SecProbe.io

CORRESP
1
filename1.htm

      USE Letter to SEC 3-16-06

    March
      16,
      2006

    Sent
      Via Fax (202) 772-9369

    United
      States Securities and Exchange Commission

    Division
      of Corporate Finance

    100F
      Street, N.E.

    Washington,
      D.C. 20549-7010

    Attn:
      Jennifer Gallagher

    Re:
      U.S.
      Energy Corp.

    Post-Effective
      Amendment No. 1 to Form S-1

    Filed
      October 25, 2005

    File
      No.
      333-115477

    Form
      10-Q
      for the Period Ended September 20, 2005

    Filed
      November 14, 2005

    Supplemental
      Information

    Dear
      Ms.
      Gallagher;

    Our
      outside SEC counsel, Mr. Steve Rounds, notified me yesterday that you and Karl
      Hiller had visited with him regarding our response letter of February 21, 2006.
      Mr. Rounds indicated that you had requested that we prepare a schedule detailing
      out the net gain for U.S. Energy Corp., Crested Corp. and Yellowstone Fuels
      Inc.
      from the sale of Rocky Mountain Gas on June 1, 2005. Additionally Mr. Rounds
      indicated that you would like to see what the employees, directors and others
      were paid out of the total $20 million in compensation paid by
      Enterra.

    Please
      find the table you requested attached to this letter. You will see that the
      total compensation paid was $19,999,970 which accounts for a $30 wire transfer
      fee that RMG paid when the initial $500,000 cash was wired in from Canada.
      You
      will see that the total consolidated compensation received by U. S. Energy
      was
      $18,904,313 less (1) the buy out of an over riding royalty of $266,000, (2)
      book
      basis of $2,869,944, (3) the 10% discount taken on the Acquisition Class D
      shares of $1,178,596 and (4) income taxes of $235,000 for a net gain on the
      disposal of Rocky Mountain Gas of $14,354,876.

            United States Securities and Exchange Commission

          U.S. Energy Corp. - Post Effective Amendment No 1 to From S-1

          March 16, 2006

          Page 2 of 3

    Crested
      recognized a gain of $5,292,184 on the sale of Rocky Mountain Gas while
      Yellowstone Fuels Inc. recorded a net book loss of $360,794.

    All
      of
      the Enterra Initial Units that were received by U.S. Energy and Crested were
      sold during the third quarter of 2005. Yellowstone Fuels still holds its Enterra
      Initial Units. The Class D shares in Acquisitions are convertible automatically
      on a one to one basis at June 1, 2006 into Enterra units. It currently is
      management’s plans to sell the Class D shares as quickly as possible after June
      1, 2006 without disrupting the market for the security. U.S. Energy, Crested
      and
      Yellowstone Fuels have no control over Enterra Acquisitions, do not give
      direction to Acquisitions or to Enterra and are only shareholders of the Class
      D
      shares, and do not participate in any manner in other assets which Acquisitions
      has acquired or may acquire in the future. We are not entitle do dividends
      or
      other distributions on the Class D shares. We only will be entitled to dividends
      on the Enterra units as paid from June 1, 2006.

    On
      a
      related matter, Mr. Rounds said that you inquired about the other business
      activities of Acquisitions. We are not kept informed of Enterra’s activities
      either generally or with specific reference to Acquisitions. However, as a
      result of your discussion with Mr. Rounds, we have reviewed some of the many
      Form 6-K filings made by Enterra Energy Trust in the third quarter 2005 and
      first quarter 2006. For example, the Form 6-K filed on March 3, 2006 discloses
      that Enterra, through Acquisitions, was in the process of closing a US $249
      million acquisition of Oklahoma oil and gas properties. The precise terms of
      the
      transaction (e.g. when the Acquisitions equity is exchangeable into Enterra
      units) are not disclosed. Enterra also apparently runs acquisitions through
      other entities - an example appears to be Rocky Mountain Acquisition Corp.
      (not
      to be confused with our sold subsidiary Rocky Mountain Gas, Inc.). Enterra’s
      Form 6-K of October 25, 2005 discloses that a holder of ‘Enterra Energy Corp.’
or RMAC exchangeable shares can convert to Enterra units at any time. But all
      of
      these other activities are of limited interest to us: To the extent Enterra’s
      acquisitions are profitable, the value of its units may increase, but again,
      we
      have no participation rights in Acquisitions or the other Enterra subsidiaries.
      As a final note, also as relayed to us by Mr. Rounds, in response to your
      question on Enterra’s dividend policy (or distribution policy, as the entity is
      a trust) Enterra’s Form 6-K of October 25, 2005 stated that the original monthly
      distribution rate was US$0.10 per unit; at January 15, 2005, the rate was
      increased to US $0.14.

    The
      second issue that Mr. Rounds indicated that you had discussed was the fact
      that
      we have just discovered that we are going to have to amend our Form 10-Q’s for
      the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005 due
      to
      an inadvertent error we made in booking a convertible debt facility which we
      entered into on February 4, 2005. At the time the transaction was closed we
      did
      research, sought counsel from our outside auditors as well as an additional
      audit firm as to how the transaction should be booked.

          United States Securities and Exchange Commission

          U.S. Energy Corp. - Post Effective Amendment No 1 to From S-1

          March 16, 2006

          Page 2 of 3

            We
      recognized the
      appropriate discount on the fair value of the warrants which were issued in
      conjunction with the $4,720,000 debt facility. The item which we overlooked
      was
      the intrinsic value of the Beneficial Conversion Feature. During the course
      of
      closing our books and records for the year and consultations with our auditors,
      we became aware that EITF 98-5 had not been complied with as we had not
      correctly calculated the beneficial conversion feature. We had not considered
      that fair value of the warrants had not been deducted from the face amount
      of
      the debt in determining whether a beneficial conversion feature
      existed.

    We
      voluntarily have discussed the issue with our outside auditors and have agreed
      to amend our quarterly filings as indicated above. The entire amount of the
      convertible debt was converted to common stock during the year ended December
      31, 2005 so the entire amount of the beneficial conversion feature is to be
      amortized as interest expense during the year ended December 31, 2005. The
      non
      cash adjustments to income will be $15,400 in the quarter ended March 31, 2005,
      $1,543,200 for the quarter ended June 30, 2005 and $110,900 for the quarter
      ended September 30, 2005. We plan on filing these amended Form 10-Q’s at the
      same time we file our Form 10K.

    To
      avoid
      these types of issues in the future we continue to send our staff members to
      SEC
      and accounting training sessions annually. We also have subscribed to the RIA
      Checkpoint software which gives us updated information as well as gives us
      the
      opportunity of doing more comprehensive research. Lastly we have requested
      that
      our outside auditors perform more extensive procedures each quarter as a part
      of
      their reviews of our interim financial information.

    Should
      you wish to discuss these matters further you can reach me at (307) 856-9271
      or
      Mr. Rounds at (303) 377-6997. We would like to resolve these issues so we can
      move forward with our filings on a timely basis. Your assistance is greatly
      appreciated.

    Sincerely,

    Robert
      Scott Lorimer,

    CFO/V.P.
      Finance

    cc.  Steve
      Rounds

       Daniel
      P.
      Svilar

       Mark
      Weber