U.S. Energy Corp. (USEG)

[Timothy Smith]

Nice call, seems to be trending north at this point. Will the momo last?

Selected Highlights for the First Quarter of 2012

Financial and Operational Results

Recognized $8.3 million in revenue during the quarter ended March 31, 2012, compared to revenues of $6.7 million during the quarter ended March 31, 2011, a 24% increase.

Produced 112,036 BOE during the quarter, or 1,231 BOE/D from 45 gross (13.65 net) producing wells at March 31, 2012.

During the three months ended March 31, 2012, we received an average of $2.8 million per month from our producing wells with an average operating cost of $431,000 per month (excluding workover costs), and production taxes of $294,000 before non-cash depletion expense, for an average cash flow of $2.1 million per month from oil and gas production.

On April 10, 2012 the commitment amount for our senior credit facility with Wells Fargo, NA increased to $100 million (from $75 million) and the borrowing base increased to $30 million (from $28 million). At March 31, 2012 we did not have any borrowings under this facility; however on May 1, 2012 the Company borrowed $5.0 million to fund our drilling programs.

At March 31, 2012, the Company had $7.8 million in cash and cash equivalents on hand. Working capital (current assets minus current liabilities) was $11.8 million.

During the quarter ended March 31, 2012 we recorded a net loss after taxes of $381,000 as compared to a net loss after taxes of $2.2 million during the same period of 2011.

In January 2012, the Company sold an undivided 75% of its undeveloped acres in its Yellowstone and SE HR Zavanna leasehold interests for $16.7 million and $1.4 million in reimbursed well costs. The Company retained the remaining 25% interest in the undeveloped acreage and its original working interest and production in ten gross (2.3 net) wells.

The Kalil 25-36 #2H (infill) well was completed with 36 fracture stimulation stages and had an early 24-hour flow back rate of 1,869 BOE/D. The Company has an approximate 27% working interest ("WI") and a 21% net revenue interest ("NRI") in this well.

The Lloyd 34-3 #2H (infill) well was completed with 38 fracture stimulation stages and had an early 24-hour flow back rate of 4,300 BOE/D. The Company has an approximate 14% WI and an 11% NRI in this well. This is the highest initial production rate reported in a Company participated well in the Williston Basin program to date.

The Wang 10-3 #1H well was fracture stimulated with 35 stages and had an early 24-hour flow back rate of 2,208 BOE/D on a 36/64" restricted choke during drillout of the plugs. The Company has an approximate 18% WI and 14% NRI in this well.

The Crescent Farms 7-6 #1H well was fracture stimulated with 35 stages and had an early 24-hour flow back rate of 2,437 BOE/D on a 36/64" restricted choke during drillout of the plugs. The Company has an approximate 27% WI and 21% NRI in this well. The Crescent Farms well represents the highest reported IP rate for a Zavanna drilling program well to date.