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.

The Company financed the transaction with cash on hand ($1,175,000) and borrowings under its existing credit facility (“Credit Agreement”) with Firstbank Southwest (“Firstbank”) as administrative agent for one or more lenders (the “Lenders”) ($10,700,000) (the “Acquisition Borrowing”). As a result of the Acquisition Borrowing, the principal balance owed by the Company under the Credit Agreement is now 14,700,000.

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 (including the Acquisition Borrowing) 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.