UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended September 30, 2018

Commission File Number 000-6814000-06814

U.S. ENERGY CORP.

(Exact Name of Registrant as Specified in its Charter)

Not Applicable950 S. Cherry St., Suite 1515, Denver CO 80246

(Former name, former address and former fiscal year, if changed since last report)

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

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 [X] NO [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES [X] 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.

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 [X]

The registrant had 13,456,45913,405,838 shares of its $0.01common stock, par value common stock$0.01, outstanding as of November 1, 2018.12, 2019.

TABLE OF CONTENTS

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

U.S. ENERGY CORP. AND SUBSIDIARIESSUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Inin thousands, except share and per share amounts)

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 AND

COMPREHENSIVE LOSS

(In thousands, except share and per share amounts)

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

U.S. ENERGY CORP. AND SUBSIDIARIESSUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018 AND 2017OPERATIONS

(In thousands)thousands, except share and per share amounts)

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

U.S. ENERGY CORP. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN SHAREHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(in thousands, except share amounts)

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

U.S. ENERGY CORP. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(in thousands)

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

U.S. ENERGY CORP. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION, OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Organization and Operations

U.S. Energy Corp. (collectively with its subsidiarieswholly owned subsidiary, Energy One LLC, referred to as the “Company” or “U.S. Energy”)in these Notes to Condensed Consolidated Financial Statements) was incorporated in the State of Wyoming on January 26, 1966. The Company’s principal business activities are focused onin the acquisition, exploration and development of oil and natural gas properties in the United States.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, certain information and footnote disclosures required by U.S. GAAP for complete financial statements have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial statements have been included.

For further information, refer to the consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K and 10K/A for the year ended December 31, 2017.2018. Our financial condition as of September 30, 2018,2019, and operating results for the three and nine months ended September 30, 20182019, are not necessarily indicative of the financial condition and results of operations that may be expected for any future interim period or for the year ending December 31, 2018.2019.

Liquidity and Going Concern

As of September 30, 2019, the Company had cash of $1.4 million, a working capital surplus of $1.7 million and an accumulated deficit of $127.4 million. At November 12, 2019, the Company had a cash balance of $1.7 million and accounts payable of approximately $6.5 million. During 2019, the Company has instituted measures to preserve liquidity by reducing the use of third-party contractors, cutting corporate overhead and eliminating other general and administrative costs.

However, our liquidity is affected to a large degree by commodity prices, which have fluctuated significantly during recent years. Currently, the Company does not have any commodity derivative contracts in place to protect it in the event of a downturn in commodity prices. In addition, as described inNote 8-Commitments, Contingencies and Related-Party Transactions the costs associated with the ongoing litigation during 2019 have been a significant use of the Company’s existing cash. Continued excessive legal fees associated with litigation could impair the Company’s liquidity profile. These factors raise substantial doubt about the Company’s ability to fund operations for the next twelve months and continue as a going concern. The accompanying condensed consolidated financial statements do not include adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include oil and natural gas reserves that are used in the calculation of depreciation, depletion, amortization and impairment of the carrying value of both evaluated oil and natural gas properties as well asproperties; realizability of unevaluated properties; production and commodity price estimates used to record accrued oil and natural gas sales receivable;receivables; valuation of commodity derivativewarrant instruments; and the cost of future asset retirement obligations. The Company evaluates its estimates on an on-going basis and bases its estimates on historical experience and on various other assumptions the Company believes to be reasonable. Due to inherent uncertainties, including the future prices of oil and natural gas, these estimates could change in the near term and such changes could be material.

Principles of Consolidation

The accompanying financial statements include the accounts of the CompanyU.S. Energy Corp. and its wholly-ownedwholly owned subsidiary Energy One LLC (“Energy One”). All inter-company balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation of the accompanying financial statements.

Correction of Immaterial Errors

The accompanying December 31, 2017, restated condensed consolidated balance sheet includes a correction related to the classificationAdopted and presentation of the Series A Convertible Preferred Stock (the “Preferred Stock”). The Preferred Stock had been reported in stockholders’ equity from the date of issuance in February 2016. During the three months ended September 30, 2018, the Company determined that the Preferred Stock should not be included in stockholders’ equity, due to a redemption feature outside the control of the Company, whereby the holders may require redemption in the event of a change in control. The Company has corrected the presentation on the balance sheet to exclude the Preferred Stock from stockholders’ equity. The correction of the error reclassified $2.0 million from stockholders’ equity into temporary equity but had no effect on previously reported net income or earnings per share in any prior period.

