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OFFON

U.S. ENERGY CORP.

(USEG)
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U S Energy : US ENERGY CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

08/12/2021 | 04:34pm EDT

Introduction




This information should be read in conjunction with the interim unaudited
financial statements and the notes thereto included in this Quarterly Report on
Form 10-Q, and the audited financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in our Annual Report on   Form 10-K   for the year ended
December 31, 2020, filed with the Securities and Exchange Commission on March
26, 2021 (the "Annual Report").



Certain abbreviations and oil and gas industry terms used throughout this Report
are described and defined in greater detail under "  Glossary of Oil and Natural
Gas Terms  " on page 4 of our Annual Report.


Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our consolidated financial statements included above under "Part I - Financial Information" - " Item 1. Financial Statements ".




In this Quarterly Report on Form 10-Q, we may rely on and refer to information
regarding the industries in which we operate in general from market research
reports, analyst reports and other publicly available information. Although we
believe that this information is reliable, we cannot guarantee the accuracy and
completeness of this information, and we have not independently verified any of
it.


See also " Cautionary Note About "Forward-Looking Statements " above.




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



In addition, unless the context otherwise requires and for the purposes of this report only:

? "Bbl" refers to one stock tank barrel, or 42 U.S. gallons liquid volume, used

  in this report in reference to crude oil or other liquid hydrocarbons;

? "BOE" refers to barrels of oil equivalent, determined using the ratio of one

Bbl of crude oil, condensate or natural gas liquids, to six Mcf of natural gas;

? "Bopd" refers to barrels of oil day;

? "Mcf" refers to a thousand cubic feet of natural gas;

? "Mcfe" means 1,000 cubic feet equivalent, determined using the ratio of six Mcf

of natural gas to one Bbl of crude oil, condensate or natural gas liquids

? "NGL" refers to natural gas liquids;

? "Exchange Act" refers to the Securities Exchange Act of 1934, as amended;

? "SEC" or the "Commission" refers to the United States Securities and Exchange

Commission;

? "Securities Act" refers to the Securities Act of 1933, as amended; and

? "WTI" means West Texas Intermediate.

Where You Can Find Other Information

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 at https://www.sec.gov
(our filings can be found at
https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000101594) and
on the "Investors - SEC Filings" page of our website at https://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.



Summary of The Information Contained in Management's Discussion and Analysis of Financial Condition and Results of Operations

Our Management's Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) is provided in addition to the accompanying consolidated
financial statements and notes to assist readers in understanding our results of
operations, financial condition, and cash flows. MD&A is organized as follows:



? General Overview. Discussion of our business and overall analysis of financial

and other highlights affecting us, to provide context for the remainder of

MD&A.

? Plan of Operations and Strategy. Discussion of our strategy moving forward and

how we plan to seek to increase stockholder value.

? Recent Developments. Discussion of recent developments affecting the Company

and our operations.

? Critical Accounting Policies and Estimates. Accounting estimates that we

believe are important to understanding the assumptions and judgments

incorporated in our reported financial results and forecasts.

? Results of Operations. An analysis of our financial results comparing the

three and six months ended June 30, 2021, and 2020.

? Liquidity and Capital Resources. A discussion of our financial condition,

    including descriptions of balance sheet information and cash flows.




  21


  Table of Contents




General Overview



U.S. Energy Corp. - is a Wyoming corporation organized in 1966. We are an
independent energy company focused on the acquisition and development of oil and
natural gas producing properties in the continental United States. Our business
activities are currently focused in South Texas, the Williston Basin in North
Dakota, Lea County in New Mexico and Converse County in Wyoming.



