U.S. ENERGY CORP. Forward Looking Statements
This Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts included in and incorporated by reference into this Form 10-Q are forward-looking statements. When used in this Form 10-Q, the words "will", "expect", "anticipate", "intend", "plan", "believe", "seek", "estimate" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements in this Form 10-Q include statements regarding our expected future revenue, income, production, liquidity, cash flows, reclamation and other liabilities, expenses and capital projects, future capital expenditures and future transactions. Because these forward-looking statements involve risks and uncertainties, actual results could differ materially from those expressed or implied by these forward-looking statements due to a variety of factors, including those associated with our ability to find oil and natural gas reserves that are economically recoverable, the volatility of oil, natural gas liquids and natural gas prices, declines in the values of our properties that have resulted in and may in the future result in additional ceiling test write downs, our ability to replace reserves and sustain production, our estimate of the sufficiency of our existing capital sources, our ability to raise additional capital to fund cash requirements for our participation in oil and gas properties and for future acquisitions, the uncertainties involved in estimating quantities of proved oil and natural gas reserves, in prospect development and property acquisitions or dispositions and in projecting future rates of production or future reserves, the timing of development expenditures and drilling of wells, hurricanes and other natural disasters and the operating hazards attendant to the oil and gas and minerals businesses. In particular, careful consideration should be given to cautionary statements made in the "Risk Factors" section of our 2019 Annual Report on Form 10-K and other quarterly reports on Form 10-Q filed with theSEC , all of which are incorporated herein by reference. The Company undertakes no duty to update or revise any forward-looking statements. General Overview
U.S. Energy Corp. ("U.S. Energy", the "Company", "we" or "us") is aWyoming 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 continentalUnited States . Our business activities are currently focused inSouth Texas and theWilliston Basin inNorth Dakota . 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. Recent Developments OnJuly 22, 2020 , the Company entered into a share purchase agreement to sell 1,210,455 common shares of the Company's holdings in Anfield Energy Inc. for approximately$45 thousand . Following the sale, the Company owns 2,420,910 shares in Anfield Energy Inc., which it expects to sell during the three months endedSeptember 30, 2020 .
Impacts of COVID-19 Pandemic and Effect on Economic Environment
In earlyMarch 2020 , there was a global outbreak of COVID-19 that has 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 and remain depressed. Operators inNorth 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. Operators decisions on these matters are changing rapidly and it is difficult to predict the future effects on the Company's business. 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. AtJune 30, 2020 , we performed an impairment review resulting in the Company recording a ceiling test write down of$1.8 million due to the effect lower crude oil prices had on the value of its proved reserves. In the calculation of the ceiling test as ofJune 30, 2020 , the Company used$47.17 per barrel for oil and$2.07 per mcf for natural gas (as further adjusted for differentials related to 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%. These prices represent the average of first day of the month prices for oil and natural gas for each month in the twelve-month period endedJune 30, 2020 . If depressed prices for crude oil continue, it is likely that the Company will experience additional ceiling test write-downs in 2020 as higher prices from last year and the first three months of 2020 used in the calculation of the average price are replaced with lower prices. 23 Legal Proceedings APEG II, our largest shareholder holding approximately 42% of our outstanding common stock, and its general partner, APEG Energy II, GP (together with APEG II, "APEG"), were involved in litigation with us and our former Chief Executive Officer,David Veltri . OnJuly 29, 2020 APEG filed a Notice of Voluntary Dismissal in their lawsuit against us andMr. Veltri and onJuly 30, 2020 , we filed a Notice of Voluntary Dismissal in our Lawsuit againstMr. Veltri . We expect the litigation will be formally dismissed inAugust 2020 . For more detail regarding such litigation, please see the sections Litigation-APEG II Litigation and -Litigation with Former Chief Executive Officer in Note 9-Commitments, Contingencies and Related-Party Transactions in the Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.
InJuly 2020 , we received a request for arbitration from a former employee claiming that we breached the former employee's employment agreement (the "Agreement") due to a termination of employment without cause. The Agreement requires that any disputes be submitted to binding arbitration. We have insurance for these types of claims and have reported the request for binding arbitration to our insurance carrier. We believe it is probable that the insurance carrier will come to a settlement with the former employee and have accrued$100 thousand atJune 30, 2020 , representing the amount of our insurance deductible.