Recently AdoptedIssued Accounting Pronouncements

Revenue recognitionLeases.. In May 2014,February 2016, the Financial Accounting Standards Board (“FASB”) issued a comprehensive new revenue recognition standard that supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and industry-specific guidance in Subtopic 932-605, Extractive Activities-Oil and Gas-Revenue Recognition. The core principle of the new guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for transferring those goods or services. The new standard also requires significantly expanded disclosure regarding the qualitative and quantitative information of an entity’s nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard creates a five-step model that requires companies to exercise judgment when considering the terms of a contract and all relevant facts and circumstances. The standard allows for several transition methods: (a) a full retrospective adoption in which the standard is applied to all of the periods presented, or (b) a modified retrospective adoption in which the standard is applied only to the most current period presented in the financial statements, including additional disclosures of the standard’s application impact to individual financial statement line items. In March, April, May and December 2016, the FASB issued new guidance in Topic 606, Revenue from Contracts with Customers, to address the following potential implementation issues of the new revenue standard: (a) to clarify the implementation guidance on principal versus agent considerations, (b) to clarify the identification of performance obligations and the licensing implementation guidance and (c) to address certain issues in the guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. This standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company follows the sales method of accounting for oil and natural gas production, which is generally consistent with the revenue recognition provision of the new standard. The Company has completed the process of evaluating the effect of the adoption and determined there were no changes required to our reported revenues as a result of the adoption. The majority of our revenue arrangements generally consist of a single performance obligation to transfer promised goods or services. Based on our evaluation process and review of our contracts with customers, the timing and amount of revenue recognized based on the standard is consistent with our revenue recognition policy under previous guidance. The Company adopted the new standard effective January 1, 2018, using the modified retrospective approach, and has expanded its financial statement disclosures in order to comply with the standard. The Company implemented processes and controls to ensure new contracts are reviewed for the appropriate accounting treatment and to generate the disclosures required under the new standard in the first quarter of 2018. We have determined the adoption of the standard did not have a material impact on our results of operations, cash flows, or financial position.

Financial Instruments.In January 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-01 Financial Instruments, Overall (Subtopic 825-10),Recognition and Measurement of Financial Assets and Financial Liabilities(“ASU 2016-01”).The amendments in the ASU 2016-01 require equity investments, other than those accounted for under the equity method or result in consolidation of an investee, to be measured at fair value with changes in fair value recognized in income. The amendment is effective for public business entities with fiscal years beginning after December 31, 2017. The Company adopted this standard on January 1, 2018, with a cumulative effect adjustment to retained earnings at December 31, 2017 of $903 thousand. The adjustment to retained earnings related to fair value changes of marketable securities that had been accumulated previously in other comprehensive loss. Prospectively, unrealized gains and losses on marketable securities are recorded in earnings under the caption in other income, changes in fair value of marketable securities. Prior period gains and losses are recorded in other comprehensive loss; therefore, current year periods are not comparable to periods in the prior year.

Recently Issued Accounting Pronouncements

Leases.In February 2016, the FASB issued ASU- No. 2016-02,Leases (Topic 842),followed by other related ASUs that targeted improvements and additional practical expedient options (collectively “ASU 2016-02”). The standard requires lessees to recognize theright-of-use assets and lease payment liabilities that arise from leases on the balance sheet. A lessee should recognize insheet for leases representing the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing itsCompany’s right to use the underlying assetassets for the lease term. Each lease that is recognized in the balance sheet will be classified as either finance or operating, with such classification affecting the pattern and classification of expense recognition in the condensed consolidated statements of operations and presentation within the condensed consolidated statements of cash flow.

The new guidanceCompany evaluated the impacts of ASU 2016-02, which included an analysis of contracts for office leases. As a non-operator of oil and natural gas properties, the Company is effective for annual and interim reporting periods beginning after December 15, 2018. The amendments should be applied atnot subject to drilling rig agreements, well completion agreements, water handling agreements, or other contracts that include potential lease components. In addition, the beginningscope of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The updateASU 2016-02 does not apply to leases of mineral rights to explore forused in the exploration or use crudeof minerals, oil, natural gas or natural gas. The Company is currently evaluatingother similar non-regenerative resources. SeeNote 3-Leasesfor additional information regarding the Company’s adoption of this standard including policy elections and the impact ofto the new guidance on itscondensed consolidated financial statements however, based on its current operating leases and status as a non-operator, it is not expected to have a material impact on its condensed and consolidated balance sheet or statement of operations.at September 30, 2019.

