Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

This information should be read in conjunction with the interim unaudited Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited Consolidated Financial Statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission on March 13, 2025 (the "Annual Report").

Certain abbreviations and oil and gas industry terms used throughout this Report are described and defined in greater detail under "Glossary of Oil and Natural Gas Terms" on page 4 of our Annual Report.

Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our unaudited Condensed Consolidated Financial Statements included above under "Part I - Financial Information" - "Item 1. Financial Statements".

In this Quarterly Report on Form 10-Q, we may rely on and refer to information regarding the industries in which we operate in general from market research reports, analyst reports and other publicly available information. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of this information, we have not independently verified any of it, and we have not commissioned any such information.

See also "Cautionary Statement About "Forward-Looking Statements" above.

Unless the context requires otherwise, references to the "Company," "we," "us," "our," "U.S. Energy", and "U.S. Energy Corp." refer specifically to U.S. Energy Corp. and its consolidated subsidiaries.

In addition, unless the context otherwise requires and for the purposes of this report only:

●	"Bbl" refers to one stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons;
●	"BOE" refers to barrels of oil equivalent, determined using the ratio of one Bbl of crude oil, condensate, or natural gas liquids, to six Mcf of natural gas;
●	"Bopd" refers to barrels of oil per day;
●	"Industrial gases" refers to helium, carbon dioxide, nitrogen and hydrocarbons;
●	"Mcf" refers to a thousand cubic feet of natural gas;
●	"Mcfe" means 1,000 cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of crude oil, condensate or natural gas liquids;
●	"NGL" refers to natural gas liquids;
●	"Exchange Act" refers to the Securities Exchange Act of 1934, as amended;
●	"SEC" or the "Commission" refers to the United States Securities and Exchange Commission;
●	"Securities Act" refers to the Securities Act of 1933, as amended; and
●	"WTI" means West Texas Intermediate.

Where You Can Find Other Information

We file annual, quarterly, and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC like us at https://www.sec.gov(our filings can be found at https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000101594) and on the "Investors -SEC Filings" page of our website at https://usnrg.com. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.

Summary of The Information Contained in Management's Discussion and Analysis of Financial Condition and Results of Operations

Our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying unaudited Condensed Consolidated Financial Statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

	●	General Overview. A general overview of the Company and our operations.
	●	Recent Developments. Discussion of recent developments affecting the Company and our operations.
	●	Plan of Operations and Strategy. Discussion of our strategy moving forward and how we plan to seek to increase stockholder value.
	●	Critical Accounting Policies and Estimates. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.
	●	Results of Operations. An analysis of our financial results comparing the three and six months ended June 30, 2025 and 2024.
	●	Liquidity and Capital Resources. A discussion of our financial condition, including descriptions of balance sheet information and cash flows.

General Overview

U.S. Energy Corp. (collectively with its wholly-owned subsidiaries are referred to as the "Company" is incorporated in the State of Delaware. The Company's principal business activities are focused on the acquisition, exploration, and development of industrial gases, oil and natural gas properties in the United States.

Material Developments

Synergy -acquisition of industrial gas properties

On January 7, 2025, we entered into and simultaneously closed the transactions contemplated by, a purchase and sale agreement, with Synergy Offshore LLC ("Synergy"). Synergy is controlled by Mr. Duane H. King, a member of the Board of Directors of the Company, who serves as the Chief Executive Officer and Manager of Synergy, and John A. Weinzierl, the Company's Chairman, who is an approximate sixty percent beneficial owner of Synergy.

We acquired approximately 24,000 net operated acres located across the Kevin Dome structure in Toole County, Montana, including all leases, wells, rights and interests in, under or derived from the acquired acreage subject to Synergy retaining an undivided twenty percent (20%) of Synergy's right title and interest in the property.

