US ENERGY CORP (Form: 8-K, Received: 07/28/2022 07:01:50)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 26, 2022

U.S. ENERGY CORP.

(Exact name of registrant as specified in its charter)

Wyoming

000-06814

83-0205516

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification No.)

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

Registrant’s telephone number, including area code: (303) 993-3200

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

Title of each class

Trading Symbol(s)

Name of exchange on which registered

Common Stock, $0.01 par value

USEG

The NASDAQ Stock Market LLC

(Nasdaq Capital Market)

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

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

Item 1.01 Entry into a Material Definitive Agreement.

The disclosures and information set forth in Item 2.01 below in connection with the Borrowing Base Increase are incorporated by reference into this Item 1.01 in their entirety.

Item 2.01 Completion of Acquisition or Disposition of Assets.

As previously reported in the Current Report on Form 8-K filed by U.S. Energy Corp. (“U.S. Energy”, “we”, “us” or the “Company”) with the Securities and Exchange Commission on June 30, 2022, on June 29, 2022, the Company entered into a Purchase and Sale Agreement (the “PSA”) with ETXENERGY, LLC (the “Seller”).

Pursuant to the PSA, we agreed to acquire all of the Seller’s rights to, and interest in, certain operated producing properties totaling approximately 16,600 net acres, located in Henderson and Anderson Counties, Texas, adjacent to the Company’s existing assets in the area. The acquisition will also include certain wells, pipelines, contracts, technical data, records, personal property and hydrocarbons associated with the Properties, including two pipeline gathering systems and related infrastructure (collectively with the oil and gas properties to be acquired, the “Acquired Assets”).

The PSA closed on July 27, 2022, at which time we acquired the Acquired Assets in consideration for the initial base purchase price of $11.875 million in cash. The initial base price purchase price is also subject to customary working capital and other adjustments as set forth in the PSA. A total of $590,000 (five percent (5%) of the purchase price) was paid by the Company as a deposit towards the purchase price at the time of the entry into the PSA and credited against the closing payment.

The effective date of the acquisition was June 1, 2022.

The PSA contains representations and warranties by the Company and the Seller as of specific dates and customary indemnification obligations of the parties, subject to certain limitations and deductibles.

The foregoing summary description of the PSA does not purport to be complete and is qualified in its entirety by reference to the full text of the PSA, which is incorporated by reference as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated by reference in this Item 1.01.

On July 26, 2022, in anticipation of the closing of the PSA, we entered into a letter agreement with Firstbank whereby we increased our borrowing base under the Credit Agreement from $15 million to $20 million, and paid the administrative agent an upfront fee of $32,500 in connection with such increase (the “Borrowing Base Increase”).

The Credit Agreement provides for a maximum credit amount of $100,000,000, subject to semi-annual redeterminations of the borrowing base (currently $20 million as a result of the Borrowing Base Increase) in April and October of each year until maturity, based on the value of the Company’s proved oil and natural gas reserves in accordance with the lenders’ customary procedures and practices.

Under the Credit Agreement, revolving loans may be borrowed, repaid and re-borrowed until January 5, 2026, when all outstanding amounts must be repaid.

Interest on the outstanding amounts under the Credit Agreement will accrue at an interest rate equal to (a) the greatest of (i) the prime rate in effect on such day, and (b) the Federal Funds rate in effect on such day (as determined in the Credit Agreement) plus 0.50%, and an applicable margin that ranges between 0.25% to 1.25% depending on utilization of the amount of the borrowing base (the “Applicable Margin”). If the Company fails to deliver a report setting forth its proved oil and natural gas reserves as and when required under the Credit Agreement, the applicable margin will be 1.25% regardless of utilization.

In the event that certain events of default (as described under the Credit Agreement) occur, the outstanding amounts will bear an additional 2.00% interest per annum. Accrued interest on each revolving loan is payable in arrears on the last day of each March, June, September and December.

The Company generally has the right to make prepayments of the borrowings at any time without penalty or premium under the Credit Agreement. A commitment fee of 0.50% accrues on the average daily amount of the unused portion of the borrowing base is payable in arrears on the last business day of March, June, September and December of each year and on the maturity date.

We are also required to make certain mandatory repayments under the Credit Agreement, in the event the borrowing base decreases below the aggregate amount of loans made by the Lenders and/or if as of the last business day of any calendar month, certain required debt ratios required under the Credit Agreement are not met, there are outstanding amounts owed to the Lenders, and the Company has consolidated cash on hand in excess of $5 million, and in some cases we are also required to pay cash to the agent to be held as collateral.

The Credit Agreement contains customary indemnification requirements, representations and warranties and customary affirmative and negative covenants applicable to the Loan Parties and their subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, transactions with affiliates, and dividends and other distributions. In addition, the Credit Agreement contains financial covenants, tested quarterly, that limit the Company’s ratio of total debt to EBITDAX (as defined in the Credit Agreement) to 3:1 and require its ratio of consolidated current assets to consolidated current liabilities (as each is described in the Credit Agreement) to remain at 1:1 or higher.

