Reg Larsen - Director, Investor Relations Keith Larsen - Chief Executive Officer David Veltri - President and Chief Operating Officer Steve Richmond - Chief Financial Officer

Noel Parks - Ladenburg Thalmann Patrick Rigamer - Seaport Global Securities John White - ROTH Capital George Gasper - Private Investor Michael Kamperman - Prometheus Wealth Management

Good morning. My name is Candice and I will be your conference operator today. At this time, I would like to welcome everyone to the U.S. Energy Corp. Second Quarter 2015 Selected Highlights, Financial Results and Operations Update Conference Call. All lines have been placed on mute to prevent any background noise. I would now like to turn the conference over to Mr. Reg Larsen, Director of Investor Relations of U.S. Energy Corp. Sir you may begin your conference.

Thank you, Candice. Good morning, ladies and gentlemen and thank you for joining us today. With me this morning is Keith Larsen, Chief Executive Officer; David Veltri, President and Chief Operating Officer; and Steve Richmond, the Chief Financial Officer of the company. In terms of the agenda for today’s call, Keith will provide you with an overview of our highlights, financial results and operating initiatives for the three and six months ended June 30, 2015 and we will finish the call with a question-and-answer session from the audience. As a preliminary matter, I would like to note that during this call, we may make forward-looking statements, which may be identified by the words will, anticipate, expect and similar words that are based on the beliefs and assumptions of U.S. Energy’s management. These statements relate to among other things, potential future transactions and liquidity. These and all statements other than statements of historical facts are forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 and Section 27A of the Securities Act of 1933. The forward-looking statements are subject to numerous risks and uncertainties including those described in the Form 10-Q for the quarter ended June 30, 2015, which was filed pre-market this morning and our other filings with the SEC, all of which are incorporated herein by reference. Relevant non-GAAP reconciliations are available in the company’s website which is located at www.usnrg.com. I would now like to turn the call over to Keith.

Thanks, Reg and good morning, ladies and gentlemen. To begin, I would like to thank the audience for attending today’s call and for following the company’s progress through the midyear point of 2015. At the end of the second quarter, the company had participation interest in 142 gross, 20.87 net producing wells primarily located in South Texas, and in the Williston Basin of North Dakota. During the second quarter of 2015, the company produced 81,618 net BOE and average net daily production during the quarter was 897 BOE per day. When compared to the first quarter of 2015’s average net daily production of 958 net BOE per day, our production decreased approximately 6.4%. I make note of this, because it demonstrates that our base production is holding up relatively well during the curtailment of drilling in both South Texas and North Dakota due to the dramatic downturn in the price of oil. During the three months ended June 30, 2015, the company recognized $3.3 million in revenue as compared to $2.7 million in revenue during the first quarter of 2015. The 22.6% increase in revenue is primarily due to higher realized oil and gas prices in the second quarter of 2015 when compared to the first quarter of 2015. During the six months ended June 30, 2015, we received an average of $1.1 million per month from our producing wells with an average operating cost of $572,000 per month, including workover cost and production taxes of $102,000 for average net cash flows of $421,000 per month from oil and gas production before non-cash depletion expense. Cash provided by operations was $2.1 million during this period. At June 30, 2015, we have $4.1 million in cash and cash equivalents. And effective July 16, 2015, we had an additional $1 million in borrowing capacity under our $7 million line of credit with Wells Fargo. I would like to note that we are actively seeking additional sources of funding beyond our reserve base credit facility in order to demonstrate sustainability as well as position ourselves to transact on commodity price driven opportunities as a result of the current market conditions. We are making progress on this front and anticipate having new financing in place in the coming months. In the financial and operational release that was published this morning, which is available on our website, we presented an EBITDAX table showing earnings before interest, income taxes, depreciation, depletion and amortization, accretion of discount on asset retirement obligations, non-cash impairments, unrealized derivative gains and losses and non-cash stock compensation expense, which we refer to as modified EBITDAX. Modified EBITDAX was a loss of $442,000 for the three months ended June 30, 2015. Modified EBITDAX was a loss of $1.6 million for the six months ended June 30, 2015. The production and financial metrics that I have just stated resulted on a net loss after taxes of $6.3 million, or $0.22 per share basic and diluted for the quarter. This loss is inclusive of the recorded property impairment of $3.2 million related to our oil and gas assets, which represents $0.11 of the $0.22 per share loss during the quarter. During the six months ended June 30, 2015, we reported a net loss after taxes of $30 million or $1.07 per share basic and diluted as compared to net income after taxes of $306,000 or $0.01 per share basic and diluted during the same period of 2014. During the six months ended June 30, 2015, the company recorded two property impairments totaling $22.4 million related to its oil and gas assets, which represents $0.80 of $1.07 per share loss. Impairments for the three and six months ended June 30, 2015 were primarily due to the decline in the price of oil. The company recognizes that during these times, it is pertinent to focus its efforts on cost-cutting measures and to prudently manage the bottom line. During the three months and six months ended June 30, 2015, general and administrative expenses decreased by $312,000 and $439,000 respectively due to reductions in professional services, compensation expense, contract services and other general and administrative costs. Now, I will briefly touch on operations. In South Texas, the company currently participates in approximately 30,754 gross or 7,826 net acres in Zavala and Dimmit Counties with several operators. During the quarter, two gross wells, one targeting the Buda formation and one targeting the E bench of the Austin Chalk permission commenced production. Overall, production from the region during the quarter averaged 287 net BOE per day from 37 gross or 9.99 net wells. On a going forward basis, drilling activity has been curtailed due to the low commodity price. However, we continue to monitor regional development activity in and around our producing properties. We are encouraged by the results of a vertical pilot well drilled to test the Eagle Ford potential late in 2014 and by our neighboring operators’ recent drilling results immediately adjacent to our acreage position in Zavala County. We plan to participate in the testing of our acreage with our partner, Contango, during 2016 in order to further evaluate the development potential of our acreage. In the Williston Basin of North Dakota, the company participates in approximately 84,810 gross, 3,511 net acres in Williams, McKenzie and Mountrail Counties, North Dakota with numerous operators. Production during the quarter averaged 557 net BOE per day from 102 gross, 10.32 net producing wells. We continue to participate in the drilling and completion of our inventory of wells in the basin in order to maintain our base production from this region. We are continuing to seek funding sources to provide sustainability and liquidity for the acquisition of a treaty of operated projects in our identified areas of focus. We believe that we will be successful in these efforts and this acquisition approach will be a value-added complement to be expected – to the expected reduced development of our portfolio through the drillbit this year. Before moving on to the question-and-answer portion of today’s call, I would like to also mention that we are continuing to work towards finding the proper path forward on the Mount Emmons project in Colorado. We continue to evaluate our options for a permanent solution for the project and remain optimistic that we will be successful in our efforts in due course. That concludes the prepared remarks for today’s call. Operator, would you begin the Q&A session now please?