Consideration for the transaction consisted of the following: (a) $2.0 million in cash, subject to customary adjustments; (b) 1,400,000 shares of the Company's common stock; (c) a carried working interest whereby the Company agreed to cover and pay for 100% of Synergy's costs attributable to the Synergy acreage, until the earlier of (i) 78 months from the closing date; or (ii) the date the total costs associated therewith total $20 million; (d) our agreement to pay Synergy 18% of the cash amounts we actually realize from any law or regulation from our sequestration of carbon oxides or similar substances derived directly from an agreed area of mutual interest including Synergy's acreage; and (e) our agreement to pay Synergy 18% of the gain we may receive in connection with the sale of the future, first, gas processing plant located on Synergy's acreage.

Underwritten Offering

On January 22, 2025, the Company entered into an underwriting agreement for the offering of 4,871,400 shares of common stock, at a price to the public of $2.65 per share (such offering, the "Offering").

The sale of 4,871,400 shares of common stock (including the full 635,400 over-allotment option) in connection with the Offering, closed on January 23, 2025. The Company generated approximately $11.9 million of net proceeds from the Offering, after deducting the underwriting discounts and commissions and offering costs payable by us, and has used, and continues to use such proceeds for the development of its Montana assets, general corporate purposes, and working capital, or for other purposes that our board of directors, in their good faith, deems to be in the best interest of the Company. Additionally, management used $1.574 million from the over-allotment option exercise to purchase shares of common stock from Sage Road Capital, LLC (whose co-manager, Joshua L. Batchelor, was a then member of the Board of Directors of the Company) and its affiliates at a price equal to the public offering price of the Offering, less underwriting discounts, which sale took place in January 2025, as discussed below.

Related Party Share Repurchase

On January 27, 2025, the Company entered into a Share Repurchase Agreement with Banner Oil & Gas, LLC ("Banner"), Woodford Petroleum, LLC ("Woodford"), and Sage Road Energy II, LP, ("Sage Road", and together with Banner and Woodford, the "Selling Stockholders"). In his capacity as co-Managing Partner of Sage Road Capital, LLC, which indirectly controls and manages certain funds which own a majority interest in Banner, Woodford and Sage Road, Joshua L. Batchelor, a then member of the Board of Directors of the Company, may be deemed to beneficially own the shares of common stock held by the Selling Stockholders.

Pursuant to the Share Repurchase Agreement, the Company, in a private transaction, outside of, and separate from the Company's previously disclosed share repurchase program, on January 27, 2025, repurchased (a) 534,020 shares of common stock held by Banner, (b) 41,229 shares of common stock held by Woodford, and (c) 60,151 shares of common stock held by Sage Road, for an aggregate of $1.574 million or approximately $2.48 per share, which is the net price per share of the 4,871,400 shares of common stock which we sold in our underwritten public offering which closed on January 23, 2025, less underwriting discounts and commissions, and which represented an 8.2% premium to the closing sales price of the Company's common stock on January 27, 2025.

Stock Repurchase Program

On January 29, 2025, the Board of Directors of the Company authorized and approved an extension of the ongoing share repurchase program for up to $5.0 million of the outstanding shares of the Company's common stock originally approved by the Board of Directors on April 26, 2023 and subsequently extended, subject to any future extensions in the discretion of the Board of Directors of the Company, the repurchase program is now scheduled to expire on June 30, 2026, when a maximum of $5.0 million of the Company's common stock has been repurchased, or when such program is discontinued by the Board of Directors.

Under the stock repurchase program, shares may be repurchased from time to time in the open market or through negotiated transactions at prevailing market prices, or by other means in accordance with federal securities laws. Repurchases will be made at management's discretion at prices management considers to be attractive and in the best interests of both the Company and its stockholders, subject to the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, and the Company's financial performance. The repurchase program will be funded using the Company's working capital.

During the six months ended June 30, 2025, the Company repurchased 197,400 shares for $317 thousand, at a weighted average price of $ 1.61 per share. During the six months ended June 30, 2024, the Company repurchased 463,500 shares for $505 thousand at a weighted average price of $ 1.09 per share. As of June 30, 2025, a total of $3.5 million remained available under the repurchase program for future repurchases.