Critical Accounting Policies and Estimates
The preparation of our condensed consolidated financial statements in conformity with generally accepted accounting principles inthe 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 2019 Annual Report on Form 10-K filed with the
SEC onMarch 30, 2020 .
Recently Issued Accounting Standards
Please refer to the section entitled Recently Adopted Accounting Pronouncements under Note 1 - Organization, Operations and Significant Accounting Policies in the Notes to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report for additional information on recently issued accounting standards and our plans for adoption of those standards. 24 Results of Operations
Comparison of our Statements of Operations for the Three Months Ended
2020 and 2019
During the three months ended June 30, 2020 , we recorded a net loss of $3,651
thousand as compared to net income of $20 thousand for the three months ended
June 30, 2019 . In the following sections we discuss our revenue, operating
expenses and non-operating income for the three months ended June 30, 2020
compared to the three months ended June 30, 2019 .
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, 2020 and
2019 (dollars in thousands, except average sales prices):
Three months ended
June 30, Change
2020 2019 Amount Percent
Revenue:
Oil $ 201 $ 1,760 $ (1,559 ) -89 %
Gas (12 ) 112 (124 ) -111 %
Total $ 189 $ 1,872 $ (1,683 ) -90 %
Production quantities:
Oil (Bbls) 11,710 29,386 (17,676 ) -60 %
Gas (Mcfe) 13,124 60,141 (47,017 ) -78 %
BOE 13,897 39,410 (25,513 ) -65 %
Average sales prices:
Oil (Bbls) $ 17.18 $ 59.89 $ (42.73 ) -71 %
Gas (Mcfe) (0.95 ) 1.86 (2.82 ) -151 %
BOE $ 13.58 $ 47.51 $ (33.93 ) -71 %
The decrease in our oil and gas revenue of $1,683 thousand for the three months
ended June 30, 2020 as compared to the three months ended June 30, 2019 was due
to a decrease in oil production of 60% and decrease in the realized price
received for our oil production of 71%. The decline in oil prices is primarily
due to reduced demand on a global basis beginning in mid-March 2020 as a result
of the COVID 19 pandemic. In addition, our oil price differential widened
significantly, particularly for our North Dakota properties where the
differential from WTI increased to $10.55 per barrel as compared to $4.62 per
barrel in the comparable period in 2019. The decrease in oil production volumes
is primarily the result of operators shutting in production on our North Dakota
properties as a response to low oil prices and the production declines from our
South Texas wells drilled in late 2018 and early 2019.
For the three months ended June 30, 2020 , we produced 13,897 BOE, or an average
of 153 BOE per day, as compared to 39,410 BOE or 433 BOE per day during the
comparable period in 2019. This decrease was mainly attributable to North Dakota
operators shutting in production as the result of low prices and the production
declines from the previously mentioned South Texas wells.
25
Oil and Gas Production Costs. Presented below is a comparison of our oil and gas
production costs for the three months ended June 30, 2020 and 2019 (dollars
in
thousands):
Three months ended
June 30, Change
2020 2019 Amount Percent
Production taxes $ 13 $ 118 $ (105 ) -89 %
Lease operating expense 333 471 (138 ) -29 %
Total $ 346 $ 589 $ (243 ) -41 %
For the three months ended June 30, 2020 , production taxes decreased by $105
thousand , or 89%, compared to the comparable period in 2019. This decrease was
primarily attributable to the decrease in oil revenues. During the three months
ended June 30, 2020 , lease operating expenses decreased by $138 thousand when
compared to the three months ended June 30, 2019 due to operators shutting in
production, cost cutting measures enacted due to low commodity prices and
reduced field activity.