Yes, sir. [Operator Instructions] And our first question comes from the line of Noel Parks of Ladenburg Thalmann. Your line is now open.

Good morning.

Good morning, Noel.

I just had a couple of questions. In South Texas, could you just refresh my memory on where you stand as far as the operators holding the various leases that you have? And I wondered your operators or other surrounding players, have you seen any effort go towards maybe renewing or extending leases sort of on the assumption that your near-term drillbit activity might slow down a bit?

Well, I am not sure. On the second part of your question on the other operators renewing their leases or extending, certainly, we are looking to extend some of our leases that are not held by production in advance. But the first part of your question, Noel, most of the acreage that we have with Contango is held by production. A very small amount of our acreage is held by production with U.S. Enercorp down there.

Okay, great. Yes, so on your side, you have been – you are taking a look at some of those reasons you have that you say that are not held by productions?

No, we are and we are talking with our operator about negotiating with lease over to extend those leases so that we can hold the leases.

Great. And I am just assuming you are part of that discussion is sort of what sort of lease bonus or terms and I was just trying to get a feel for how that might look compared to when the original leases were taken as far as the bonuses or royalty terms that might be in the portfolio this time around?

Yes. Again, those are private discussions, Noel and I can’t really comment on them until we get them done.

Sure, no problem. And in the Bakken, all the activity you missed it was XTO among the operators, and I was wondering just the similar question if your other operators, is there anyone there who has been talking about getting back on the properties with rigs?

Really hasn’t been much talk from our operators except for – as you mentioned, XTO of getting on. We have seen a significant reduction in service of the last, I believe, the last AFP that we got from XTO was around $7.5 million and that’s down from about $10 million a year ago. So, we are encouraged by that, but still with $45 oil, we have not seen a lot of activity.