The share repurchase program was approved by the disinterested members of the Board of Directors of the Company, as well as the Company's Audit Committee, comprised solely of independent directors not affiliated with Mr. Batchelor or the Selling Stockholders.

Drilling Program

During the second quarter of 2025, the Company drilled 2 new industrial gas wells on our Kevin Dome acreage in Montana. Both wells are currently being assessed, and completion work is ongoing. In addition, we successfully completed the discovery well we acquired in the Synergy transaction noted above. The Company continues to refine its development plan. These activities include evaluating initial plant designs and processing plant locations, designing our gathering system, finalizing permitting for injection wells and attaining right of ways among other activities in anticipation of first production of our industrial gas wells in 2026.

Full Cost Method Ceiling Test

The reserves used in the 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 June 30, 2025, the Company used $70.48 per barrel for oil and $2.86 per one million British Thermal Units (MMbtu) for natural gas (as further adjusted for 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%. The Company recorded a $2.8 million ceiling test write-down of its oil and natural gas properties during the three months ended June 30, 2025, due to a reduction in the value of proved oil and natural gas reserves primarily as a result of a decrease in crude oil prices.

We expect to record a further write-down of our oil and natural gas properties in the third quarter of 2025 due to lower commodity prices used in the calculation of the ceiling test. Depending on actual commodity prices, estimated price differentials, lease operating costs, revisions to reserve estimates, and the amount and timing of capital expenditures, the write-down could be approximately $0.5 million to $1.5 million in the third quarter of 2025.

Plan of Operations and Strategy

During the remainder of 2025 and beyond, we intend to seek additional opportunities in the oil, natural gas and industrial gas sectors, including but not limited to further acquisition of assets, participation with industry partners in exploration and development projects, acquisition of existing companies, and the purchase of other industrial gas assets.

Key elements of our business strategy include:

●

Deploy our Capital in a Conservative and Strategic Manner and Review Opportunities to Bolster our Liquidity. In the current industry environment, maintaining liquidity is critical. Therefore, we plan to be highly selective in the projects we evaluate and to review opportunities to bolster our liquidity and financial position through various means.

●	Evaluate and Pursue Value-Enhancing Transactions. We plan to continuously evaluate strategic alternative opportunities with the goal of enhancing stockholder value.

Critical Accounting Policies and Estimates

The preparation of our unaudited Condensed Consolidated Financial Statements in conformity with generally accepted accounting principles in the 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 2024 Annual Report on Form 10-K filed with the SEC on March 13, 2025.

Results of Operations

Comparison of our Statements of Operations for the Three Months Ended June 30, 2025 and 2024

For the three months ended June 30, 2025, we recorded a net loss of $6.1 million, which was primarily due to declining commodity prices and lower production, resulting in reduced revenue for the period, which was also affected by property divestitures. In the following sections, we discuss our revenue, operating expenses, and other income (expense) for the three months ended June 30, 2025 compared to the three months ended June 30, 2024.

Revenue. Presented below is a comparison of our oil and natural gas sales, production quantities and average sales prices for the three months ended June 30, 2025 and 2024:

		Three months ended June 30,								Change
		2025				2024				Amount				Percent
		(in thousands except average prices and production quantities)
Revenue:
Oil		$	1,844			$	5,472			$	(3,628	)			(66	)%
Natural gas and liquids			184				574				(390	)			(68	)%
Total revenue		$	2,028			$	6,046			$	(4,018	)			(66	)%
Production quantities:
Oil (Bbls)			33,445				71,634				(38,189	)			(53	)%
Natural gas and liquids (Mcfe)			92,226				236,742				(144,516	)			(61	)%
BOE			48,816				111,091				(62,275	)			(56	)%
BOE/Day			536				1,221				(685	)			(56	)%
Average sales prices:
Oil (Bbls)		$	55.14			$	76.39			$	(21.25	)			(28	)%
Natural gas and liquids (Mcfe)		$	2.00			$	2.42			$	(0.42	)			(17	)%
BOE		$	41.54			$	54.42			$	(12.88	)			(24	)%