Depreciation, Depletion and Amortization. Our depreciation, depletion and
amortization ("DD&A") rate for the three months ended June 30, 2020 was $6.45
per BOE compared to $4.98 per BOE for the three months ended June 30, 2019 . For
the most recently completed quarter, our depletion rate was impacted by a
reclassification of $2.1 million of our unevaluated properties and the reduction
in reserve quantities, primarily due to pricing revisions. 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 ofOil and Natural Gas Properties . During the three months endedJune 30, 2020 we recorded impairment of$1.8 million due to the net capitalized cost of our oil and natural gas properties exceeding the full cost ceiling limitation. During the three months endedJune 30, 2019 there was no such full cost ceiling limitation. General and Administrative Expenses. Presented below is a comparison of our general and administrative expenses for the three months endedJune 30, 2020 and 2019 (dollars in thousands): Three months ended June 30, Change 2020 2019 Amount Percent Compensation and benefits, including directors$ 296 $ 188 $ 108 57 % Professional fees, insurance and other 71 1,064 (993 ) -91 % Bad debt expense - 28 (28 ) N/A Total$ 367 $ 1,280 $ (913 ) -71 % General and administrative expenses decreased by$913 thousand during three-month period endedJune 30, 2020 as compared to the prior year period primarily due to a reduction in professional fees. The decrease was primarily attributable to a reduction in legal fees of$931 thousand including the removal of$250 thousand for litigation settlement accruals. The APEG litigation is expected to be dismissed inAugust 2020 without us incurring certain estimated legal costs. Also included in legal fees is an accrual of$100 thousand for a claim from a former employee that will go to arbitration. In the prior year period, we incurred legal costs of$787 thousand primarily as a result of the APEG II litigation. See Litigation-APEG II Litigation and -Litigation with Former Chief Executive Officer in Note 9-Commitments, Contingencies and Related-Party Transactions in the Notes to the Financial Statements included in Part I, Item 1 of this report. Accounting fees also decreased$120 thousand during the three months endedJune 30, 2020 when compared to the prior year period. These decreases in professional fees were partially offset by an increase in compensation and benefits of$108 thousand due to amortization of stock-based compensation awards granted to our Chief Executive Officer and members of our Board inJanuary 2020 . 26 Non-Operating Income (Expense). Presented below is a comparison of our non-operating income (expense) for the three months endedJune 30, 2020 and 2019 (dollars in thousands): Three months ended June 30, Change 2020 2019 Amount Percent
Loss on real estate held for sale (651 ) - (651 ) N/A % Impairment of real estate (403 ) - (403 ) N/A % Unrealized loss on marketable equity securities (46 ) (8 ) (38 ) -475 % Warrant revaluation (loss) gain 114 234 (348 ) -149 % Rental property loss, net (18 ) (8 ) (10 ) -125 % Interest, net (2 ) 1 (3 ) -300 %
Total other income (expense) $ (1,234 )
During the three months endedJune 30, 2020 we reclassified ourRiverton, Wyoming building and the related parcel of land to real estate held for sale. Concurrent with the reclassification we recognized a$651 thousand loss to record the value of the building at$725 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.
During the three months ended
During the three months endedJune 30, 2020 we recognized an unrealized loss on marketable equity securities of$46 thousand as compared to a loss of$8 thousand for the comparable period of 2019. The unrealized losses represent the decline in value of our investment in Anfield Energy Inc. InJuly 2020 , we sold 1,210,455 shares, representing one-third of our total investment, for proceeds of$45 thousand . We expect to sell the remaining shares in the third quarter of 2020. During the three months endingJune 30, 2020 , we recognized a warrant revaluation loss of 114 thousand as compared to a gain of$234 thousand during the three months endingJune 30, 2019 . The loss during the three months endedJune 30, 2020 was attributable to an increase in the warrant liability primarily due to an increase in the value of our common stock during the period.
Interest, net represents the interest related to our insurance premium finance note net of interest earned on cash balances on deposit at our bank.
Comparison of our Statements of Operations for the Six Months Ended
2020 and 2019
During the six months ended June 30, 2020 , we recorded a net loss of $3,957
thousand as compared to net income of $35 thousand for the six months ended June
30, 2019 . In the following sections we discuss our revenue, operating expenses
and non-operating income for the six months ended June 30, 2020 compared to the
six months ended June 30, 2019 .