We have historically explored for and produced oil and natural gas through a
non-operator business model. As a non-operator, we rely on our operating
partners to propose, permit, drill, complete and produce oil and natural gas
wells. Before a well is drilled, the operator provides all oil and natural gas
interest owners in the designated well the opportunity to participate in the
drilling and completion costs and revenues of the well on a pro-rata basis. Our
operating partners also produce, transport, market and account for all oil and
natural gas production. With recent acquisitions in 2020 of New Horizon
Resources, certain FieldPoint Petroleum wells and certain wells in Liberty
County, Texas we now operate a small portion of our production.



Plan of Operations and Strategy




During the remainder of 2021 and beyond, we intend to seek additional
opportunities in the oil and natural gas sector, including but not limited to
further acquisition of assets, participation with current and new industry
partners in their exploration and development projects, acquisition of existing
companies, and the purchase of oil producing assets. In addition, we plan to
grow production by performing workovers on operated idle wells acquired in 2020
to return them back to production.



Key elements of our business strategy include:

? Deploy our Capital in a Conservative and Strategic Manner and Review

Opportunities to Bolster our Liquidity. In the current industry environment,

maintaining liquidity is critical. Therefore, we will be highly selective in

the projects we evaluate and will review opportunities to bolster our

liquidity and financial position through various means.

? Evaluate and Pursue Value-Enhancing Transactions. We plan to continuously

evaluate strategic alternative opportunities that we believe will enhance

    shareholder value.




Recent Developments


Impacts of COVID-19 Pandemic and Effect on Economic Environment




In early March 2020, there was an outbreak of a novel strain of coronavirus,
which causes the infectious disease known as COVID-19, which resulted in a
drastic decline in global demand of certain mineral and energy products
including crude oil. As a result of the lower demand caused by the COVID-19
pandemic and the oversupply of crude oil, spot and future prices of crude oil
fell to historic lows during the second quarter of 2020, which remained
depressed for the majority of 2020. Operators in North Dakota's Williston Basin
responded by significantly decreasing drilling and completion activity and
shutting in or curtailing production from a significant number of producing
wells, all of which have since come back online. Lower oil and natural gas
prices not only decrease our revenues, but an extended decline in oil or gas
prices may materially and adversely affect our future business, financial
position, cash flows, results of operations, liquidity, ability to finance
planned capital expenditures and the oil and natural gas reserves that we can
economically produce.



Additionally, the outbreak of COVID-19 and decreases in commodity prices
resulting from oversupply, government-imposed travel restrictions, and other
constraints on economic activity caused a significant decrease in the demand for
oil and has created disruptions and volatility in the global marketplace for oil
and gas during the first quarter of 2020, and continuing through most of 2020,
which negatively affected our results of operations and cash flows during 2020.
While demand and commodity prices have recently recovered and are back to
pre-pandemic levels, our financial results may continue to be depressed in
future quarters. The extent to which the COVID-19 pandemic impacts our business
going forward will depend on numerous evolving factors we cannot reliably
predict, including the duration and scope of the pandemic; governmental,
business, and individuals' actions in response to the pandemic; the availability
and efficacy of vaccines and boosters, and the willingness of individuals to
obtain such vaccines; future virus mutations; and the impact on economic
activity including the possibility of recession or financial market instability.
These factors may adversely impact the supply and demand for oil and gas and our
ability to produce and transport oil and gas and perform operations at and on
our properties. This uncertainty also affects management's accounting estimates
and assumptions, which could result in greater variability in a variety of areas
that depend on these estimates and assumptions, including investments,
receivables, and forward-looking guidance.



  22


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Critical Accounting Policies and Estimates




The preparation of our unaudited condensed consolidated financial statements in
conformity with generally accepted accounting principles in the United States
("GAAP") requires us to make assumptions and estimates that affect the reported
amounts of assets, liabilities, revenues and expenses, as well as the disclosure
of contingent assets and liabilities at the date of our financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from these estimates under different assumptions or
conditions. A summary of our significant accounting policies is detailed in Part
II, Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations of our 2020 Annual Report on Form 10-K filed with the SEC
on March 26, 2021 (the "2020 Annual Report") and under "Note 1. Organization and
Significant Accounting Policies" in the notes to consolidated financial
statements included in our 2020 Annual Report.