The decrease in our oil and natural gas revenue of $4.0 million for the three months ended June 30, 2025, as compared to the three months ended June 30, 2024, was primarily due to a decrease of 56% in production quantities and a decrease in realized commodity pricing of 24% on a per barrel of oil equivalent (BOE) basis. For the three months ended June 30, 2025, we produced 48,816 BOE, or an average of 536 BOE per day, as compared to 111,091 BOE or an average of 1,221 BOE per day during the comparable period in 2024. The decrease in our production quantities primarily relates to the divestitures of our properties in the Karnes County, East Texas and Mid-con regions which occurred in the second half of 2024 and the natural decline in production in remaining producing assets. During the three months ended June 30, 2025, our production was 69% oil and 31% natural gas and liquids compared to 64% oil and 36% natural gas and liquids produced during the three months ended June 30, 2024.

Oil and Natural Gas Production Costs. Presented below is a comparison of our oil and natural gas production costs for the three months ended June 30, 2025 and 2024:

		Three months ended June 30,								Change
		2025				2024				Amount				Percent
		(in thousands)
Lease operating expenses		$	1,569			$	3,076			$	(1,507	)			(49	)%
Gathering, transportation and treating			2				63			$	(61	)			(97	)%
Production taxes			148				367			$	(219	)			(60	)%
Total		$	1,719			$	3,506			$	(1,787	)			(51	)%
Lease operating expense per BOE		$	32.14			$	27.69			$	4.45				16	%

For the three months ended June 30, 2025, lease operating expenses were $1.6 million or $32.14 per BOE. While lease operating expenses decreased by $1.5 million when compared to $3.1 million or $27.69 per BOE for the three months ended June 30, 2024, the cost on a BOE basis increased as the mix of properties changed because of the divestment of our Karnes County, East Texas, and Mid-con properties.

For the three months ended June 30, 2025, gathering, transportation, and treating expense decrease was attributable to the divestiture of properties that included gathering and transportation costs in the second half of 2024.

For the three months ended June 30, 2025, production taxes consistently remain between 6% and 7% of revenue. This decrease in production taxes was attributable to the decrease in revenue of 66% discussed above.

Depreciation, Depletion and Amortization. Our depreciation, depletion, and amortization ("DD&A") was $1.1 million and $2.2 million for the three months ended June 30, 2025 and 2024, respectively. Depletion expense on our oil and natural gas properties is the primary driver of DD&A expense. Our depletion rate was $15.37 per BOE and $15.30 per BOE for the three months ended June 30, 2025 and 2024, respectively. Our depletion rate can fluctuate because of acquisitions, changes in drilling and completion costs, impairments, revisions in asset retirement obligation cost estimates or timing, divestitures, changes in the mix of our production, the underlying proved reserve volumes and estimated future development costs.

Impairment of oil and natural gas properties. The Company recorded a ceiling test write down of $2.8 million for the three months ended June 30, 2025, resulting from a reduction in commodity prices in the second quarter. The Company recorded a $5.4 million ceiling test write-down of its oil and gas properties during the three months ended June 30, 2024, due to a reduction in the value of proved oil and natural gas reserves. The reduction was primarily due to lower commodity prices used in the full cost pool ceiling test, as well as reserves revisions related to wells shut-in during the first quarter of 2024 and updates to the decline curves for certain wells.