27
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, 2020 and
2019 (dollars in thousands, except average sales prices):
Six months ended
June 30, Change
2020 2019 Amount Percent
Revenue:
Oil $ 1,056 $ 3,175 $ (2,119 ) -67 %
Gas 56 258 (202 ) -78 %
Total $ 1,112 $ 3,433 $ (2,321 ) -68 %
Production quantities:
Oil (Bbls) 32,014 54,739 (22,725 ) -42 %
Gas (Mcfe) 53,437 113,402 (59,965 ) -53 %
BOE 40,920 73,639 (32,719 ) -44 %
Average sales prices:
Oil (Bbls) $ 32.99 $ 58.00 $ (25.02 ) -43 %
Gas (Mcfe) 1.04 2.28 (1.24 ) -54 %
BOE $ 27.17 $ 46.62 $ (19.45 ) -42 %
The decrease in our oil and gas revenue of $2,321 thousand for the six months
ended June 30, 2020 as compared to the six months ended June 30, 2019 was due
primarily to a decrease in oil production of 42% and decrease in the realized
price received for our oil production of 43%. The decline in oil prices is
primarily due to reduced demand on a global basis beginning in mid-March 2020 as
the result of the COVID 19 pandemic. In addition, our oil price differential
widened significantly, particularly for our North Dakota properties where the
differential from WTI increased to $6.94 per barrel as compared to $3.41 per
barrel in the comparable period in 2019. The decrease in oil production
quantities is the result of operators shutting in production in our North Dakota
properties beginning in April as a response to low oil prices, and the
production declines from our South Texas wells, which were drilled in late2018 and early 2019. For the six months endedJune 30, 2020 , we produced 40,920 BOE, or an average of 225 BOE per day, as compared to 73,639 BOE or 407 BOE per day during the comparable period in 2019. This decrease was mainly attributable toNorth Dakota operators shutting in production as the result of low prices and the production declines from the previously mentionedSouth Texas wells. Oil and Gas Production Costs. Presented below is a comparison of our oil and gas production costs for the six months endedJune 30, 2020 and 2019 (dollars in thousands): Six months ended June 30, Change 2020 2019 Amount Percent Production taxes$ 80 $ 216 $ (136 ) -63 % Lease operating expense 742 938 (196 ) -21 % Total$ 822 $ 1,154 $ (332 ) -29 % 28
For the six months endedJune 30, 2020 , production taxes decreased by$136 thousand , or 63%, as compared to the comparable period in 2019. This decrease was primarily attributable to the decrease in oil revenues, which decreased by 67% compared to 2019. During the six months endedJune 30, 2020 , lease operating expenses decreased by$196 thousand when compared to the six months endedJune 30, 2019 as the result of operators shutting in production, cost cutting measures enacted due to low commodity prices and reduced field activity. Depreciation, Depletion and Amortization. Our DD&A rate for the six months endedJune 30, 2020 was$4.76 per BOE compared to$4.87 per BOE for the six months endedJune 30, 2019 . For the six months endedJune 30, 2020 , our depletion rate was impacted by a reclassification of$2.1 million of our unevaluated properties and the reduction in reserve quantities atJune 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 ofOil and Natural Gas Properties . During the six months endedJune 30, 2020 we recorded an impairment of$1.8 million due to the net capitalized cost of our oil and natural gas properties exceeding the full cost ceiling limitation. During the six months endedJune 30, 2019 there was no such full cost ceiling limitation. General and Administrative Expenses. Presented below is a comparison of our general and administrative expenses for the six months endedJune 30, 2020 and 2019 (dollars in thousands): Six months ended June 30, Change 2020 2019 Amount Percent Compensation and benefits, including directors$ 519 $ 480 $ 39 8 % Professional fees, insurance and other 420 1,620 (1,200 ) -74 % Bad debt expense - 28 28 N/A % Total$ 939 $ 2,128 $ (1,189 ) -56 % General and administrative expenses decreased by$1,189 thousand during six-month period endedJune 30, 2020 as compared to the six-month period endedJune 30, 2019 due to a reduction in professional fees. The decrease was primarily attributable to a reduction in legal fees of$1,232 thousand , including the removal of$250 thousand for litigation settlement accruals. The APEG litigation is expected to be dismissed inAugust 2020 without us incurring certain estimated legal costs. Also included in legal fees during the period is an accrual of$100 thousand for a claim from a former employee that will go to arbitration. In the prior year period, we incurred legal costs of$1,084 thousand , primarily as the result of the APEG II litigation. See Litigation-APEG II Litigation and -Litigation with Former Chief Executive Officer in Note 9-Commitments, Contingencies and Related-Party Transactions in the Notes to the Financial Statements included in Part I, Item 1 of this report. Compensation and benefits increased$39 thousand due to amortization of stock-based compensation awards granted to our Chief Executive Officer and directors inJanuary 2020 . 29 Non-Operating Income (Expense). Presented below is a comparison of our non-operating income (expense) for the six months endedJune 30, 2020 and 2019 (dollars in thousands): Six months ended June 30, Change 2020 2019 Amount Percent
Loss on real estate held for sale (651 ) -
(651 ) N/A % Impairment of real estate (403 ) - (403 ) N/A % Unrealized (loss) gain on marketable equity securities (121 ) 5 (126 ) -2,520 %
Warrant revaluation (loss) gain (120 ) 242
(362 ) -150 % Rental property loss (35 ) (23 ) (12 ) -52 % Other income 28 50 (22 ) -44 % Interest, net (2 ) (20 ) 18 -90 % Total other income (expense)$ (1304 ) $ 254 $ (1,558 ) -613 % During the six months endedJune 30, 2020 we reclassified ourRiverton, Wyoming building and the related parcel of land to real estate held for sale. Concurrent with the reclassification we recognized a$651 thousand loss to adjust the carrying amount of the land and building to its estimated fair value of$725 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.