Financial instruments with characteristics of liabilities and equity. InOn July 13, 2017, the FASB has issued a two-part ASU No. 2017-11, I.Accounting for Certain Financials Instruments with Down Round Features and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interest with a Scope Exception.Exception. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluatingassessed the effectnew standard as it relates to warrants issued by the Company in December 2016, which contain a down round feature. The Company determined through an assessment of the warrants in relation toASC 815-40, Derivatives and Hedging-Contracts in Entity’s Own Equity, that adopting this guidancethere were other provisions in the warrant agreement that precluded equity classification, including an option of the holder to receive the calculated fair value of the warrant from the Company in cash in the event of a “Fundamental Transaction,” as defined in the warrant agreement. Therefore, the Company will have on itscontinue to classify the warrants as liabilities with changes in fair value recorded in other income in the condensed consolidated financial position, cash flows and resultsstatement of operations.operations in the period

of the change .

Fair value measurementValue Measurements.In August 2018, the FASB issued ASU No. 2018-13,Disclosure Framework -ChangesFramework-Changes to the Disclosure Requirements for Fair Value MeasurementMeasurements(“. The ASU 2018-13”). ASU 2018-13 modifiesamends the disclosure requirements on fair value measurements in Topic 820,Fair Value Measurement.Measurements. The amendments in this ASU 2018-13 isare effective for all entities for fiscal years, beginning after December 15, 2019, includingand interim periods within those years.fiscal years, beginning December 15, 2019. The Company plans to adopt this ASU as of January 1, 2020. The Company is evaluatingin the process of assessing the impact the new guidanceadoption of this ASU will have on its condensed and consolidated financial statements and relatedfair value disclosures.

2. REVENUE RECOGNITION

The Company adopted ASU No. 2014-09,Revenue from Contracts with Customers (Topic 606)and the series of related accounting standard updates that followed, on January 1, 2018, using the modified retrospective method of adoption. Adoption of the ASU did not require an adjustment to the opening balance of equity and did not change the Company’s amount and timing of revenues. The Company reports revenues utilizing information provided by the operator of the property following the same guidance. Adoption of this guidance applied to all contracts at the date of initial application and all contracts reflect the non-operated nature of the Company’s existing operations.

The Company’s revenues are primarily derived from its interests in the sale of oil and natural gas production. The Company recognizes revenue from its interestsinterest in the sales of oil and natural gas in the period that its performance obligations are satisfied. Performance obligations are satisfied when the customer obtains control of product (as disclosed below), when the Company has no further obligations to perform related to the sale, when the transaction price has been determined and when collectability is probable.production. The sales of oil and natural gas are made under contracts which thethat third-party operators of theoil and natural gas wells have negotiated with customers, which typically include variable consideration that is based on pricing tied to local indices and volumes delivered in the current month.customers. The Company receives payment from the sale of oil and natural gas production frombetween one to three months after delivery. At the end of each monthperiod when the performance obligation is satisfied, the variable consideration can be reasonably estimated and amounts due from customers are accrued in oil and natural gas sales receivable net in the consolidated balance sheets. Variances between the Company’s estimated revenue and actual payments are recorded in the month the payment is received,received; however, differences have been and are insignificant. Accordingly, the variable consideration is not constrained.

As a non-operator of its oil and natural gas properties, the Company records its share of the revenues and expenses based upon the information provided by the operators within the revenue statements.

The Company does not disclose the valuevalues of unsatisfied performance obligations under its contracts with customers as it applies the practical exemption in accordance with ASC 606 since the Company contracts are month to month and not in excess of one year.606. The exemption as described in ASC 606-10-50-14(a), applies to variable consideration that is recognized as control of the product is transferred to the customer. Since each unit of product represents a separate performance obligation, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to the remaining performance obligations is not required.