General and Administrative Expenses. Presented below is a comparison of our general and administrative expenses for the three months ended June 30, 2025 and 2024:

		Three months ended June 30,								Change
		2025				2024				Amount				Percent
		(in thousands)
Compensation and benefits		$	629			$	901			$	(272	)			(30	)%
Stock-based compensation			563				476				87				18	%
Professional fees, insurance and other			1,054				714				340				48	%
Total general and administrative expenses		$	2,246			$	2,091			$	155				7	%

General and administrative expenses increased by $0.2 million for the three months ended June 30, 2025 as compared to the prior year period. The increase was primarily attributable to an increase in both professional fees primarily attributable to divestitures, and acquisition related activities as well as incremental costs associated with a partial outsourcing of our accounting function to a third-party provider including transition costs offset by compensation and benefits. Stock-based compensation was higher because of the value of the restricted stock awards being amortized for the three months ended June 30, 2025, than those being amortized during the three months ended June 30, 2024.

Other Income (Expense). Presented below is a comparison of our other income (expense) for the three months ended June 30, 2025 and 2024:

		Three months ended June 30,								Change
		2025				2024				Amount				Percent
		(in thousands)
Commodity derivative loss, net		$	-			$	(112	)		$	112				100	%
Interest expense, net			(47	)			(131	)			84				64	%
Other income			228				(19	)			247				-1300	%
Total other income (expense)		$	181			$	(262	)		$	443				169	%

For the three months ended June 30, 2025, we did not have any open commodity derivative positions. For the first three months of 2024, we recognized losses on commodity derivative contracts of $1.4 million, primarily as the result of a decrease in the fair value of our outstanding commodity derivative contracts from settlements of open positions and higher WTI prices.

Interest expense primarily represents the interest and fees on our credit facility with FirstBank Southwest. As of December 31, 2024 and June 30, 2025, we had no amounts outstanding on our credit facility. For the three months ended June 30, 2025, while there was no balance outstanding on the credit facility, we did incur fees to maintain our credit facility.

During the second quarter of 2025, we entered into a negotiated post-closing cash settlement and recognized an additional loss of $424 thousand on our $6.825 million divestment in Henderson, Anderson, Liberty and Chambers County, Texas that closed on December 31, 2024. The Company also closed on the sale of a portion of our operated Wyoming properties for approximately $500 thousand during the second quarter of 2025. Proceeds from the Wyoming divestiture were recorded as an adjustment to the full cost pool with no gain or loss recognized in the Statements of Operations.

Comparison of our Statements of Operations for the Six Months Ended June 30, 2025 and 2024

For the six months ended June 30, 2025, we recorded a net loss of $9.2 million which was primarily due to declining commodity prices and lower production, resulting in reduced revenue for the period, which was also affected by property sales. In the following sections, we discuss our revenue, operating expenses, and other income (expense) for the six months ended June 30, 2025 compared to the six months ended June 30, 2024.

Revenue. Presented below is a comparison of our oil and natural gas sales, production quantities and average sales prices for the six months ended June 30, 2025 and 2024:

		Six months ended June 30,								Change
		2025				2024				Amount				Percent
		(in thousands except average prices and production quantities)
Revenue:
Oil		$	3,615			$	10,199			$	(6,584	)			(65	)%
Natural gas and liquids			607				1,238				(631	)			(51	)%
Total revenue		$	4,222			$	11,437			$	(7,215	)			(63	)%
Production quantities:
Oil (Bbls)			63,438				140,232				(76,794	)			(55	)%
Natural gas and liquids (Mcfe)			194,316				483,948				(289,632	)			(60	)%
BOE			95,824				220,890				(125,066	)			(57	)%
BOE/Day			529				1,214				(685	)			(56	)%
Average sales prices:
Oil (Bbls)		$	56.98			$	72.73			$	(15.75	)			(22	)%
Natural gas and liquids (Mcfe)		$	3.12			$	2.56			$	0.56				22	%
BOE		$	44.06			$	51.78			$	(7.72	)			(15	)%

The decrease in our oil and natural gas revenue of $7.2 million for the six months ended June 30, 2025, as compared to the six months ended June 30, 2024, was primarily due to a decrease of 56% in production quantities and a decrease in realized commodity pricing of 15% on a per barrel of oil equivalent (BOE) basis. For the six months ended June 30, 2025, we produced 95,824 BOE, or an average of 529 BOE per day, as compared to 220,890 BOE or an average of 1,214 BOE per day during the comparable period in 2024. The decrease in our production quantities primarily relates to the divestitures of our Karnes County, East Texas and Mid-con regions properties, which occurred in second half of 2024 and the natural decline in production in remaining producing assets. During the six months ended June 30, 2025, our production was 66% oil and 34% natural gas and liquids compared to 63% oil and 37% natural gas and liquids produced during the six months ended June 30, 2024.

