----

| x      | Quarterly                report pursuant to section 13 or 15(d) of the Securities Exchange                Act of                1934  |
|--------|---------------------------------------------------------------------------------------------------------------------------------------|
|   | For                the quarter ended September 30, 2006 or                                                                            |
|   |                                                                                                                                  |
| o      | Transition                report pursuant to section 13 or 15(d) of the Securities Exchange                Act of                1934 |
|   | For                the transition period from ___________ to                ____________                                              |

| **U.S.                ENERGY CORP.**                                              |
|-----------------------------------------------------------------------------------|
| (Exact                Name of Company as Specified in its                Charter) |

| **Wyoming**                                                     |   | **83-0205516**                     |
|-----------------------------------------------------------------|--------|------------------------------------|
| (State                or other jurisdiction of                  |   | (I.R.S.                Employer    |
| incorporation                or organization)                   |   | Identification                No.) |
|                                                            |   |                               |
| **877                North 8****th****West, Riverton, WY**      |   | **82501**                          |
| (Address                of principal executive offices)         |   | **(Zip                Code)**      |
|                                                            |   |                               |
| Company's                telephone number, including area code: |   | **(307)                856-9271**  |

| Not                Applicable                                                                    |
|--------------------------------------------------------------------------------------------------|
| Former                name, address and fiscal year, if changed since last                report |

----

| Class                                       |   | Outstanding                Shares at November 14, 2006 |
|---------------------------------------------|--------|--------------------------------------------------------|
| Common                stock, $.01 par value |   | 19,704,434                                             |

----

**U.S.      ENERGY CORP. and SUBSIDIARIES**

**INDEX**

|                        |                                                                                                                                                                     | Page                No.     |
|-----------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------|
| **PART                I.**  | **FINANCIAL                INFORMATION**                                                                                                                                 |                        |
|                        |                                                                                                                                                                     |                        |
| ITEM                1.      | Financial                Statements.                                                                                                                                     |                        |
|                        |                                                                                                                                                                     |                        |
|                        | Condensed                Consolidated Balance Sheets September 30, 2006 (unaudited) and December                31, 2005 (audited)                                       | 4-5                         |
|                        |                                                                                                                                                                     |                        |
|                        | Condensed                Consolidated Statements of Operations for the Three and Nine Months                Ended                September 30, 2006 and 2005 (unaudited) | 6-7                         |
|                        |                                                                                                                                                                     |                        |
|                        | Condensed                Consolidated Statements of Cash Flows for the Three and Nine Months                Ended                September 30, 2006 and 2005 (unaudited) | 8-10                        |
|                        |                                                                                                                                                                     |                        |
|                        | Notes                to Condensed Consolidated Financial Statements (unaudited)                                                                                          | 11-22                       |
|                        |                                                                                                                                                                     |                        |
| ITEM                2.      | Management’s                Discussion and Analysis of Financial Condition and Results of                Operations                                                | 23-39                       |
|                        |                                                                                                                                                                     |                        |
| ITEM                3.      | Quantitative                and Qualitative Disclosures about Market Risk                                                                                                | 40-41                       |
|                        |                                                                                                                                                                     |                        |
| ITEM                4.      | Controls                and Procedures                                                                                                                                   | 42                          |
|                        |                                                                                                                                                                     |                        |
| **PART                II.** | **OTHER                INFORMATION**                                                                                                                                     |                        |
|                        |                                                                                                                                                                     |                        |
| ITEM                1.      | Legal                Proceedings                                                                                                                                         | 43-45                       |
|                        |                                                                                                                                                                     |                        |
| ITEM                2.      | Changes                in Securities and Use of Proceeds                                                                                                                 | 45                          |
|                        |                                                                                                                                                                     |                        |
| ITEM                3.      | Defaults                Upon Senior Securities                                                                                                                           | 45                          |
|                        |                                                                                                                                                                     |                        |
| ITEM                4.      | Submission                of Matters to a Vote of Shareholders                                                                                                           | 45                          |
|                        |                                                                                                                                                                     |                        |
| ITEM                5.      | Other                Information                                                                                                                                         | 45                          |
|                        |                                                                                                                                                                     |                        |
| ITEM                6.      | Exhibits                and Reports on Form 8-K                                                                                                                          | 46                          |
|                        |                                                                                                                                                                     |                        |
|                        | Signatures                                                                                                                                                               | 47                          |
|                        |                                                                                                                                                                     |                        |
|                        | Certifications                                                                                                                                                           | See                Exhibits |