Sure, great. And I guess just my last question is in general I have been hearing some interest little bit on the public side, but also on the private side among players who are looking to maybe invest more in non-operated working interest or in royalty interest. And I just wondered just from the calls you have been getting, either people talking to you about property buying or selling interests, have you seen steady flow of inquiries from folks or has it sort of slowed throughout the year or picked up throughout the year so far?

Maybe surprisingly, we have had several inquiries about our non-operated working interest. I think people recognized the value that we have in our proved reserves. And certainly, we don’t want to sell them and that’s why we are seeking additional financing.

Great. That’s all I have.

Thanks, Noel.

Thank you. And your next question comes from Patrick Rigamer of Seaport Global Securities. Your line is now open.

Hi, good morning guys.

Good morning.

Just a couple of quick ones I guess. On the – in the Williston, you list the current activity there and it looks like a lot of these wells are drilled waiting on completion. Do you get a sense from the operators that they are holding these wells in inventory or are they likely to work down that backlog or do you know what the plans are there?

They are such a big company. I don’t see them holding back on inventory. They will complete them in due course.

Okay. And then I guess on the AND or M&A, are you looking at exclusively opportunities that could be operated or you are also looking at non-operated opportunities and are you looking at joint ventures or partnerships or just kind of standalone things for you guys to take on or can you maybe just give a little bit more detail around some of the things you are looking at?

Well, our stated goal when we brought Dave Veltri on was to become an operator. So, predominantly, we are looking at operated properties, but we are certainly not dismissing non-operated or other opportunities and we are looking at lots of them. In fact, we are currently looking at four or five opportunities.

Okay. And are those kind of partnership joint ventures or just something that you would enter into on your own?

Kind of a mixture of all of the above, if you will, but we want to be the operator and it looks like that’s the direction that we are going.

Okay, great. Thank you very much.

Thanks, Pat.

Thank you. And our next question comes from John White of ROTH Capital. Your line is now open.

Good morning, guys. I had a question on the Williston activity which has been answered and it is a harsh environment. And in my opinion, you are pulling all the levers you can by reducing costs and slowing activity and talking to folks about deals, so good luck.

Thank you, John. We appreciate the encouragement.

Thank you. And our next question comes from George Gasper, a Private Investor. Your line is now open.

Yes, good morning to everyone. Keith, a question on Texas and Eagle Ford area acreage that you have, you made some comments about an offsetting vertical success with maybe some new completion techniques. What are the odds for you and your partners to drill an Eagle Ford vertical by the end of this year?

I don’t think that we are going to drill another Eagle Ford well this year, George. I think it will be in the first or second quarter of ‘16.

Okay, alright. And secondly and I know there have been some questions on the Bakken and the forward view of things, you have got quite a list of wells. Do you have the modest participation then that are drilled, but not completed? Is there any initiation to complete any of these at this point in time? Has that environment changed or is it still a standoff?

George, what I think that XTO does is they go in and drill a series of wells and then they go and complete those wells, kind of like a zipper frac.

Okay.

Sometime and we don’t anticipate any slowdown and we don’t see XTO holding them an inventory because of the price. They continue to complete.

I see. So, is it good possibility as you are moving forward that, that list – a good number of those can get completed into the late third and fourth quarters?

They will. And although we have modest ownership there, that’s why I mentioned that we are trying to maintain our production profile by continuing to participate in even though these are lower interest wells.

Sure. I can understand that. So, that’s an opportunity to keep the production stabilized. Another question on Colorado, in terms of what you had going now, everything standstill, you are in the water treatment process yet is your commitment. Is there anything new on that – the water treatment process discussion with the state or the county in terms of your ongoing commitment or any opportunity to get some other participation in that?

Well, we are currently discussing with a few people for participation, but not the county or the state. And to answer your question outright, there has been no change in the water treatment plant. We continue to look to cut costs there, whichever way possible with – while maintaining the integrity of the plant and the excellent record that it’s got of treating water down there.

I see, okay. And one question on Utah on the uranium situation is there any peripheral progress on the transition of those properties taking place and new owner coming in? And if there is do you anticipate having any residual interest in a change out of the ownership of those uranium properties as you had when you initially sold the property?

We do. It’s a junior out of Canada, it’s called Anfield Resources, has come to an agreement with Uranium One and they have until the 15th of August to close that deal. And every indication is that they are going to be able to close it. If they are able to close it over time and depending on performance of the mill, U.S. Energy will receive up to $5 million in cash and stock of Anfield Resources.

I see, okay. And then in terms of that, is there actually a processing mill there or is this going to have to be a ground-up situation as Anfield comes through and signs that?