Oil and Natural Gas Production Costs. Presented below is a comparison of our oil and natural gas production costs for the six months ended June 30, 2025 and 2024:

		Six months ended June 30,								Change
		2025				2024				Amount				Percent
		(in thousands)
Lease operating expenses		$	3,178			$	6,262			$	(3,084	)			(49	)%
Gathering, transportation and treating		$	18			$	127			$	(109	)			(86	)%
Production taxes		$	296			$	710			$	(414	)			(58	)%
Total		$	3,492			$	7,099			$	(3,607	)			(51	)%
Lease operating expense per BOE		$	33.16			$	28.35			$	4.81				17	%

For the six months ended June 30, 2025, lease operating expenses were $3.2 million or $33.16 per BOE. While lease operating expenses decreased by $3.1 million when compared to the $6.3 million or $28.35 per BOE for the six months ended June 30, 2024, the cost on a BOE basis increased as the mix of properties changed because of the divestment of our Karnes County, East Texas, and Mid-con properties.

For the six months ended June 30, 2025, the gathering, transportation, and treating expense decrease was attributable to the divestiture of properties that included gathering and transportation costs in the second half of 2024.

For the six months ended June 30, 2025, production taxes consistently remain between 6% and 7% of revenue. This decrease in production taxes was attributable to the decrease in revenue of 63% discussed above.

Depreciation, Depletion and Amortization. Our depreciation, depletion, and amortization ("DD&A") was $2.2 million and $4.4 million for the six months ended June 30, 2025 and 2024, respectively. Depletion expense on our oil and natural gas properties is the primary driver of DD&A expense. Our depletion rate was $14.38 per BOE and $15.60 per BOE for the six months ended June 30, 2025 and 2024, respectively. Our depletion rate can fluctuate because of acquisitions, changes in drilling and completion costs, impairments, revisions in asset retirement obligation cost estimates or timing, divestitures, changes in the mix of our production, the underlying proved reserve volumes and estimated future development costs.

Impairment of oil and natural gas properties. The Company recorded a ceiling test write down of $2.8 million for the six months ended June 30, 2025, resulting from a decrease in commodity prices. The Company recorded a $5.4 million ceiling test write-down of its oil and gas properties during the six months ended June 30, 2024, due to a reduction in the value of proved oil and natural gas reserves. The reduction was primarily due to lower commodity prices used in the full cost pool ceiling test, as well as reserves revisions related to wells shut-in during the first quarter of 2024 and updates to the decline curves for certain wells.

General and Administrative Expenses. Presented below is a comparison of our general and administrative expenses for the six months ended June 30, 2025 and 2024:

		Six months ended June 30,								Change
		2025				2024				Amount				Percent
		(in thousands)
Compensation and benefits		$	1,401			$	2,072			$	(671	)			(32	)%
Stock-based compensation			1,034				676				358				53	%
Professional fees, insurance and other			2,200				1,549				651				42	%
Total general and administrative expenses		$	4,635			$	4,297			$	338				8	%

General and administrative expenses increased by $0.3 million for the six months ended June 30, 2025 as compared to the prior year period. The increase was primarily attributable to an increase in both professional fees primarily attributable to divestitures, and acquisition related activities as well as incremental costs associated with a partial outsourcing of our accounting function to a third-party provider including transition costs offset by a decrease in compensation and benefits. Stock-based compensation was higher because of the value of the restricted stock awards being amortized for the six months ended June 30, 2025 than those being amortized during the six months ended June 30, 2024.