----

**PART      I. FINANCIAL INFORMATION**

**ITEM      1. Financial Statements**

| **U.S.                  ENERGY CORP. AND SUBSIDIARIES**                        |   |
|--------------------------------------------------------------------------------|--------|
| **CONDENSED                  CONSOLIDATED BALANCE SHEETS**                     |   |
| **ASSETS**                                                                     |   |
|                                                                           |   |   |   |   |   |
|                                                                           |   | September                  30, |   | December                  31, |   |
|                                                                           |   | 2006 |   | 2005 |   |
|                                                                           |   | (Unaudited) |   |   |   |
| CURRENT                  ASSETS:                                               |   |   |   |   |   |
| Cash                  and cash equivalents                                     |   | $ | 20,290,400 |   | $ | 6,998,700 |   |
| Marketable                  securities                                         |   |   |   |   |   |   |   |
| Trading                  securities                                       |   |   | 149,300 |   |   | -- |   |
| Held                  for resale securities                               |   |   | 590,900 |   |   | 328,700 |   |
| Accounts                  receivable                                           |   |   |   |   |   |   |   |
| Trade,                  net of allowance of $0 and $32,300, respectively  |   |   | 238,100 |   |   | 251,400 |   |
| Affiliates                                                                |   |   | 126,300 |   |   | 14,100 |   |
| Prepaid                  expenses and other current assets                     |   |   | 173,200 |   |   | 215,000 |   |
| Inventories                                                                    |   |   | 37,500 |   |   | 32,700 |   |
| Total                  current assets                                     |   |   | 21,605,700 |   |   | 7,840,600 |   |
|                                                                           |   |   |   |   |   |   |   |
| INVESTMENTS:                                                                   |   |   |   |   |   |   |   |
| Non-affiliated                  companies                                      |   |   | -- |   |   | 14,760,800 |   |
| Marketable                  securities, held-to-maturity                       |   |   | 6,753,100 |   |   | 6,761,200 |   |
| Other                                                                          |   |   | 54,900 |   |   | 54,900 |   |
| Total                  investments                                        |   |   | 6,808,000 |   |   | 21,576,900 |   |
|                                                                           |   |   |   |   |   |   |   |
| PROPERTIES                  AND EQUIPMENT:                                     |   |   | 14,801,200 |   |   | 13,847,600 |   |
| Less                  accumulated depreciation,                                |   |   |   |   |   |   |   |
| depletion                  and amortization                               |   |   | (7,333,000 | ) |   | (7,481,800 | ) |
| Net                  properties and equipment                             |   |   | 7,468,200 |   |   | 6,365,800 |   |
|                                                                           |   |   |   |   |   |   |   |
| OTHER                  ASSETS:                                                 |   |   |   |   |   |   |   |
| Note                  receivable trade                                         |   |   | 10,400 |   |   | 20,800 |   |
| Real                  estate held for resale                                   |   |   | 1,819,700 |   |   | 1,819,700 |   |
| Deposits                  and other                                            |   |   | 1,137,700 |   |   | 482,900 |   |
| Total                  other assets                                       |   |   | 2,967,800 |   |   | 2,323,400 |   |
| Total                  assets                                                  |   | $ | 38,849,700 |   | $ | 38,106,700 |   |
|                                                                           |   |   |   |   |   |   |   |