No, there is actually an existing mill, one of the last four remaining in the United States that is permitted, Hanksville, Utah, which is actually called the Shootaring Canyon Mill. And it’s rated I believe to 750 tons per day.

Okay. So, there is a distinct possibility here then of hopefully having some reset interest on this?

It could, in my opinion uranium prices will have to recover probably somewhere around $55 a pound after enjoying prices over $100. And if the price does recover and Japan recovers some of its nuclear capacity, I think it has a real good chance.

Great. And again I mean when you – the training you are getting out of the situation was utterly fantastic relative to the price you paid and if you can find something like that to do in the future, that would be awesome response in your stock? Thank you.

Thanks, George.

Thank you. And our next question comes from Michael Kamperman of Prometheus Wealth Management. Your line is now open.

Keith, guys hi. I have two [ph] questions. The first question is you guys do have some non-producing assets, are you looking to monetize any of them, for example, you have a hedge that’s now in the money for the first half of 2016, you have got some peripheral real estate, is there anything else that you guys are looking to monetize to try to raise a little bit of cash in this environment?

We have got about $5 million in real estate, but we are not there yet. We have certainly talked about it in the case that we would need additional cash. I think we are going to be successful in additional financing sources with our reserve base lending.

Okay. Now, I have a couple of questions down in South Texas. The first one is this Eagle Ford bench that you are drilling in, which I guess is a transition zone between the Eagle Ford and the Austin Chalk, are you guys considering drilling a horizontal into that section sometime, if not later this year in 2016 or are you just planning to stick with the verticals?

We are looking at everything right now and the engineers of our operators are looking at all of those things. And of course, it’s more economical if you can make a well with the vertical because of the cost, but we are looking at both, Mike.

Okay. And then if you were to drill into this Eagle Ford, Austin Chalk, Eagle Ford bench you guys are calling it transition zone, could you still on the same acreage drill a traditional Eagle Ford well in a traditional Austin Chalk well or would that Eagle Ford bench capture all of those zones?

I am not sure I know the answer. I think that you would be able to drill those additional, but basically the Austin Chalk has been drilled. That’s what we are holding those leases with by production.

Okay. All of…?

Yes, but we are still holding it. But I think the answer is that they are still available.

Okay. And then the last question I have, up on the KM Ranch, I see that, that well is going to get pushed off to 2016, how much – I mean EXCO has been very successful, right all around that acreage up there, how much of that you guys already have booked into your PV10?

We don’t have any of it booked in.

Can you book any in without drilling the well or do have to drill a well to book it in?

I think that’s an engineering question. Certainly, Dave has been working with our engineers to see if there is some potential there. And what we have done is we did a swap with EXCO, so we have some information on their wells. And we are currently evaluating what the difference is between the first two Eagle Ford wells that we drilled with Contango there and the methodology that they are using. And as soon as we come to grips on that and what the differences were and what the chances are, then we will be approaching our engineers to add potential pud locations in that acreage.

Okay. Is there a possibility that will happen here in 2015 for year end or you are not sure?

I am really not sure.

Okay. I do know that some of the wells that EXCO resources has drilled near your property on the KM Ranch lease, they are using only 10/64 inch choke and those wells are still coming on at 600 barrels, 700 barrels, 800 barrels initial production a day. So it does seem like they have really found something up there. I know that they have also been very active in acquiring additional acreage in Cibolo [ph] in the second quarter?

We have heard those same things and I have read those same things and we are encouraged by that. And again that has potential that we could even sell to EXCO, but again we are trying to preserve our assets and to drill as a company.

Okay. Thanks guys and good luck.

Thank you.

Thank you. And I am showing no further questions at this time. I would like to turn the conference back over to Mr. Keith Larsen for any final remarks.

Thank you. We remain committed to the longevity of the company and our shareholders and believe that we are well positioned to persevere through the reduced commodity pricing cycle. I would point out that we are not over-levered and have a relatively low level of debt at $6 million versus our substantial oil and gas assets that include approximately 900 net BOE per day of production along with additional development potential in the associated acreage. In addition, we are working towards adding additional liquidity to the company’s balance sheet through the expansion of our banking relationships. Lastly, I would like to note that while current market conditions have brought on a new set of challenges for our company and our industry, we have seen times and market conditions like this before. And we will continue to work diligently to adapt and capture value as this cycle persists. Thank you for joining us today and for the continued support of the company and its endeavors.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Have a great day everyone.