E. SUPPLEMENTAL FINANCIAL INFORMATION ON OIL AND NATURAL GAS EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES

Capitalized Costs

The following table presents information regarding USE’s net costs incurred in the purchase of proved and unproved properties, and in exploration and development activities:

	(In thousands)
	December 31,		December 31,
	2013		2012
Unproved oil and gas properties	$	7,478	$	9,169
Proved oil and gas properties		136,521		119,919
	$	143,999	$	129,088

USE’s DD&A per equivalent BOE was $32.06 in 2013, $33.49 in 2012, and $31.64 in 2011.

Undeveloped properties as of December 31, 2013 include costs incurred in the following years:

	(In thousands)
	Acquisitions		Exploration		Development		Total
2010	$	134	$	--	$	--	$	134
2011		5,006		--		--		5,006
2012		271		--		--		271
2013		2,067		--		--		2,067
Total	$	7,478	$	--	$	--	$	7,478

Costs Incurred

Costs incurred in oil and natural gas property acquisition, exploration and development activities are summarized below:

	(In thousands)
	Year Ended December 31,
	2013		2012		2011
Property acquisition costs:
Proved	$	445	$	2,987	$	1,288
Unproved		1,760		1,416		10,679
Exploration costs		9,138		10,943		32,788
Development costs		9,403		20,134		4,550
Total costs incurred	$	20,746	$	35,480	$	49,305

Results of Operations

Results of operations from oil and natural gas producing activities are presented below:

	(In thousands)
	For the years ending December 31,
	2013		2012		2011
Oil and gas revenues	$	33,647	$	32,534	$	30,958

Operating expenses		10,469		10,788		11,552
Depreciation, depletion and amortization		13,623		14,893		13,997
Impairment		5,828		5,189		--
		29,920		30,870		25,549
Operating income	$	3,727	$	1,664	$	5,409

Oil and Natural Gas Reserves (Unaudited)

Proved reserves are estimated quantities of oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are reserves that can reasonably be expected to be recovered through existing wells with existing equipment and operating methods.

Proved oil and natural gas reserve quantities at December 31, 2013 and 2012 and the related discounted future net cash flows before income taxes are based on the estimates prepared by Cawley, Gillespie & Associates, Inc. The reserve reports for December 31, 2011 were prepared by Cawley, Gillespie & Associates, Inc., Ryder Scott Company, L.P and Netherland, Sewell & Associates, Inc. Such estimates have been prepared in accordance with guidelines established by the Securities and Exchange Commission.

USE’s net ownership interests in estimated quantities of proved oil and natural gas reserves and changes in net proved reserves, all of which are located in the continental United States, are summarized below:

December 31, 2013	Oil (BBLS)	Natural Gas or NGL (MCFE)
Beginning of year	2,613,643	1,798,088
Revisions of previous quantity estimates	(162,957)	382,690
Extensions, discoveries and improved recoveries	1,352,746	678,412
Purchase of reserves in place	--	--
Sales of reserves in place	--	--
Production	(343,719)	(487,282)
End of year	3,459,713	2,371,908

Proved developed reserves at end of year	1,875,528	1,701,282

December 31, 2012	Oil (BBLS)	Natural Gas or NGL (MCFE)
Beginning of year	2,737,969	2,744,128
Revisions of previous quantity estimates	(145,596)	(481,583)
Extensions, discoveries and improved recoveries	763,125	369,169
Purchase of reserves in place	75,948	30,457
Sales of reserves in place	(444,272)	(437,057)
Production	(373,531)	(427,026)
End of year	2,613,643	1,798,088

Proved developed reserves at end of year	1,770,659	1,420,295

Standardized Measure (Unaudited)

The standardized measure of discounted future net cash flows relating to USE’s ownership interests in proved oil and natural gas reserves as of year-end is shown below:

	(In thousands)
	December 31,
	2013			2012			2011
Future cash inflows	$	330,245		$	237,148		$	259,533
Future costs:
Production		(129,392	)		(96,616	)		(77,813	)
Development		(37,739	)		(21,461	)		(42,972	)
Future income tax expense		(14,500	)		(8,483	)		(19,790	)
Future net cash flows		148,614			110,588			118,958
10% discount factor		(43,761	)		(39,571	)		(56,767	)
Standardized measure of discounted future net cash flows	$	104,853		$	71,017		$	62,191

Future cash flows are computed by applying average prices per barrel of oil and per MMbtu of natural gas at the first day of each month in the 12-month period prior to the end of the reporting period to year-end quantities of proved oil and natural gas reserves. Prices used in computing year end 2013, 2012 and 2011 future cash flows were $96.78/barrel, $94.71/barrel and $96.19/barrel, respectively, for oil and $3.67/MMbtu, $2.757/MMbtu and $4.12/MMbtu for natural gas, respectively, in each case adjusted for regional price differentials and other factors. Future operating expenses and development costs are computed primarily by USE’s independent petroleum engineers by estimating the expenditures to be incurred in developing and producing USE’s proved oil and natural gas reserves at the end of the year, based on year end costs and assuming continuation of existing economic conditions.

Future income taxes are based on year-end statutory rates, adjusted for the tax basis of oil and gas properties and available applicable tax assets. A discount factor of 10% was used to reflect the timing of future net cash flows. The standardized measure of discounted future net cash flows is not intended to represent the replacement cost or fair market value of USE’s oil and natural gas properties. An estimate of fair value would also take into account, among other things, the recovery of reserves not presently classified as proved, anticipated future changes in prices and costs, and a discount factor more representative of the time value of money and the risks inherent in reserve estimates.

Change in Standardized Measure (Unaudited)

Changes in standardized measure of future net cash flows relating to proved oil and natural gas reserves are summarized below:

	(In thousands)
	For the years ended December 31,
	2013			2012			2011
Balance at beginning of year	$	71,017		$	62,191		$	44,653
Sales of oil and gas, net of production costs		(23,179	)		(21,747	)		(19,406	)
Net change in prices and production costs		2,543			(4,548	)		1,401
Net change in future development costs		--			--			--
Extensions and discoveries		54,360			23,297			26,574
Purchase of reserves in place		--			2,573			3,082
Sale of reserves in place		--			(13,573	)		(1,947	)
Revisions of previous quantity estimates		(2,961	)		(5,927	)		(3,158	)
Development costs incurred during year		8,344			22,808			14,930
Previously estimated development costs incurred		(6,414	)		(9,706	)		(2,719	)
Net change in income taxes		(4,245	)		7,261			(4,270	)
Accretion of discount		7,647			7,254			5,207
Changes in production rates, timing and other		(2,259	)		1,134			(2,156	)
Balance at end of year	$	104,853		$	71,017		$	62,191

Sales of oil and natural gas, net of oil and natural gas operating expenses, are based on historical pretax results. Extensions and discoveries and the changes due to revisions in standardized variables are reported on a pretax discounted basis.