The Company’s oil and natural gas production is typically sold at delivery points to various purchasers under contract terms that are common in our industry. The Company’sthe oil and natural gas produced is delivered by the well operators to various purchasers at agreed upon delivery points under a limited number of contract types that are also common in our industry. However, under these contracts, the natural gas may be sold to a single purchaser or may be sold to separate purchasers. Regardless of the contract type, the terms of these contracts compensate the well operators for the value of the oil and natural gas at specified prices, and then the well operators will remit payment to the Company for its share in the value of the oil and natural gas sold. There

Generally, the Company reports revenue as the gross amount received from the well operators before taking into account production taxes and transportation costs. Production taxes are reported separately and transportation costs are included in lease operating expense in the accompanying condensed consolidated statements of operations. The revenues and costs in the condensed consolidated financial statements were no contract liabilities atreported gross for the date of adoption or for thethree and nine months ended September 30, 2018.2019, as the gross amounts were known.

The following table presents our disaggregated revenue by major source and geographic area for the three and nine months ended September 30, 20182019 and 2017 (in thousands):2018.

3. ASSETS AVAILABLE FOR SALELEASES

On January 1, 2019, the Company adopted ASC 842 using the modified retrospective approach. Results for the reporting periods beginning January 1, 2019 are presented in accordance with ASC 842, while prior period amounts are reported in accordance with FASB ASC Topic 840-Leases. On January 1, 2019, the Company recorded a $228 thousand right-of-use asset and a $252 thousand lease liability representing the present value of minimum payment obligations associated with our Denver office operating lease, which has non-cancellable terms in excess of one year. We do not have any financing leases. The Company has elected the following practical expedients available under ASC 842 (i) excluding from the condensed consolidated balance sheet leases with terms that are less than one year, (ii) for agreements that contain both lease and non-lease components, combining these components together and accounting for them as a single lease, (iii) the package of practical expedients, which allows the Company to avoid reassessing contracts that commenced prior to adoption that were properly evaluated under legacy GAAP, and (iv) the policy election that eliminates the need for adjusting prior period comparable financial statements prepared under legacy lease accounting guidance. As such, there was no required cumulative effect adjustment to accumulated deficit at January 1, 2019.

During the nine months ended September 30, 2018,2019, the Company reclassified $0.7 milliondid not acquire any right-of-use assets or incur any lease liabilities. The Company’s right-of-use assets and lease liabilities are recognized at their discounted present value on the unaudited condensed consolidated balance sheet at September 30, 2019, of assets reported$191 thousand and $214 thousand, respectively.

The Company recognizes lease expense on a straight line basis excluding short-term and variable lease payments which are recognized as availableincurred. Short-term lease costs represent payments for saleour Houston office lease, which has a lease term of one year.

The Company’s Denver office operating lease does not contain an implicit interest rate that can be readily determined. Therefore, the Company used the incremental borrowing rate of 8.75% as established under the Company’s prior credit facility as the discount rate.

The future minimum lease commitments as of September 30, 2019 are presented in the table below. Such commitments are reflected at December 31, 2017undiscounted values and are reconciled to the discounted present value on the unaudited condensed consolidated balance sheet as follows:

The Company owns a 14-acre tract in Riverton, Wyoming with a two-story, 30,400 square foot office building, which served as the Company’s corporate headquarters until the Company relocated its corporate headquarters in 2015. Currently, the building’s eight office suites are rented to non-affiliates and government agencies under operating leases with varying terms from month-to-month to twelve years. The building is included in property and equipment, net. These assets are comprised of land parcels owned by Energy One in Riverton, Wyoming.net on our condensed consolidated balance sheet. The Company has determined that the assets do not meet all the criteria for classification as available for sale because, although the Company has a plan for disposingnet capitalized cost of the assets, itbuilding subject to operating leases at September 30, 2019 is not actively marketing them and does not consider it probable that the assets will be sold within the next 12 months.as follows:

4. LIQUIDITY

AsThe future lease maturities of the Company’s operating leases as of September 30, 2018,2019 are presented in the table below. Such maturities are reflected at undiscounted values to be received on an annual basis.

The Company had cashrecognized the following operating lease income related to its Riverton, Wyoming office building for the three and cash equivalents of $3.0 million and working capital of $3.6 million. During the nine months ended September 30, 2018, the Company incurred a net loss of $1.0 million2019 and used $0.9 million of cash in operating activities.2018:

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 accretive acquisition opportunities, and(3) address the July 2019 maturity of our existing credit facility through either extending the maturity of the existing credit facility or entering into a new credit facility with a new lender.  We expect to fund any near-term capital requirements and working capital needs from existing cash on hand. 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.