The Company's results of operations and operating cash flows are affected by
changes in market prices for crude oil and natural gas. To manage a portion of
our exposure to price volatility from producing crude oil, we entered into a
crude oil derivative swap contract during the six months ended June 30, 2021, to
protect against price declines in future periods. The Company does not designate
commodity derivative contracts as a cash flow hedges and therefore the contract
does not qualify for hedge accounting. Changes in fair value of the swap
contract are recorded in the condensed consolidated statement of operations. The
fair value of the swap contract is recorded as either an asset or a liability on
the condensed consolidated balance sheet.



Recently Issued Accounting Standards

We do not believe that any recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on our Condensed Consolidated Financial Statements or related disclosures.



Results of Operations


Comparison of our Statements of Operations for the Three Months Ended June 30,

                                 2021 and 2020



For the three months ended June 30, 2021, we recorded a net loss of $207 thousand as compared to a net loss of $3,651 thousand for the three months ended June 30, 2020. In the following sections we discuss our revenue, operating expenses and non-operating income for the three months ended June 30, 2021, compared to the three months ended June 30, 2020.




Revenue. Presented below is a comparison of our oil and gas sales, production
quantities and average sales prices for the three months ended June 30, 2021 and
2020:



                                             Three months ended
                                                  June 30,                                  Change
                                           2021                2020              Amount              Percent
                                            (in thousands except average prices and production quantities)
Revenue:
Oil                                   $        1,507       $        201       $      1,306                    650 %
Gas                                              149                (12 )              161         Not meaningful

Total                                 $        1,656       $        189       $      1,467                    776 %

Production quantities:
Oil (Bbls)                                    24,077             11,710             12,367                    106 %
Gas (Mcf)                                     47,979             13,124             34,855                    266 %
BOE                                           32,073             13,897             18,176                    131 %
BOE per day                                      352                153                199

Average sales prices:
Oil (Bbls)                            $        62.59       $      17.18       $      45.41                    264 %
Gas (Mcf)                                       3.10              (0.95 )  
          4.05         Not meaningful
BOE                                   $        51.62       $      13.58       $      38.04                    280 %




  23


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The increase in our oil and gas revenue of $1,467 thousand for the three months
ended June 30, 2021, as compared to the three months ended June 30, 2020, was
due to an increase in oil production of 106% and an increase in the realized
price received for our oil production of 264%. The increase in oil prices is
primarily due to stronger demand for crude oil on a global basis as the world
recovered from government mandated lockdowns which began in mid-March 2020 in
order to reduce the spread of the COVID-19 pandemic. The increase in oil
production volumes is primarily the result of the acquisitions of properties we
completed during 2020, and our efforts in the first six months of 2021 to return
idle wells to production. During the three months ended June 30, 2021, we
produced 9,472 Bbls of oil from properties acquired in the second half of 2020.
In addition, during the three months ended June 30, 2021, we experienced
production increases in our legacy non-operated properties, primarily in North
Dakota as the result of workovers in which we participated. In the comparable
period of the prior year, production declined due to operators, principally in
North Dakota, temporarily shutting in production as the result of low commodity
prices.



For the three months ended June 30, 2021, we produced 32,073 BOE, or an average
of 356 BOE per day, as compared to 13,897 BOE or 153 BOE per day during the
comparable period in 2020. During the three months ended June 30, 2021, our BOE
production mix was 75% oil and 25% natural gas compared to 84% oil and 16% gas
in the comparable period of 2020. The increase in gas as a percentage of total
production increased due to the acquisition of non-operated gas producing
properties in the second half of 2020.