----

| **U.S.                  ENERGY CORP. AND SUBSIDIARIES**          |   |
|------------------------------------------------------------------|--------|
| **CONDENSED                  CONSOLIDATED BALANCE SHEETS**       |   |
| **LIABILITIES                  AND SHAREHOLDERS' EQUITY**        |   |
|                                                             |   |   |   |   |   |
|                                                             |   | September                  30, |   | December                  31, |   |
|                                                             |   | 2006 |   | 2005 |   |
|                                                             |   | (Unaudited) |   |   |   |
| CURRENT                  LIABILITIES:                            |   |   |   |   |   |
| Accounts                  payable                                |   | $ | 365,300 |   | $ | 433,000 |   |
| Accrued                  compensation expense                    |   |   | 1,208,100 |   |   | 177,100 |   |
| Current                  portion of asset retirement obligations |   |   | 233,200 |   |   | 233,200 |   |
| Current                  portion of long-term debt               |   |   | 207,500 |   |   | 156,500 |   |
| Other                  current liabilities                       |   |   | 2,971,500 |   |   | 232,400 |   |
| Total                  current liabilities                  |   |   | 4,985,600 |   |   | 1,232,200 |   |
|                                                             |   |   |   |   |   |   |   |
| LONG-TERM                  DEBT, net of current portion          |   |   | 1,042,400 |   |   | 880,300 |   |
|                                                             |   |   |   |   |   |   |   |
| ASSET                  RETIREMENT OBLIGATIONS,                   |   |   |   |   |   |   |   |
| net                  of current portion                          |   |   | 6,330,800 |   |   | 5,669,000 |   |
|                                                             |   |   |   |   |   |   |   |
| OTHER                  ACCRUED LIABILITIES                       |   |   | 1,641,700 |   |   | 1,400,500 |   |
|                                                             |   |   |   |   |   |   |   |
| MINORITY                  INTERESTS                              |   |   | 5,204,500 |   |   | 1,767,500 |   |
|                                                             |   |   |   |   |   |   |   |
| COMMITMENTS                  AND CONTINGENCIES                   |   |   |   |   |   |   |   |
|                                                             |   |   |   |   |   |   |   |
| FORFEITABLE                  COMMON STOCK, $.01 par value        |   |   |   |   |   |   |   |
| 297,540                  and 442,740 shares issued, respectively |   |   |   |   |   |   |   |
| forfeitable                  until earned                        |   |   | 1,746,600 |   |   | 2,599,000 |   |
|                                                             |   |   |   |   |   |   |   |
| PREFERRED                  STOCK,                                |   |   |   |   |   |   |   |
| $.01                  par value; 100,000 shares authorized       |   |   |   |   |   |   |   |
| No                  shares issued or outstanding                 |   |   | -- |   |   | -- |   |
|                                                             |   |   |   |   |   |   |   |
| SHAREHOLDERS'                  EQUITY:                           |   |   |   |   |   |   |   |
| Common                  stock, $.01 par value;                   |   |   |   |   |   |   |   |
| unlimited                  shares authorized; 19,536,827    |   |   |   |   |   |   |   |
| and                  18,825,134 shares issued net of        |   |   |   |   |   |   |   |
| treasury                  stock, respectively               |   |   | 195,400 |   |   | 188,200 |   |
| Additional                  paid-in capital                      |   |   | 71,677,500 |   |   | 68,005,600 |   |
| Accumulated                  deficit                             |   |   | (50,433,800 | ) |   | (40,154,100 | ) |
| Treasury                  stock at cost,                         |   |   |   |   |   |   |   |
| 1,004,174                  and 999,174 shares respectively  |   |   | (2,923,500 | ) |   | (2,892,900 | ) |
| Unrealized                  loss on marketable securities        |   |   | (127,000 | ) |   | (98,100 | ) |
| Unallocated                  ESOP contribution                   |   |   | (490,500 | ) |   | (490,500 | ) |
| Total                  shareholders' equity                 |   |   | 17,898,100 |   |   | 24,558,200 |   |
| Total                  liabilities and shareholders' equity      |   | $ | 38,849,700 |   | $ | 38,106,700 |   |
|                                                             |   |   |   |   |   |   |   |

