LIQUIDITY & GOING CONCERN

3 Months Ended

Mar. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

LIQUIDITY & GOING CONCERN

2. LIQUIDITY & GOING CONCERN

As of March 31, 2017, the Company has a working capital deficit of $6.8 million and an accumulated deficit of $124.6 million. Additionally, the Company incurred a net loss of $0.7 million for the three months ended March 31, 2017. As of March 31, 2017, the Company failed to remain in compliance with financial covenants in its credit agreement. Accordingly, the entire balance of $6.0 million is required to be classified as a current liability. On May 2, 2017, the credit facility between U.S. Energy Corp.’s wholly-owned subsidiary, Energy One and Wells Fargo was sold, assigned and transferred to APEG Energy II, L.P. (“APEG”). APEG purchased and assumed all of Wells Fargo’s rights and obligations as the lender to Energy One under the credit facility. Concurrently, U.S. Energy Corp., Energy One and APEG entered into a Limited Forbearance Agreement dated May 2, 2017. The Company believes that the Forbearance Agreement will provide the parties sufficient time to work toward a long-term solution that enables the Company to execute its operational strategy and ensure value for existing shareholders. Please refer to Note 13 entitled “Subsequent Events” for further information.

As of March 31, 2017, the Company had cash and equivalents of $2.2 million. Management believes overhead and mining expense reductions have poised the Company to survive the current low commodity price environment. However, there can be no assurance that the Company will be able to complete future financings, dispositions or acquisitions on acceptable terms or at all.

The significantly lower oil price environment that we have experienced since late 2014 has substantially decreased our cash flows from operating activities. Sustained low oil prices could significantly reduce or eliminate our planned capital expenditures. If production is not replaced through the acquisition or drilling of new wells our production levels will lower due to the natural decline of production from existing wells.

Our strategy is to continue to (1) maintain adequate liquidity and selectively participate in new drilling and completion activities, subject to economic and industry conditions, (2) pursue acquisition and disposition opportunities as available liquidity permits and (3) evaluate various avenues to strengthen our balance sheet and improve our liquidity position. We expect to fund any near-term capital requirements and working capital needs from current cash on hand. Our activity could be further curtailed if our cash flows decline from expected levels. Because production from existing oil and natural gas wells declines over time, further reductions of capital expenditures used to drill and complete new oil and natural gas wells would likely result in lower levels of oil and natural gas production in the future.