Oil and Gas Production Costs. Presented below is a comparison of our oil and gas production costs for the three months ended June 30, 2021 and 2020:




                             Three months ended
                                  June 30,                      Change
                            2021            2020         Amount       Percent
                                             (in thousands)
Production taxes          $     131       $      13     $    118           908 %
Lease operating expense         477             333          144            43 %

Total                     $     608       $     346     $    262            76 %




For the three months ended June 30, 2021, production taxes increased by $118
thousand, or 908%, compared to the comparable period in 2020. This increase was
attributable to the increase in oil revenues of 776% from the three months ended
June 30, 2020. For the three months ended June 30, 2021, lease operating
expenses increased by $144 thousand when compared to the three months ended June
30, 2020, due to increased activity as the result of operated properties
acquired in the second half of 2020.



Depreciation, Depletion and Amortization. Our depreciation, depletion and
amortization ("DD&A") rate for the three months ended June 30, 2021 was $3.93
per BOE compared to $6.45 per BOE for the three months ended June 30, 2020. Our
DD&A rate can fluctuate because of changes in drilling and completion costs,
impairments, divestitures, changes in the mix of our production, the underlying
proved reserve volumes and estimated costs to drill and complete proved
undeveloped reserves.



Impairment of Oil and Natural Gas Properties. During the three months ended June
30, 2020, we recorded an impairment of $1.8 million due to the net capitalized
cost of our oil and natural gas properties exceeding the full cost ceiling
limitation. During the three months ended June 30, 2021, there was no such
full
cost ceiling limitation.



General and Administrative Expenses. Presented below is a comparison of our
general and administrative expenses for the three months ended June 30, 2021 and
2020:



                                           Three months ended
                                                June 30,                          Change
                                         2021              2020           Amount          Percent
                                                             (in thousands)
Compensation and benefits,
including directors' fees             $       410       $       296     $       114              39 %
Professional fees, insurance and
other                                         402                71             331             466 %

Total                                 $       812       $       367     $       445             121 %




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General and administrative expenses increased by $445 thousand during the
three-month period ended June 30, 2021, as compared to the prior year period.
The increase was primarily attributable to an increase in professional fees of
$331 thousand. Professional fees incurred during the three months ended June 30,
2021 related to accounting and tax work, adding additional engineering and
accounting contractors and legal fees related to the arbitration of an
employment claim. See Note 9 Commitments, Contingencies and Related Party
Transactions-Arbitration of Employment Claim in the Notes to the condensed
consolidated financial statements included in Part I, Item 1 of this report.
Compensation and benefits, including director fees increased $39 thousand from
the comparable period in 2020 due to the hiring in April 2021 of a new Vice
President of Operations.



Non-Operating Income (Expense). Presented below is a comparison of our
non-operating income (expense) for the three months ended June 30, 2021 and
2020:



                                          Three months ended
                                               June 30,                         Change
                                         2021             2020          Amount         Percent
                                                            (in thousands)

Loss on real estate held for sale $ - $ (1,054 ) $ 1,054

             100 %
Commodity derivative loss                    (317 )             -           (317 )          (100 )%
Gain (loss) on marketable equity
securities                                     23             (46 )           69             150 %
Warrant revaluation loss                       (4 )          (114 )          110              96 %
Rental property gain (loss), net                6             (18 )        
  24             133 %
Other                                           1               -              1             100 %
Interest, net                                  (6 )            (2 )           (4 )          (200 )%

Total other income (expense) $ (297 ) $ (1,234 ) $

 937              76 %



During the three months ended June 30, 2020, we reclassified our Riverton,
Wyoming building and the related parcel of land to real estate held for sale.
Concurrent with the reclassification we recognized a $1,054 thousand loss to
record the value of the building at $725 thousand and land at $250 thousand,
representing the amount we expect to realize for the sale of the property. See
Note 3-Real Estate Held for Sale in the Notes to the condensed consolidated
financial statements included in Part I, Item 1 of this report.