5.4. COMMODITY PRICE RISK DERIVATIVES

The Company’s wholly-owned subsidiary Energy One has enteredfrom time to time enters into commodity price derivative contracts (“economic hedges”) with BP Energy, a third-party hedge counterparty.. The derivative contracts are typically priced based on West Texas Intermediate (“WTI”) quoted prices for crude oil and Henry Hub quoted prices for natural gas. The Company is a guarantor ofU.S. Energy Corp. guarantees Energy One’s obligations under the economic hedges, which, are pari-passu to amounts borrowed under the Credit Facility and are secured by Energy One’s oil and gas properties.hedges. The objective of utilizing the economic hedges is to reduce the effect of price changes on a portion of the Company’s future oil production, achieve more predictable cash flows in an environment of volatile oil and natural gas prices and to manage the Company’s exposure to commodity price risk. The use of these derivative instruments limits the downside risk of adverse price movements. However, there is a risk that such use may limit the Company’s ability to benefit from favorable price movements. Energy One may, from time to time, add commodity priceincremental derivatives to hedge additional production, restructure existing derivative contracts or enter into new transactions to modify the terms of current contracts in order to realize the current value of its existing positions. The Company does not engage in speculative derivative activities or derivative trading activities, nor does it use derivatives with leveraged features. The Company had a net liability from commodity risk derivativesAs of $37 thousand at September 30, 2018 and $161 thousand at December 31, 2017. Presented below is a summary of outstanding crude oilduring the three and natural gas swaps as of September 30, 2018.

Derivatives are recorded at fair value in the consolidated balance sheets. Changes in fair value are included in the “(loss) gain on commodity derivative contracts” in the condensed consolidated statements of operations and comprehensive loss. For the nine monthsnine-month periods ended September 30, 2018 and 2017,2019, the Company did not have any commodity price derivatives. The following table presents the Company’s realized and unrealized derivative gains from derivatives amounted to $124 thousand and $29 thousand, respectively. Derivative contract settlements are included inlosses for the (loss) gain on commodity derivative contracts in the condensed consolidated statement of operations. For the nine monthsthree and nine-month periods ended September 30, 20182019 and 2017, the Company’s realized (loss) gain from derivatives amounted to $(349) thousand and $217 thousand, respectively. All derivative positions are carried at their fair value and included in Commodity derivative contracts on the condensed consolidated balance sheets. The following table summarizes the fair value of our open commodity derivatives as of September 30, 2018, and December 31, 2017 (in thousands). Please see Note 14 for further disclosure.2018:

6.5. OIL AND NATURAL GAS PRODUCINGPRODUCTION ACTIVITIES

Divestitures

On October 3, 2017,In May 2019, the Company Energy Oneexchanged approximately 905 leasehold acres of the Georgetown formation and Statoil Oildeeper rights in Dimmit and Gas LP (“Statoil”) entered into a purchase and sale agreement (the “Purchase Agreement”), pursuant to which the Company assigned, sold, and conveyedZavala counties for working interests in certain non-operated assetswells that were drilled by CML Exploration in the Williston Basin, North Dakota in consideration for the eliminationfirst half of $4.0 million in outstanding liabilities to Statoil and payment by Statoil to the Company of $2.0 million in cash. U.S. Energy has historically accounted for the eliminated liabilities on the Company’s balance sheet under “Payable to major operator” and “Contingent ownership interests.”2019. The Purchase Agreement was unanimously approved by the board of directors of the Company and closed on October 5, 2017, with an effective date of Augustthe exchange was March 1, 2017.2019.

Ceiling Test and Impairment

The reserves used in the Company’s full cost ceiling test incorporate assumptions regarding pricing and discount rates over which management has no influence in the determination of present value. In the calculation of the ceiling test as of September 30, 2018,2019, the Company used a price of $59.78$61.45 per barrel offor oil and $2.83$3.02 per MMbtu offor natural gas (in each case(as further adjusted for transportation,property, specific gravity, quality, local markets and basis differentials applicable to our properties on a weighted average basis)distance from markets) to compute the future cash flows of the Company’s producing properties. These prices compare to $47.01 per barrel of oil and $2.98 per MMbtu of natural gas used in the calculation of the ceiling test as of December 31, 2017. The discount factor used was 10%.