----

| **U.S.                  ENERGY CORP. AND SUBSIDIARIES**              |   |
|----------------------------------------------------------------------|--------|
| **CONDENSED                  CONSOLIDATED STATEMENTS OF OPERATIONS** |   |
| **(Unaudited)**                                                      |   |
|                                                                 |   |   |   |   |   |   |   |   |   |
|                                                                 |   | Three                  months ended September 30, |   | Nine                  months ended September 30, |   |
|                                                                 |   | 2006 |   | 2005 |   | 2006 |   | 2005 |   |
| OPERATING                  REVENUES:                                 |   |   |   |   |   |   |   |   |   |
| Real                  estate operations                         |   | $ | 35,000 |   | $ | 60,700 |   | $ | 137,800 |   | $ | 217,900 |   |
| Management                  fees and other                      |   |   | 246,100 |   |   | 106,400 |   |   | 468,200 |   |   | 474,100 |   |
|                                                                 |   |   | 281,100 |   |   | 167,100 |   |   | 606,000 |   |   | 692,000 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| OPERATING                  COSTS AND EXPENSES:                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real                  estate operations                         |   |   | 85,200 |   |   | 76,400 |   |   | 221,500 |   |   | 211,800 |   |
| Mineral                  holding costs                          |   |   | 1,078,900 |   |   | 565,000 |   |   | 2,262,300 |   |   | 1,234,900 |   |
| General                  and administrative                     |   |   | 5,593,000 |   |   | 1,007,300 |   |   | 10,509,000 |   |   | 4,331,800 |   |
|                                                                 |   |   | 6,757,100 |   |   | 1,648,700 |   |   | 12,992,800 |   |   | 5,778,500 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| OPERATING                  LOSS                                      |   |   | (6,476,000 | ) |   | (1,481,600 | ) |   | (12,386,800 | ) |   | (5,086,500 | ) |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| OTHER                  INCOME & (EXPENSES):                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gain                  on sales of assets                        |   |   | 240,000 |   |   | 1,219,900 |   |   | 3,063,500 |   |   | 1,229,400 |   |
| (Loss)                  gain on sale of marketable securities   |   |   | (860,500 | ) |   | 1,038,500 |   |   | (860,500 | ) |   | 1,038,500 |   |
| Gain                  on sale of investment                     |   |   | 10,869,800 |   |   | -- |   |   | 10,842,300 |   |   | 117,700 |   |
| (Loss)                  gain from valuation of derivatives      |   |   | -- |   |   | 727,900 |   |   | (630,900 | ) |   | 4,194,300 |   |
| Loss                  from Enterra share exchange               |   |   | -- |   |   | -- |   |   | (3,845,800 | ) |   | -- |   |
| Settlement                  of litagation                       |   |   | (7,000,000 | ) |   | -- |   |   | (7,000,000 | ) |   | -- |   |
| Dividends                                                       |   |   | 136,600 |   |   | 43,400 |   |   | 141,600 |   |   | 43,400 |   |
| Interest                  income                                |   |   | 168,200 |   |   | 50,800 |   |   | 418,200 |   |   | 241,200 |   |
| Interest                  expense                               |   |   | (40,500 | ) |   | (467,100 | ) |   | (97,600 | ) |   | (4,099,100 | ) |
|                                                                 |   |   | 3,513,600 |   |   | 2,613,400 |   |   | 2,030,800 |   |   | 2,765,400 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (LOSS)                  GAIN BEFORE MINORITY INTEREST,               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| DISCONTINUED                  OPERATIONS AND                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| PROVISION                  FOR INCOME TAXES                     |   |   | (2,962,400 | ) |   | 1,131,800 |   |   | (10,356,000 | ) |   | (2,321,100 | ) |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| MINORITY                  INTEREST IN LOSS OF                        |   |   |   |   |   |   |   |   |   |   |   |   |   |
| CONSOLIDATED                  SUBSIDIARIES                      |   |   | 28,700 |   |   | 96,800 |   |   | 76,300 |   |   | 458,200 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (LOSS)                  GAIN BEFORE DISCONTINUED                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| OPERATIONS                  AND PROVISION                       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FOR                  INCOME TAXES                               |   |   | (2,933,700 | ) |   | 1,228,600 |   |   | (10,279,700 | ) |   | (1,862,900 | ) |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| DISCONTINUED                  OPERATIONS, net of taxes               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gain                  (loss) on sale of discontinued segment    |   |   | -- |   |   | (188,100 | ) |   | -- |   |   | 15,533,500 |   |