For the three months ended June 30, 2021, we recognized a loss on our
fixed-price swap commodity derivative contract of $317 thousand. In March 2021,
we entered into the swap contract to fix the price of 100 barrels of crude oil
at $61.90 per barrel through December 31, 2021. The fixed-price swap contract
represented approximately 28% of our oil production for the three months ended
June 30, 2021. The loss is related to a change in the fair value of the
fixed-price swap contract due to the increase in the price of crude oil during
the period. See Note 8 Commodity Derivative in the Notes to the condensed
consolidated financial statements included in Part I, Item 1 of this report.



For the three months ended June 30, 2021, we recognized an unrealized gain on
marketable equity securities of $23 thousand as compared to a loss of $46
thousand for the comparable period of 2020. The unrealized gain represents the
increase in value of our investment in Anfield Energy Inc. See Note 15. Fair
Value Measurements-Marketable Equity Securities in the Notes to the condensed
consolidated financial statements included in Part I, Item 1 of this report.



For the three months ended June 30, 2021, we recognized a warrant revaluation
loss of $4 thousand as compared to a loss of $114 thousand during the three
months ending June 30, 2020. The loss for the three months ended June 30, 2021
was attributable to an increase in the value of our common stock during the
period, which was partially offset by a decrease in the warrant liability due to
the exercise of warrants to purchase 50,000 shares of common stock (leaving
warrants to purchase 50,000 shares of common stock outstanding), which occurred
in the third fiscal quarter of 2020.



For the three months ending June 30, 2021, we recognized a gain on rental
property. The gain represents rental income in excess of rental expenses related
to our Riverton, Wyoming office building, which is classified as held for sale
at June 30, 2021.


Interest, net represents the interest expense on short-term financing of insurance premiums for certain policies.

Comparison of our Statements of Operations for the Six Months Ended June 30,

                                 2021 and 2020



During the six months ended June 30, 2021, we recorded a net loss of $369 thousand as compared to a net loss of $3,957 thousand for the six months ended June 30, 2020. In the following sections we discuss our revenue, operating expenses and non-operating income for the six months ended June 30, 2021, compared to the six months ended June 30, 2020.



  25


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Revenue. Presented below is a comparison of our oil and gas sales, production
quantities and average sales prices for the six months ended June 30, 2021 and
2020 (in thousands, except average sales prices and production quantities):


                           Six months ended
                               June 30,                    Change
                           2021         2020        Amount       Percent

Revenue:
Oil                      $  2,639     $  1,056     $  1,583           150 %
Gas                           228           56          172           307 %

Total                    $  2,867     $  1,112     $  1,755           158 %

Production quantities:
Oil (Bbls)                 45,949       32,014       13,935            44 %
Gas (Mcfe)                 72,173       53,437       18,736            35 %
BOE                        57,978       40,920       17,058            42 %
BOE per day                   320          225           95

Average sales prices:
Oil (Bbls)               $  57.43     $  32.99     $  24.44            74 %
Gas (Mcfe)                   3.16         1.04         2.12           204 %
BOE                      $  49.44     $  27.17     $  22.27            82 %




The increase in our oil and gas revenue of $1,755 thousand for the six months
ended June 30, 2021 as compared to the six months ended June 30, 2020 was due
primarily to an increase in oil production of 44% and an increase in the
realized price received for our oil production of 74%. The increase in oil
prices is primarily due to stronger demand for crude oil on a global basis as
the world recovered from government mandated lockdowns which began in mid-March
2020, to reduce the spread of COVID-19. The increase in oil production volumes
is primarily the result of the acquisitions of properties we completed during
2020, and our efforts in the first six months of 2021 to return idle wells to
production. During the six months ended June 30, 2021, we produced 16,875 Bbls
of oil from properties acquired in the second half of 2020.



