumes and values of oil and natural gas approximating third-party estimates;
	●	anticipated changes in oil and natural gas production;
	●	drilling and completion activities and opportunities;
	●	timing of drilling additional wells and performing other exploration and development projects;
	●	expected spacing and the number of wells to be drilled with our oil and natural gas industry partners;
	●	when payout-based milestones or similar thresholds will be reached for the purposes of our agreements with our partners;
	●	expected working and net revenue interests, and costs of wells, relating to the drilling programs with our partners;
	●	actual decline rates for producing wells;
	●	future cash flows, expenses and borrowings;
	●	pursuit of potential acquisition opportunities;
	●	economic downturns, wars and increased inflation and interest rates, and possible recessions caused thereby;
	●	the effects of global pandemics on our operations, properties, the market for oil and gas, and the demand for oil and gas;
	●	our expected financial position;
	●	our expected future overhead reductions;
	●	our ability to become an operator of oil and natural gas properties;
	●	our ability to raise additional financing and acquire attractive oil and natural gas properties; and
	●	other plans and objectives for future operations.

These forward-looking statements are identified by their use of terms and phrases such as “may,” “expect,” “estimate,” “project,” “plan,” “believe,” “intend,” “achievable,” “anticipate,” “will,” “continue,” “potential,” “should,” “could,” “up to,” and similar terms and phrases. Though we believe that the expectations reflected in these statements are reasonable, they involve certain assumptions, risks and uncertainties. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Quarterly Report on Form 10-Q, and in particular, under and incorporated by reference in, “Risk Factors”, below, the risks discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and those discussed in other documents we file with the Securities and Exchange Commission (the “SEC” or the “Commission”). Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements above.

All forward-looking statements speak only at the date of the filing of this Report. We do not undertake any obligation to update or revise publicly any forward-looking statements except as required by law, including the securities laws of the United States and the rules and regulations of the SEC.

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

U.S. ENERGY CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	March 31, 2023			December 31, 2022

ASSETS
Current assets:
Cash and equivalents	$	2,421		$	4,411
Oil and natural gas sales receivable		2,048			3,193
Marketable equity securities		107			107
Other current assets		1,160			558
Real estate assets held for sale, net of selling costs		175			175

Total current assets		5,911			8,444

Oil and natural gas properties under full cost method:
Unevaluated properties		1,584			1,584
Evaluated properties		204,282			203,144
Less accumulated depreciation, depletion, amortization and impairment		(98,825	)		(96,725	)

Net oil and natural gas properties		107,041			108,003

Property and equipment, net		861			651
Right-of-use asset		813			868
Other assets		343			354

Total assets	$	114,969		$	118,320

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	7,641		$	7,832
Accrued compensation and benefits		357			1,111
Commodity derivative liability-current		369			1,694
Asset retirement obligations-current		657			668
Current lease obligation		174			189

Total current liabilities		9,198			11,494

Credit facility		12,000			12,000
Asset retirement obligations- noncurrent		15,091			14,774
Long-term lease obligation, net of current portion		750			794
Deferred tax liability		836			898
Other noncurrent liabilities		6			6

Total liabilities		37,881			39,966

Commitments and contingencies (Note 8)		-			-

Shareholders’ equity:
Common stock, $0.01 par value; 245,000,000 shares authorized; 25,234,672 and 25,023,812 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		252			250
Additional paid-in capital		217,265			216,690
Accumulated deficit		(140,429	)		(138,586	)

Total shareholders’ equity		77,088			78,354

Total liabilities and shareholders’ equity	$	114,969		$	118,320

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

U.S. ENERGY CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(In thousands, except share and per share amounts)

	2023			2022

Revenue:
Oil	$	7,095		$	7,833
Natural gas and liquids		1,177			1,039

Total revenue		8,272			8,872

Operating expenses:
Lease operating expense		4,523			2,735
Production taxes		520			572
Depreciation, depletion, accretion and amortization		2,417			1,886
General and administrative expenses		2,772			2,946
Total operating expenses		10,232			8,139

Operating (loss) income		(1,960	)		733

Other income (expense):
Commodity derivative gain (loss)		919			(6,837	)
Marketable equity securities gain		-			81
Interest expense, net		(268	)		(50	)
Total other income (expense)		651			(6,806	)

Net loss before income taxes		(1,309	)		(6,073	)
Income tax benefit		62			2,689
Net loss	$	(1,247	)	$	(3,384	)

Basic and diluted weighted average shares outstanding		25,178,565			23,717,240
Basic and diluted net loss per share	$	(0.05	)	$	(0.14	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

U.S. ENERGY CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(in thousands, except share amounts)

	Shares			Amount			Capital			Deficit			Total
							Additional
	Common Stock						Paid-in			Accumulated
	Shares			Amount			Capital			Deficit			Total

Balances, December 31, 2021		4,676,301		$	47		$	149,276		$	(135,888	)	$	13,435
Shares issued for acquired properties		19,905,736			199			64,495						64,694
Stock-based compensation		-			-			1,500						1,500
Shares issued upon vesting of restricted stock awards		373,500			4			(4	)		-			-
Shares withheld to settle tax withholding obligations for restricted stock awards		(81,725	)		(1	)		(306	)		-			(307	)
Exercise of warrants		50,000			-			213			-			213
Net loss		-			-			-			(3,384	)		(3,384	)

Balances, March 31, 2022		24,923,812		$	249		$	215,174		$	(139,272	)	$	76,151
Balances		24,923,812		$	249		$	215,174		$	(139,272	)	$	76,151

Balances, December 31, 2022		25,023,812		$	250		$	216,690		$	(138,586	)	$	78,354
Stock-based compensation		-			-			727			-			727
Shares issued upon vesting of restricted stock awards		273,000			3			(3	)		-			-
Shares withheld to settle tax withholding obligations for restricted stock awards		(62,140	)		(1	)		(149	)		-			(150	)
Cash dividends $0.0225 per share											(596	)		(596	)
Net loss		-			-			-			(1,247	)		(1,247	)

Balances, March 31, 2023		25,234,672		$	252		$	217,265		$	(140,429	)	$	77,088
Balances		25,234,672		$	252		$	217,265		$	(140,429	)	$	77,088

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

U.S. ENERGY CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

(in thousands)

	2023			2022

Cash flows from operating activities:
Net loss	$	(1,247	)	$	(3,384	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion, accretion, and amortization		2,417			1,886
Deferred income taxes		(62	)		(2,689	)
Unrealized (gain) loss on commodity derivatives		(1,325	)		5,193
Gain on marketable equity securities		-			(81	)
Amortization of debt issuance costs		12

SEC Form 10-Q filed by U.S. Energy Corp.