During the six months ended
During the six months endedJune 30, 2020 we recognized an unrealized loss on marketable equity securities of$174 thousand as compared to an unrealized gain of$5 thousand for the comparable period of 2019. The unrealized loss represents the decline in value of our investment in Anfield Energy Inc. InJuly 2020 , we sold 1,210,455 shares, representing one-third of our total investment for proceeds of$45 thousand . We expect to sell the remaining shares in the third quarter of 2020. During the six months endedJune 30, 2020 , we recognized a warrant revaluation loss of$120 thousand as compared to a gain of$242 thousand during the six months endedJune 30, 2019 . The loss during the three months endedJune 30, 2020 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 endedJune 30, 2020 , we recognized a gain of$25 thousand from the partial recovery of a deposit written off in 2018. For the six months endedJune 30, 2019 we recognized a$50 thousand gain related to the recovery of the same deposit. See Note 7-Write-Off of Deposit in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this report. Interest, net decreased by$18 thousand during the six months endedJune 30, 2020 compared to the comparable period in 2019. The decrease was attributable to the reduction in the principal balance of our credit facility, which was repaid in full onMarch 1, 2019 .
Non-GAAP Financial Measures- Adjusted EBITDAX
Adjusted EBITDAX represents income (loss) from continuing operations as further modified to eliminate depreciation, depletion accretion and amortization, impairment, stock-based compensation expense, unrealized gains and loss on marketable equity securities, gains and losses on warrant revaluation, unrealized losses on the reclassification of real estate to held for sale, interest expense net of interest income, and other items set forth in the table below. Adjusted EBITDAX excludes certain items that we believe affect the comparability of operating results and items that are generally one-time in nature or whose timing and/or amount cannot be reasonably estimated. 30
Adjusted EBITDAX is a non-GAAP measure that is presented because we believe it provides useful additional information to investors and analysts as a performance measure. In addition, adjusted EBITDAX is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the oil and natural gas exploration and production industry, and many investors use the published research of industry research analysts in making investment decisions. Adjusted EBITDAX should not be considered in isolation or as a substitute for net income (loss), income (loss) from operations, net cash provided by operating activities, or profitability or liquidity measures prepared under GAAP. Because adjusted EBITDAX excludes some, but not all items that affect net income (loss) and may vary among companies, the adjusted EBITDAX amounts presented may not be comparable to similar metrics of other companies. The following table provides reconciliations of income (loss) from continuing operations to adjusted EBITDAX for the six months endedJune 30, 2020 and 2019: Six months endedJune 30, 2020 2019 (in thousands)
Income (loss) from continuing operations (GAAP)
Depreciation, depletion, accretion and amortization 210 370
Impairment of oil and gas properties 1,794 -
Loss on real estate held for sale 651 -
Impairment of real estate 403 -
Unrealized (gain) loss on marketable equity securities 121
(5 )
Loss (gain) on warrant revaluation 120 (242 )
Stock-based compensation expense 106 26
Interest, net 2 20
Adjusted EBITDAX (Non-GAAP) $ (550 ) $ 204 Liquidity and Capital Resources
The following table sets forth certain measures of our liquidity as ofJune 30, 2020 andDecember 31, 2019 : June 30, 2020 December 31, 2019 Change (in thousands) Cash and equivalents $ 777 $ 1,532$ (755 ) Working capital (1) 1,343 1,470 (127 ) Total assets 9,690 13,467 (3,777 ) Total shareholders' equity 5,598 9,210 (3,612 ) Select Ratios: Current ratio (2) 2.7 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 ofJune 30, 2020 , we have working capital of$1,343 thousand compared to working capital of$1,470 thousand as ofDecember 31, 2019 , a decrease of$127 thousand . This decrease was primarily attributable to cash used in operating activities of$461 thousand and cash payments of$183 thousand for the acquisition ofNew Horizon and repayment ofNew Horizon's credit facility, which were partially offset by the reclassification of real estate held for sale