The terms of the Company’s existing Credit Agreement are described in greater detail in the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on January 10, 2022.

The foregoing summary description of the Credit Agreement and Borrowing Base Increase does not purport to be complete and is qualified in its entirety by reference to the full text of the Credit Agreement and Borrowing Base Increase letter, which are incorporated by reference herein as Exhibits 10.2 and 10.3 to this Current Report on Form 8-K and are incorporated by reference in this Item 1.01.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The disclosures and information set forth in Item 2.01 above in connection with the Borrowing Base Increase and the Acquisition Borrowing are incorporated by reference into this Item 2.03 in their entirety.

Item 7.01 Regulation FD Disclosure.

On July 28, 2022, the Company published a press release disclosing the closing of the PSA. A copy of the press release is included herewith as Exhibit 99.1 and the information in the press release is incorporated by reference into this Item 7.01.

The information responsive to Item 7.01 of this Form 8-K and Exhibit 99.1 attached, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended or the Exchange Act, except as expressly set forth by specific reference in such a filing. The furnishing of this Report is not intended to constitute a determination by the Company that the information is material or that the dissemination of the information is required by Regulation FD.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Businesses Acquired

The financial statements of the Acquired Assets will be filed no later than 71 calendar days after the date that this Current Report on Form 8-K is required to be filed.

(b) Pro Forma Financial Information

Pro forma financial information relative to acquisition of the Acquired Assets will be filed no later than 71 calendar days after the date that this Current Report on Form 8-K is required to be filed.

Exhibit No.		Description

10.1#		Purchase and Sale Agreement dated June 29, 2020, by and among U.S. Energy Corp, as Buyer, and ETXENERGY, LLC, as Seller (Filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on June 30, 2022 (File No. 000-06814) and incorporated by reference herein)
10.2		Credit Agreement dated as of January 5, 2022, among U.S. Energy Corp., as borrower, Firstbank Southwest, as Administrative Agent and the Lenders party thereto (Filed as Exhibit 10.6 to the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on January 10, 2022 (File No. 000-06814) and incorporated by reference herein)
10.3		Borrowing Base Increase Letter Agreement dated July 26, 2022, between U.S. Energy Corp. and Firstbank Southwest, as Administrative Agent
99.1**		Press Release dated July 28, 2022
104		Cover Page Interactive Data File (the cover page XBRL tags are embedded within the Inline XBRL document)

* Filed herewith.

** Furnished herewith.

# Certain schedules, exhibits, annexes, and similar attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request; provided, however, that U.S. Energy Corp. may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any schedule or exhibit so furnished.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	U.S. ENERGY CORP.

Dated: July 28, 2022		/s/ Ryan Smith
		Ryan Smith
		Chief Executive Officer

Exhibit 10.3

As of July 26, 2022

U.S. Energy Corp.

675 Bering, Suite 390

Houston, TX 77057

Attention: Ryan Smith

Re:	Increase of Borrowing Base

Gentlemen:

We refer to that certain Credit Agreement among U.S. ENERGY CORP., as Borrower, the Lenders from time to time party thereto, and FIRSTBANK SOUTHWEST, as Administrative Agent, dated as of January 5, 2022 (as amended from time to time, the “Credit Agreement”). The defined terms used in this letter have the same meanings as are provided therefor in the Credit Agreement.

This letter will confirm our agreements with respect to the Borrowing Base:

	1.	Increase of Borrowing Base. Effective as of the date hereof, the Borrowing Base shall increase to $20,000,000. In conjunction with the $5,000,000 increase, the Borrower owes the Administrative Agent an upfront fee of $32,500.

	2.	Determination Date. The foregoing increase of the Borrowing Base shall constitute the Scheduled Redetermination scheduled to occur on or about April 1, 2022, as set forth in Section 2.07(b) of the Credit Agreement. The Borrowing Base as modified will remain in effect until next adjusted pursuant to the provisions of Section 2.07 of the Credit Agreement or otherwise in accordance with the Credit Agreement.

The agreements set forth herein are limited precisely as written and shall not be deemed (a) to be a waiver of or a consent to the modification of or deviation from any other term or condition of the Loan Documents, or (b) to prejudice any right or rights which Administrative Agent and Lenders may now have or may have in the future under or in connection with the Loan Documents. This letter constitutes a Loan Document under the Credit Agreement.

The failure of the Administrative Agent and the Lenders to exercise any available rights and remedies is not intended (i) to operate as a waiver of rights and remedies except as herein provided, and (ii) to indicate any agreement on the part of Administrative Agent and Lenders to waive their rights and remedies in the future. The Administrative Agent and the Lenders are not obligated in any way with respect to future dealings between them and the Borrower, except as are set forth in the presently existing Loan Documents.