Other Income (Expense). Presented below is a comparison of our other income (expense) for the six months ended June 30, 2025 and 2024:

		Six months ended June 30,								Change
		2025				2024				Amount				Percent
		(in thousands)
Commodity derivative gain (loss), net		$	-			$	(1,493	)		$	1,493				100	%
Interest expense, net			(95	)			(251	)			156				62	%
Other income (expense), net			252				(15	)			267				(1780	)%
Total other income (expense)		$	157			$	(1,759	)		$	1,916				109	%

For the six months ended June 30, 2025, we did not have any open commodity derivative positions. For the six months ended June 30, 2024, we recognized losses on commodity derivative contracts of $1.4 million, primarily as the result of a decrease in the fair value of our outstanding commodity derivative contracts from settlements of open positions and higher WTI prices.

Interest expense primarily represents the interest and fees on our credit facility with FirstBank Southwest. As of December 31, 2024 and June 30, 2025, we had no amounts outstanding on our credit facility. For the six months ended June 30, 2025, while there was no balance outstanding on the credit facility, we did incur fees to maintain our credit facility. Other income (expense), net primarily represents interest income on the Company's cash balance and changes in the fair value of our marketable equity securities.

Liquidity and Capital Resources

Based on the current commodity price environment and our current working capital, we believe we have sufficient liquidity and capital resources to execute our business plan while continuing to meet our current financial obligations. We continue to manage our commitments in order to maintain flexibility with regard to our activity level and capital expenditures.

As of June 30, 2025, the Company was in compliance with all financial covenants related to the credit facility.

For the remainder of 2025, we anticipate our industrial gas development cost to total between $1.0 to $2.5 million, representing funds required to complete our recently drilled industrial gas wells, and onsite and preliminary design for our anticipated industrial gas processing plant and related infrastructure. The total costs depend primarily on the timing of these activities. The extent of capital deployment over the next 12 months will depend largely on the timing of the construction of our industrial gas processing plant. In addition, depending on timing, regulatory requirements and weather, we may incur costs for plugging and abandonment of oil and natural gas wells of up to $ 800 thousand. We view much of these capital activities as discretionary for which we can control both the timing and amount of the expenditures. Other activities, such as some repairs and maintenance may be required from time to time by regulatory bodies. We anticipate our expenditures will be funded primarily by cash on hand, operating cash flows, proceeds from divestitures of oil and natural gas properties, and if necessary, borrowings under our credit facility and project specific financing. In the event that readily available sources of cash flow are insufficient to fund our capital needs, we may utilize equity and credit markets as a funding mechanism.

Sources of Cash

For the six months ended June 30, 2025, we funded our capital expenditures with cash on hand and proceeds from our January 2025 equity offering. In January 2025, we raised $11.9 million ($10.3 million after the repurchase of certain shares of common stock held by affiliates of Sage Road Capital, which entities are related parties (see also Material Developments-Related Party Share Repurchase, above, and related issuance costs)) in an underwritten offering of 4,871,400 shares of our common stock. In future quarters, if cash flows are not sufficient to fund our capital expenditures and operations, we may raise funds through additional equity offerings (public and/or private) or from other sources of financing. We also may re-evaluate our capital spend program as economic conditions warrant. Additionally, we may enter into carrying cost and sharing arrangements with third parties for certain development programs. All of our sources of liquidity can be affected by the changes in economic conditions, rising interest rates, changes in debt and equity markets, force majeure events, fluctuations in commodity prices, operating costs, tax law changes, and volumes produced, all of which would affect us and our industry.

Credit Agreement

On January 5, 2022, we entered into a four-year credit agreement with FirstBank Southwest as administrative agent, which provides for a revolving line of credit with a borrowing base of $20 million, and a maximum credit amount of $100 million (the "Credit Agreement"). Under the Credit Agreement, revolving loans may be borrowed, repaid and re-borrowed until January 5, 2026, when all outstanding amounts must be repaid. The Credit Agreement contains customary indemnification requirements, representations and warranties and customary affirmative and negative covenants applicable to the Company and its subsidiaries. In addition, the Credit Agreement contains financial covenants, tested quarterly, that limit our ratio of total debt to EBITDAX (as defined in the Credit Agreement) to 3:1 and require our ratio of consolidated current assets to consolidated current liabilities (as each is described in the Credit Agreement) to remain at 1:1 or higher. We were in compliance with all financial covenants as of June 30, 2025.

