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COMMITMENTS, CONTINGENCIES AND OTHER | 12 Months Ended
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Dec. 31, 2013
COMMITMENTS, CONTINGENCIES AND OTHER [Abstract] |
COMMITMENTS, CONTINGENCIES AND OTHER | L. COMMITMENTS, CONTINGENCIES AND OTHER Legal Proceedings From time to time, we are party to certain legal actions and claims arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, management does not expect these matters to have a materially adverse effect on our financial position or results of operations. Following are currently pending legal matters: Water Rights Litigation –Mt. Emmons Project On July 25, 2008, we filed an Application for Finding of Reasonable Diligence with the Colorado Water Court (“Water Diligence Application”) concerning the conditional water rights associated with the Mt. Emmons Project (Case No. 2008CW81). The conditional water decree (“Decree”) required the Company to file its proposed plan of operations and associated permits with the Forest Service and BLM within six years of entry of the Decree, or within six years of the final determination of the pending patent application, whichever occurred later. The BLM issued the mineral patents on April 2, 2004. Although the issuance of the patents was appealed, on April 30, 2007, the United States Supreme Court made a final determination (by denial of certiorari) upholding BLM’s issuance of the mineral patents. The Company filed a plan of operations on March 31, 2010. On August 11, 2010, High Country Citizen’s Alliance, Crested Butte Land Trust and Star Mountain Ranch Association, Inc. (“Opposers”) filed a motion for summary judgment alleging that the plan of operations did not comply with the United States Forest Service (“USFS”) regulations and did not satisfy certain “reality check” limitations contained in the Decree. On September 24, 2010, we filed a response to the motion for summary judgment responding that the plan of operations complied with USFS and BLM regulations and satisfied the reality check limitations. The U.S. Department of Justice also filed a response on behalf of the USFS and BLM asserting that the Court cannot second guess the USFS’s determination that the plan of operations satisfied USFS and BLM regulations. On November 24, 2010 the District Court Judge denied the Opposers’s motion for summary judgment and held that Company had until April 30, 2013 to comply with the reality check provision of the Decree, which is six years after the Supreme Court denied certiorari in the judicial proceeding. On October 10, 2012 the Company filed a Plan of Operations with the USFS in compliance with the reality check provision of the Decree. The question of the adequacy of the Water Diligence Application is pending. Appeal of Modification – Notice of Intent to Conduct Prospecting for the Mt. Emmons Project On October 17, 2013, the Colorado Court of Appeals upheld the Colorado District Court and affirmed the Colorado Mined Land Reclamation Board (“MLRB”) approval of the Company’s Modification MD-03 (“MD-03”) to the Notice of Intent for the Mt. Emmons Project (the “NOI”). On January 12, 2011, the MLRB upheld DRMS’s approval of MD-03 and its determination that: (i) the activities proposed by the NOI and MD-03 are prospecting, not development or mining, (ii) the current financial warranty amount is sufficient to cover the proposed activities and (iii) DRMS’s decision not to make its approval of MD-03 contingent on permits or licenses that may be required by federal, other state, or local agencies was proper. Brigham Oil & Gas, L.P. On June 8, 2011, Brigham Oil & Gas, L.P. (“Brigham”), as the operator of the Williston 25-36 #1H Well, filed an action in the State of North Dakota, County of Williams, in District Court, Northwest Judicial District, Case No. 53-11-CV-00495 to interplead to the court with respect to the undistributed suspended funds from this well to protect itself from potential litigation. Brigham became aware of an apparent dispute with respect to ownership of the mineral interest between the ordinary high water mark and the ordinary low water mark of the Missouri River. Brigham has suspended payment of certain proceeds of production related to the minerals in and under this property pending resolution of the apparent dispute. Energy One is a 47.2% working interest owner in this well as a result of a participation agreement and a joint operating agreement with Brigham and Energy One’s legal position is aligned with Brigham. All funds due to Energy One on this well have been distributed to Energy One and there are no undistributed suspended funds held in suspense by Brigham for Energy One. Although initially listed as a defendant in this proceeding, Brigham and Energy One anticipate filing with the court documents to change Energy One’s status to an additional plaintiff. Quiet Title Action – Dimmit County, TX On October 4, 2013, Dimmit Wood Properties, Ltd. (“Dimmit”) filed a Quiet Title Action against Chesapeake Exploration, LLC (“Chesapeake”), Crimson Exploration Operating, Inc. (“Crimson”), EXCO Operating Company, LP, OOGC America, Inc., Energy One and Liberty Energy, LLC (“Liberty”) (jointly referred to as “Defendants”) concerning an 800.77 gross acre oil and gas lease (“Lease”) located in Dimmit County, Texas. Crimson, Energy One and Liberty received an assignment from Chesapeake of the Lease, in which Energy One has a 30% working interest. Dimmit alleges that the Lease has terminated due to the failure to achieve production in paying quantities. On October 28, 2013, the Defendants filed an answer, asserting that production in paying quantities was achieved in the primary term of the Lease with an existing producing well and that the Lease has remained in good standing and has not terminated. The Defendants also filed Counterclaims against Dimmit, including but not limited to breach of contract. No new wells have been drilled by the Defendants on the Lease. Mining Permits The Mt. Emmons molybdenum property is located on fee property within the boundary of USFS land. Although mining of the mineral resource will occur on the fee property, associated ancillary activities will occur on USFS land. USE submitted a full mine plan of operations in part to satisfy the