of$725 thousand . 31
As of
In earlyMarch 2020 , the NYMEX WTI crude oil price decreased significantly and although it has increased to$41.60 per barrel as ofAugust 7, 2020 , it remained historically low for much of the three-month period endedJune 30, 2020 . Currently, we do not have any commodity derivative contracts in place to mitigate the effect of lower commodity prices on our revenues. 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. Lower crude prices could also affect the realizability of our oil and gas properties. For the quarter endedJune 30, 2020 we recorded a ceiling test write-down of$1.8 million . In the calculation of the ceiling test as ofJune 30, 2020 , we used$47.17 per barrel for oil and$2.07 per mcf for natural gas (as further adjusted for differentials related to property, specific gravity, quality, local markets and distance from markets) to compute the future cash flows of our producing properties. The discount factor used was 10%. These prices represent the average of first day of the month prices for oil and natural gas for each month in the twelve-month period endedJune 30, 2020 . If depressed prices continue, it is likely that the Company will experience additional ceiling test write-downs in 2020, as higher prices from the last six months of last year and the first three months of 2020 used in the calculation of the average price are replaced with lower pricing. The Company owns a 14-acre tract inRiverton, Wyoming with a two-story, 30,400 square foot office building. The building served as the Company's corporate headquarters until 2015 and is currently being leased to government agencies and other non-affiliated companies. In 2020, the Company made the decision to sell the land and building and began a process to determine the price at which it would list the property for sale. The Company determined that the realizable value of the building was in the range of$700 thousand to$900 thousand . A special committee of the Board was formed to evaluate the sales process and ultimately recommend any action to the Board regarding any potential action.
In
If we have needs for financing in 2020, alternatives that we will consider would potentially include refinancing into a new reserve-based credit facility, selling all or a partial interest in our oil and natural gas assets, issuing shares of our common stock for cash or as consideration for acquisitions, and other alternatives, as we determine how to best meet our financial objectives. Cash Flows The following table summarizes our cash flows for the six months endedJune 30, 2020 and 2019: Six months ended June 30, 2020 2019 Change (in thousands) Net cash provided by (used in): Operating activities$ (470 ) $ (179 ) $ (291 ) Investing activities (134 ) (201 ) 67 Financing activities (152 ) (1,076 ) 924 32
Operating Activities. Cash used in operating activities for the six months endedJune 30, 2020 was$470 thousand as compared to cash used in operating activities$179 thousand for the comparable period in 2019. The increase in cash used in operating activities is attributable to decrease in revenues of$2,321 thousand , which was partially offset by a decrease in lease operating expenses, production taxes and general and administrative costs of$1,521 thousand and changes in working capital of$453 thousand . Investing Activities. Cash used in investing activities for the six months endedJune 30, 2019 was$142 thousand as compared to$201 thousand for the comparable period in 2019. The primary use of cash in our investing activities for the six months endedJune 30, 2020 was the acquisition ofNew Horizon for net cash
of$122 thousand .
Financing Activities. Cash used in financing activities for the six months endedJune 30, 2020 was$152 thousand as compared to cash used in investing activities of$1,076 thousand for the comparable period in 2019. The cash used in investing activities during the six months endedJune 30, 2020 was primarily attributable to the repayment of$90 thousand on our insurance premium finance note and repayment of theNew Horizon credit facility of$61 thousand . For the six months endedJune 30, 2019 cash used in investing activities included repayment of$937 thousand outstanding under our credit facility and 139 thousand for the repayment of our insurance premium finance note.
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.
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