The borrowing base is subject to redetermination semi-annually, commencing on or about April 1 and October 1 of each year during the four-year term of the Credit Agreement. Our borrowing base can be adjusted as a result of changes in commodity prices, acquisitions or divestitures of proved properties, or financing activities, all as provided for in the Credit Agreement.

Cash flows provided by our operating activities, proceeds received from divestitures of properties, capital markets activities, and our capital expenditures, including acquisitions, all impact the amount we borrow under our revolving Credit Agreement. There were no amounts outstanding on the Credit Agreement as of June 30, 2025.

Uses of Cash

We use cash for the acquisition and development of industrial gas and oil and gas properties, workovers and capital expenditures, operating and general and administrative costs, settlements of commodity derivative contracts, debt obligations including interest, and share repurchases. During the six months ended June 30, 2025, we spent approximately $4.7 million on the acquisition and development of industrial gas properties and capital expenditures.

The amount and allocation of our future capital expenditures will depend upon a number of factors, including our cash flows from operating, investing, and financing activities, our ability to execute our development program, and the number and size of acquisitions that we complete. In addition, the impact of industrial gas and oil and natural gas prices on investment opportunities, the availability of capital, tax law changes, and the timing and results of our development activities may lead to changes in funding requirements for future development. We periodically review our capital expenditure budget to assess if changes are necessary based on current and projected cash flows, acquisition and divestiture activities, and other factors. We will continue to monitor the economic environment through the remainder of the year and adjust our activity level as warranted.

Cash Flows

The following table summarizes our cash flows for the six months ended June 30, 2025 and 2024:

		Six months ended June 30,
		2025				2024				Change
		(in thousands)
Net cash provided by (used in):
Operating activities		$	(6,126	)		$	326			$	(6,452	)
Investing activities			(4,509	)			(2,696	)			(1,813	)
Financing activities			9,641				1,242				8,399

Operating Activities. Cash used in operating activities of $6.1 million for the six months ended June 30, 2025 was mainly due to a $9.2 million net loss and a reduction of accounts payable and accrued liabilities of $3.0 million, offset by $2.2 million of depreciation, depletion, accretion, and amortization and a $3.2 million impairment of oil and natural gas properties and loss on sale of assets. Cash used in operating activities of $0.3 million for the six months ended June 30, 2024, was mainly due to of net loss of $11.5 million, offset by $4.4 million of depreciation, depletion, accretion, and amortization and a $5.4 million impairment of oil and natural gas properties.

Investing Activities. Cash used in investing activities for the six months ended June 30, 2025 was $4.5 million as compared to cash used in investing activities of $2.7 million for the comparable period in 2024. The primary use of cash in our investing activities for the six months ended June 30, 2025 was attributable to the Synergy acquisition noted above in Material Developments - Synergy - acquisition of industrial gas properties and recent drilling activity. For the six months ended June 30, 2024, the primary use of cash in our investing activities related to the Wavetech acquisition and returning idle wells to production and improvements to our gathering system in East Texas.

Financing Activities. Cash provided by financing activities for the six months ended June 30, 2025 was $9.6 million as compared to cash used in financing activities of $1.2 million for the comparable period in 2024. As discussed in Material Developments - Underwritten Offering above, the primary driver of finance cash inflow during the first half of 2025 was our first quarter equity offering which generated net proceeds of $11.9 million offset by a share repurchases. Cash provided by financing activities during the six months ended June 30, 2024 primarily related to borrowings under our credit facility reduced by share repurchases of $0.6 million and tax withholdings related to share based compensation.