requirements of the conditional water rights decree on October 10, 2012. Under the procedures mandated by National Environmental Protection Act (“NEPA”), the USFS will prepare an environmental analysis in the form of an Environmental Assessment and/or and Environmental Impact Statement to evaluate the predicted environmental and social economic impacts of the proposed development and mining of the Mt. Emmons molybdenum property. The NEPA process provides for public review and comment of the proposed plan. Obtaining and maintaining the various permits for the mining operations at Mt. Emmons will be complex, time-consuming, and expensive. Changes in a mine’s design, production rates, quality of material mined, and many other matters, often require submission of the proposed changes for agency approval prior to implementation. In addition, changes in operating conditions beyond our control, or changes in agency policy and Federal and State law, could further affect the successful permitting of the mine operations. Although USE believes that the plan of operations for Mt. Emmons will ultimately be approved by the USFS, this cannot be guaranteed. Moreover, the timing and cost, and ultimate success of the mining operation, cannot be predicted. 401(K) Plan The Board of Directors of USE adopted the U.S. Energy Corp. 401(K) Plan in 2004. USE matches 50% of an employee’s salary deferrals up to a maximum contribution per employee of $4,000 annually. USE expensed $46,000, $54,000, and $57,000 for the years ended December 31, 2013, 2012 and 2011, respectively, related to these contributions. Executive Officer Compensation In December 2001, the Board of Directors adopted (and the shareholders subsequently approved) the 2001 Stock Compensation Plan (the “2001 SCP”) to compensate its executive officers. The 2001 SCP was amended on June 22, 2007 with shareholder approval. Under the plan, 20,000 shares may be issued annually to each officer during his employment. During the years ended December 31, 2013, 2012, and 2011, USE collectively issued 30,000, 60,000, and 75,000 shares of stock to these officers, respectively. While in USE’s employ, the officers have agreed not to sell, pledge or otherwise dispose of or encumber the shares granted under the 2001 SCP. In consideration of this agreement USE has agreed to pay all taxes due on the shares granted to the officers. With the approval of the 2012 Equity Plan by the shareholders at the 2012 annual meeting, the 2001 SCP terminated on April 20, 2013. The last shares issued under the 2001 SCP were issued in April 2013. All future stock awards will be issued pursuant to the 2012 Equity Plan. USE committed to pay the surviving spouse of the former Chairman and Founder, who passed away on September 4, 2006, one years’ full salary and 50% of that amount annually for an additional four years thereafter. During the three years ended December 31, 2013, 2012, and 2011, USE paid $0, $0, and $57,000, respectively. The Board of Directors also approved payment to USE’s former General Counsel of 50% of his then current salary for a period of five years. USE paid $85,000 annually under this agreement beginning at the date of retirement, January 12, 2007, to January 12, 2012. On October 20, 2005, the Board of Directors adopted an Executive Retirement Policy (the “Retirement Plan”) for the then Chairman/CEO President/COO and CFO/Treasurer/V.P. Finance. Under the terms of the Retirement Plan, the retired executive will receive payments equaling 50% of the greater of (i) the amount of compensation the officer received as base cash pay on his/her final regular pay check or (ii) the average annual pay rate, less all bonuses, he/she received over the last five years of his/her employment with Company. To be eligible for this benefit, the executive officer must serve in one of the designated executive offices for 15 years, reach the age of 60 and be an employee of USE on December 31, 2010. Under each executive’s employment contract USE has also agreed to pay for health insurance for the executive and his spouse from date of retirement, after age 60, until the executive is eligible for Medicare. During 2007, the Board of Directors voted unanimously to fund the retirement benefit for the then active officers who qualified under the plan. The funding is held in a separate trust account that is managed by an independent trustee and is subject only to the claims of creditors in the event of insolvency of USE. At December 31, 2013, USE had funded the executive retirement account with the amount calculated by a third party actuary, of $1.2 million, which is recorded as Other Long Term Assets. Additional amounts will be deposited annually until each executive’s 60th birthday. As of June 30, 2011 the former CFO/Treasurer/V.P. Finance retired. During the years ended December 31, 2013 and 2012 that former officer received payments totaling $122,000 and $122,000, respectively from the Retirement Plan. At December 31, 2013, there were two officers who were included in the Retirement Plan and four that may qualify for the health insurance benefit. Compensation expense for executives under the Retirement Plan for the years ended December 31, 2013, 2012 and 2011 was $99,000, $80,000, and $72,000, respectively. The total accrued liability for executive retirement under all plans at December 31, 2013, 2012, and 2011 was $865,000, $903,000, and $947,000, respectively. USE has also established a mandatory retirement age of 70 unless the board specifically requests the services of an employee or officer beyond that age. Certain officers and one non-officer employee have agreements for payment of severance in the event of a change of control of USE. Operating Leases USE is the lessor of portions of the office buildings and building improvements that it owns. USE occupies the majority of its main office building. The leases are accounted for as operating leases and provide for minimum monthly receipts of $8,000 through December 31, 2013. Rental income under the agreements was $96,000, $170,000, and $101,000 for the years ended December 31, 2013, 2012 and 2011, respectively. Future minimum receipts for non-cancelable operating leases are $101,000 for the year ended December 31, 2014.

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