For the six months ended June 30, 2021, we produced 57,978 BOE, or an average of
320 BOE per day, as compared to 40,920 BOE or 225 BOE per day during the
comparable period in 2020. This increase was mainly attributable to the
acquisition of properties in the last half of 2020 and the return to production
of idle wells during the six months ended June 30, 2021. In addition, during the
six months ended June 30, 2020, certain North Dakota operators temporarily
shut-in production in response to low commodity prices.



Oil and Gas Production Costs. Presented below is a comparison of our oil and gas
production costs for the six months ended June 30, 2021 and 2020 (dollars in
thousands):



                            Six months ended
                                June 30,                    Change
                             2021         2020       Amount       Percent

Production taxes          $      210      $  80     $    130           163 %
Lease operating expense        1,045        742          303            41
%

Total                     $    1,255      $ 822     $    433            53 %




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For the six months ended June 30, 2021, production taxes increased by $130
thousand, or 163%, as compared to the comparable period in 2020. This increase
was primarily attributable to the increase in oil revenues, which increased by
150% compared to 2020. During the six months ended June 30, 2021, lease
operating expenses increased by $303 thousand when compared to the six months
ended June 30, 2020 as a result of the acquisition of properties during the
second half of 2020.



Depreciation, Depletion and Amortization. Our DD&A rate for the six months ended
June 30, 2021 was $3.88 per BOE compared to $4.76 per BOE for the six months
ended June 30, 2020. For the six months ended June 30, 2020, our depletion rate
was impacted by a reclassification of $2.1 million of our unevaluated properties
and the reduction in reserve quantities at June 30, 2020, primarily due to
pricing revisions. Our DD&A rate can fluctuate as a result of changes in
drilling and completion costs, impairments, divestitures, changes in the mix of
our production, the underlying proved reserve volumes and estimated costs to
drill and complete proved undeveloped reserves.



Impairment of Oil and Natural Gas Properties. During the six months ended June
30, 2020 we recorded an impairment of $1.8 million due to the net capitalized
cost of our oil and natural gas properties exceeding the full cost ceiling
limitation. During the six months ended June 30, 2021 there was no such full
cost ceiling limitation.



General and Administrative Expenses. Presented below is a comparison of our
general and administrative expenses for the six months ended June 30, 2021 and
2020 (dollars in thousands):



                                           Six months ended
                                               June 30,                          Change
                                         2021             2020          Amount          Percent

Compensation and benefits,
including directors                   $       749      $      519     $       230               44 %
Professional fees, insurance and
other                                         798             420             378               90 %

Total                                 $     1,547      $      939     $       608               65 %




General and administrative expenses increased by $608 thousand during six-month
period ended June 30, 2021 as compared to the six-month period ended June 30,
2020 due to an increase in professional fees of $378 thousand. The increase was
primarily attributable to an increase in legal fees. On March 4, 2021, we issued
90,846 shares of unregistered common stock valued at $406 thousand to APEG in
reimbursement of legal costs they incurred in the Texas and Colorado Litigation,
which was dismissed in 2020. See Note 9-Commitments, Contingencies and Related
Party Transactions-APEG II Litigation in the Notes to the condensed consolidated
financial statements included in Part I, Item 1 of this report. Compensation and
benefits increased $230 thousand due to the hiring in April 2021 of a new Vice
President of Operations and an increase in the amortization of stock-based
compensation due to awards granted to our officers and directors in January
and
February 2021.



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Non-Operating Income (Expense). Presented below is a comparison of our
non-operating income (expense) for the six months ended June 30, 2021 and 2020
(dollars in thousands):



                                           Six months ended
                                               June 30,                        Change
                                         2021            2020          Amount         Percent

Loss on real estate held for sale               -         (1,054 )        1,054             100 %
Derivative loss                              (210 )            -           (210 )          (100 )%
Unrealized (loss) gain on
marketable equity securities                   73           (121 )          194             160 %
Warrant revaluation (loss) gain               (24 )         (120 )         
 96              80 %
Rental property loss                           23            (35 )           58             166 %
Other income                                   26             28             (2 )           (10 )%
Interest, net                                 (58 )           (2 )          (56 )         (2800 )%