If you are in agreement with the foregoing, kindly sign and return the enclosed counterpart of this letter.

[This space is left intentionally blank. Signature pages follow.]

BORROWING BASE INCREASE LETTER – Page 1

Very truly yours,

FIRSTBANK SOUTHWEST,
as Administrative Agent and a Lender

By:	/s/ Dustin Hansen
	Dustin Hansen
	Senior Vice President

BORROWING BASE INCREASE LETTER – Signature Page

AGREED AND ACCEPTED as of the date first above written:

U.S. ENERGY CORP.

By:	/s/ Ryan Smith
	Ryan Smith
	CEO

BORROWING BASE INCREASE LETTER – Signature Page

Exhibit 99.1

U.S. Energy Corp. Completes Acquisition of East Texas Bolt-On

HOUSTON, TX – July 28, 2022 --- U.S. Energy Corp. (NASDAQCM: USEG) (“U.S. Energy” or the “Company”) today announced that the Company has completed its previously announced acquisition of operated oil and gas producing properties in Anderson and Henderson Counties, TX for a total cash consideration of $11.875 million, less purchase price adjustments.

Ryan Smith, U.S. Energy’s Chief Executive Officer, said, “The successful closing of this highly accretive acquisition continues to build U.S. Energy’s production base, realizable upside inventory, and free cash flow profile. This acquisition further diversifies our commodity mix and when combined with our existing balanced portfolio, allows us the optionality to allocate capital to the Company’s highest rate of return projects. As we move into the second half of 2022, we remain focused on disciplined capital allocation across our asset base, the preservation of our strong balance sheet, and maintaining our shareholder returns program through internally generated free cash flow.”

About U.S. Energy Corp.

We are a growth company focused on consolidating high-quality producing assets in the United States with the potential to optimize production and generate free cash flow through low-risk development while maintaining an attractive shareholder returns program. We are committed to ESG stewardship and being a leader in reducing our carbon footprint in the areas in which we operate. More information about U.S. Energy Corp. can be found at www.usnrg.com .

Forward-Looking Statements

Certain of the matters discussed in this communication which are not statements of historical fact constitute forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995, that involve a number of risks and uncertainties. Words such as “strategy,” “expects,” “continues,” “plans,” “anticipates,” “believes,” “would,” “will,” “estimates,” “intends,” “projects,” “goals,” “targets” and other words of similar meaning are intended to identify forward-looking statements but are not the exclusive means of identifying these statements.

Important factors that may cause actual results and outcomes to differ materially from those contained in such forward-looking statements include, without limitation, risks associated with the integration of the recently acquired assets; the Company’s ability to recognize the expected benefits of the acquisitions and the risk that the expected benefits and synergies of the acquisition may not be fully achieved in a timely manner, or at all; the amount of the costs, fees, expenses and charges related to the acquisitions; the Company’s ability to comply with the terms of its senior credit facilities; the ability of the Company to retain and hire key personnel; the business, economic and political conditions in the markets in which the Company operates; fluctuations in oil and natural gas prices, uncertainties inherent in estimating quantities of oil and natural gas reserves and projecting future rates of production and timing of development activities; competition; operating risks; acquisition risks; liquidity and capital requirements; the effects of governmental regulation; adverse changes in the market for the Company’s oil and natural gas production; dependence upon third-party vendors; risks associated with COVID-19, the global efforts to stop the spread of COVID-19, potential downturns in the U.S. and global economies due to COVID-19 and the efforts to stop the spread of the virus, and COVID-19 in general; economic uncertainty relating to increased inflation and global conflicts; the lack of capital available on acceptable terms to finance the Company’s continued growth; and other risk factors included from time to time in documents U.S. Energy files with the Securities and Exchange Commission, including, but not limited to, its Form 10-Ks, Form 10-Qs and Form 8-Ks. Other important factors that may cause actual results and outcomes to differ materially from those contained in the forward-looking statements included in this communication are described in the Company’s publicly filed reports, including, but not limited to, the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. These reports and filings are available at www.sec.gov.

The Company cautions that the foregoing list of important factors is not complete. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on behalf of any Sale Agreement Parties are expressly qualified in their entirety by the cautionary statements referenced above. Other unknown or unpredictable factors also could have material adverse effects on U.S. Energy’s future results. The forward-looking statements included in this press release are made only as of the date hereof. U.S. Energy cannot guarantee future results, levels of activity, performance or achievements. Accordingly, you should not place undue reliance on these forward-looking statements. Finally, U.S. Energy undertakes no obligation to update these statements after the date of this release, except as required by law, and takes no obligation to update or correct information prepared by third parties that are not paid for by U.S. Energy. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

Corporate Contact:

U.S. Energy Corp.

Ryan Smith

Chief Executive Officer

(303) 993-3200