ForThere was no impairment for the three and nine monthsnine-month periods ended September 30, 2019 and 2018 of the Company’s oil and 2017,natural gas properties. Impairment charges in previous years are generally the Company recorded no impairment charges.

result of declines in the price of oil and natural gas, additional capitalized well costs and changes in production.

7.6. DEBT

On December 27, 2017, the Company received shareholder approval for theentered into an exchange agreement (“Exchange Agreement”) by and among the Company,U.S. Energy Corp., Energy One and APEG Energy II, L.P., (“APEG”APEG II”), an entity controlled by Angelus Private Equity Group, LLC pursuant to which, on the terms and subject to the conditions of the Exchange Agreement, APEG II exchanged $4.5 million of outstanding borrowings under the Company’s Credit Facility,credit facility for 5,819,270 newly-issued shares of common stock of the Company, par value $0.01 per share, with an exchange price of $0.767, representingwhich represented a 1.3% premium over the 30-day volume weighted average price of the Company’s common stock on September 20, 2017 (the “Exchange Shares”). Accrued, unpaid interest on the Credit Facilitycredit facility held by APEG II was paid in cash at the closing of the transaction. As of September 30, 2018,2019, APEG holdsII held approximately 43% of the Company’s outstanding Common Stock of U.S. Energy.common stock.

Energy One, a wholly-owned subsidiary of the Company, has a Credit Facility (the “Credit Facility”) with APEG which matures in July 2019. As of September 30, 2019, there were no outstanding borrowings under the credit facility. At December 31, 2018, outstanding borrowings under the Credit Facility amounted tocredit facility were $937 thousand. The credit facility was repaid in full on March 1, 2019, and the credit facility matured on July 30, 2019. Borrowings under the Credit Facility arecredit facility were secured by Energy One’s oil and natural gas producing properties. Interest expense on the credit facility for the three months ended September 30, 2018 was $24 thousand, including amortization of debt issuance costs of $3 thousand. Interest expense on the credit facility for the nine months ended September 30, 2019 and 2018 was $20 thousand and $83 thousand, respectively, including amortization of debt issuance costs of $7 thousand and $10 thousand, respectively. The weighted average interest rate on the Credit Facility is currently fixed atcredit facility was 8.75%. for the nine-month period ended September 30, 2019 and for both the three and nine-month period ended September 30, 2018.

Pursuant to the terms of the Credit Facility,credit facility, Energy One iswas required to comply with customary affirmative covenants and with certain negative covenants. The principal negative financial covenants dodid not permit (as(i) the following terms are defined in the Fifth Amendment to the Credit Agreement) (i) Proved Developed Producing Coverage Ratio to be less than 1.2 to 1; and (ii) the current ratio to be less than 1.0 to 1.0. Additionally, the Credit Facility prohibitscredit facility prohibited or limitslimited Energy One’s ability to incur additional debt, pay cash dividends and other restricted payments, sell assets, enter into transactions with affiliates, and to merge or consolidate with another company. The Company isU.S. Energy Corp. was a guarantor of Energy One’s obligations under the Credit Facility. As of September 30, 2018, the Company wascredit facility. U.S. Energy Corp. and Energy One are currently involved in compliancelitigation with all Credit Facility covenants.

8. COMMITMENTS AND CONTINGENCIESAPEG II and its general partner, APEG Energy II, GP (together with APEG II, “APEG”). SeeNote 8-Commitments, Contingencies and Related-Party Transactions.

Commitments7. WRITE-OFF OF DEPOSIT

Lessee Operating Leases.In AugustDecember 2017, the Company entered into a letter of intent with Clean Energy Technology Association, Inc. (“CETA”) to purchase an option to acquire 50 shares of CETA, or lease agreement for office spacecertain oil and natural gas properties inside an area of mutual interest. The Company made a $250 thousand option payment, which was refundable in Denver, Colorado. The original termthe event that the Company and CETA were unable to complete the transaction by August 1, 2018. In February 2018, the Company paid an additional $124 thousand to CETA. In September 2019, the Company issued CETA a demand letter requesting return of the leaseamounts deposited. As of November 12, 2019 the Company has received two payments from CETA totaling $100 thousand. While the Company is 65 months; extending until January 2023. At September 30, 2018, the future minimum rental commitmentspursuing collection of the lease were $319 thousand. The following table presentsdeposit, the future minimum rental commitmentsCompany has established an allowance for the remaining amount due from CETA of $274 thousand at September 30, 2018, by year (in thousands):