Total other income (expense)          $      (170 )   $   (1,304 )   $    1,134              87 %




During the six months ended June 30, 2020 we reclassified our Riverton, Wyoming
building and the related parcel of land to real estate held for sale. Concurrent
with the reclassification we recognized a $1,054 thousand loss to adjust the
carrying amount of the land and building to its estimated fair value of $975
thousand. See Note 3-Real Estate Held for Sale in the notes to the condensed
consolidated financial statements included in Part I, Item 1 of this report.



For the six months ended June 30, 2021, we recognized a loss on our fixed-price
swap commodity derivative contract of $210 thousand. In March 2021, we entered
into the swap contract to fix the price of 100 barrels of crude oil at $61.90
per barrel through December 31, 2021. The fixed-price swap contract represented
approximately 32% of our oil production for the six months ended June 30, 2021.
The loss is related to a change in the fair value of the fixed-price swap
contract due to the increase in the price of crude oil during the period. See
Note 8 Commodity Derivative in the Notes to the condensed consolidated financial
statements included in Part I, Item 1 of this report.



During the six months ended June 30, 2021 we recognized an unrealized gain on
marketable equity securities of $73 thousand as compared to an unrealized loss
of $121 thousand for the comparable period of 2020. The unrealized gain
represents the increase in value of our investment in Anfield Energy Inc. See
Note 15. Fair Value Measurements-Marketable Equity Securities in the Notes to
the condensed consolidated financial statements included in Part I, Item 1
of
this report.



During the six months ended June 30, 2021, we recognized a warrant revaluation
loss of $24 thousand as compared to a loss of $120 thousand during the six
months ended June 30, 2020. The loss during the three months ended June 30, 2021
was attributable to an increase in the warrant liability, primarily as a result
of the increase in the value of our common stock.



During the six months ended June 30, 2021, we recognized a gain of $25 thousand
from the partial recovery of a deposit written off in 2018. For the six months
ended June 30, 2020 we recognized a $25 thousand gain related to the recovery of
the same deposit.



Interest, net increased by $56 thousand during the six months ended June 30,
2021 compared to the comparable period in 2020. On March 4, 2021, we entered
into a Debt Conversion Agreement with APEG II. Pursuant to the agreement we
repaid the note and accrued interest to the maturity date by issuing 97,962
shares. See Note 7-Debt in the Notes to the condensed consolidated financial
statements included in Part I, Item 1 of this report.



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Liquidity and Capital Resources




The following table sets forth certain measures of our liquidity as of June 30,
2021 and December 31, 2020:



                               June 30,       December 31,
                                 2021             2020          Change
                                           (in thousands)
Cash and equivalents         $      6,582     $       2,854     $ 3,728
Working capital (1)                 7,416             2,499       4,917
Total assets                       17,627            12,363       5,264
Total shareholders' equity         14,482             8,567       5,915

Select Ratios:
Current ratio (2)              5.7 to 1.0       2 .2 to 1.0



(1) Working capital is computed by subtracting total current liabilities from

total current assets.

(2) The current ratio is computed by dividing total current assets by total

        current liabilities.




As of June 30, 2021, we had working capital of $7.4 million compared to working
capital of $2.5 million as of December 31, 2020, an increase of $4.9 million.
This increase was primarily attributable to proceeds of $5.3 million from the
sale of 1.1 million shares of common stock, net of issuance costs, sold pursuant
to an underwritten offering in February 2021, as discussed below.



As of June 30, 2021, we had cash and cash equivalents of $6.6 million and accounts payable and accrued liabilities of $0.8 million. As of August 10, 2021, we had cash and cash equivalents of approximately $6.8 million and accounts payable and accrued liabilities of approximately $0.9 million.

We own a 14-acre tract in Riverton, Wyoming with a two-story, 30,400 square foot
office building and an additional 13-acre parcel of land adjacent to the
building. The building served as our corporate headquarters until 2015 and is
currently being leased to government agencies and other non-affiliated
companies. During 2020, we made the decision to sell the land and building and
began a process to determine the price at which we would list the property for
sale. The process included obtaining an appraisal, analyzing operating
statements for the building, reviewing capitalization rates and consulting a
large national commercial real estate company. We determined the realizable
value of the real estate assets was in the range of $950 thousand to $1.2
million. A special committee of the board of directors was formed to evaluate
the sales process and during 2020, we entered into an agreement with a large
national commercial broker and a local broker in Riverton, Wyoming to sell
our
real estate assets.


On February 17, 2021, we sold 1,131,600 shares of our common stock in an underwritten offering at a public offering price of $5.10 per share. The net proceeds to us after deducting the underwriting discounts, commissions and offering expenses, were $5.3 million.




If we have needs for additional capital in the second half of 2021, alternatives
that we will consider would potentially include entering into a reserve-based
credit facility, selling all or a partial interest in certain of our
non-operated oil and natural gas assets, selling our marketable equity
securities, issuing additional shares of our common stock for cash or as
consideration for acquisitions, and other alternatives, as we determine how to
best fund our capital programs and meet our financial obligations.



Cash Flows



The following table summarizes our cash flows for the six months ended June 30,
2021 and 2020:



                                    Six months ended
                                        June 30,
                                     2021         2020      Change
                                           (in thousands)
Net cash provided by (used in):
Operating activities              $     (591 )   $ (470 )   $  (121 )
Investing activities                    (877 )     (133 )      (744 )
Financing activities                   5,196       (152 )     5,348



Operating Activities. Cash used in operating activities for the six months ended
June 30, 2021 was $591 thousand as compared to cash used in operating activities
$470 thousand for the comparable period in 2020. The increase in cash used in
operating activities is mainly attributable to the increases in payments for
operating and general and administrative expenses, which were partially offset
by an increase in cash receipts for revenues.



  29


  Table of Contents



Investing Activities. Cash used in investing activities for the six months ended
June 30, 2021 was $877 thousand as compared to $133 thousand for the comparable
period in 2020. The primary use of cash in our investing activities for the six
months ended June 30, 2021 was the capital expenditures of oil and gas
properties related to returning idle wells to production in our Liberty County,
Texas field. The comparable number in 2020 mainly represents the cash paid for
the acquisition of New Horizon for net cash of $122 thousand.



Financing Activities. Cash provided by financing activities for the six months
ended June 30, 2021 was $5.2 million as compared to cash used in financing
activities of $152 thousand for the comparable period in 2020. The cash provided
by financing activities during the six months ended June 30, 2021 was primarily
attributable to cash received from the sale of 1.1 million shares of common
stock of $5.3 million. The comparable number in 2020 represents repayment of the
credit facility and payments on the premium finance note payable.



Off-Balance Sheet Arrangements




As part of our ongoing business, we have not participated in transactions that
generate relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities ("SPEs"), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes.


We evaluate our transactions to determine if any variable interest entities
exist. If it is determined that we are the primary beneficiary of a variable
interest entity, that entity will be consolidated in our consolidated financial
statements. We have not been involved in any unconsolidated SPE transactions
during the periods covered by this report.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2020 2,16 M - -
Net income 2020 -6,44 M - -
Net cash 2020 2,52 M - -
P/E ratio 2020 -0,93x
Yield 2020 -
Capitalization 18,1 M 18,1 M -
EV / Sales 2019 0,39x
EV / Sales 2020 3,80x
Nbr of Employees 2
Free-Float 95,3%
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Ryan L. Smith President, CEO, CFO & Director
D. Stephen Slack Chairman
Javier F. Pico Independent Director
James W. Denny Independent Director
Randall D. Keys Independent Director
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