| Loss                  from discontinued operations              |   |   | -- |   |   | -- |   |   | -- |   |   | (326,100 | ) |
|                                                                 |   |   | -- |   |   | (188,100 | ) |   | -- |   |   | 15,207,400 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (LOSS)                  GAIN BEFORE PROVISION FOR                    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| INCOME                  TAXES                                   |   |   | (2,933,700 | ) |   | 1,040,500 |   |   | (10,279,700 | ) |   | 13,344,500 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| **U.S.                  ENERGY CORP. AND SUBSIDIARIES**              |   |
|----------------------------------------------------------------------|--------|
| **CONDENSED                  CONSOLIDATED STATEMENTS OF OPERATIONS** |   |
| **                     (Unaudited)**                  |   |
|                                                                 |   |   |   |   |   |   |   |   |   |
|                                                                 |   | Three                  months ended September 30, |   | Nine                  months ended September 30, |   |
|                                                                 |   | 2006 |   | 2005 |   | 2006 |   | 2005 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |
| PROVISION                  FOR INCOME TAXES                          |   |   | -- |   |   | -- |   |   | -- |   |   | -- |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NET                  (LOSS) GAIN                                     |   | $ | (2,933,700 | ) | $ | 1,040,500 |   | $ | (10,279,700 | ) | $ | 13,344,500 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| PER                  SHARE DATA                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
|  Loss                  from continuing operations               |   | $ | (0.16 | ) | $ | 0.07 |   | $ | (0.56 | ) | $ | (0.12 | ) |
|  (Loss)                  gain from discontinued operations      |   |   | -- |   | $ | (0.01 | ) |   | -- |   | $ | 0.97 |   |
|                                                                 |   | $ | (0.16 | ) | $ | 0.06 |   | $ | (0.56 | ) | $ | 0.85 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BASIC                  WEIGHTED AVERAGE                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SHARES                  OUTSTANDING                             |   |   | 18,367,198 |   |   | 17,229,336 |   |   | 18,283,573 |   |   | 15,681,519 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |
| DILUTED                  WEIGHTED AVERAGE                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| SHARES                  OUTSTANDING                             |   |   | 18,809,938 |   |   | 19,160,917 |   |   | 18,283,573 |   |   | 16,124,259 |   |
|                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| **U.S.                  ENERGY CORP. AND SUBSIDIARIES**              |
|----------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED STATEMENTS OF CASH FLOWS** |   |
| **(Unaudited)**                                                      |   |
|                                                                 |   |   |   |   |   |
|                                                                 |   | Nine                  months ended September 30, |   |
|                                                                 |   | 2006 |   | 2005 |   |
| CASH                  FLOWS FROM OPERATING ACTIVITIES:               |   |   |   |   |   |
| Net                  (loss) gain                                     |   | $ | (10,279,700 | ) | $ | 13,344,500 |   |
| Adjustments                  to reconcile net (loss) gain            |   |   |   |   |   |   |   |
| to                  net cash used in operating activities:           |   |   |   |   |   |   |   |
| Minority                  interest in loss of                        |   |   |   |   |   |   |   |
| consolidated                  subsidiaries                      |   |   | (76,300 | ) |   | (458,200 | ) |
| Amortization                  of deferred charge                     |   |   | -- |   |   | 441,300 |   |
| Depreciation                                                         |   |   | 380,700 |   |   | 289,100 |   |
| Accretion                  of asset                                  |   |   |   |   |   |   |   |
| retirement                  obligations                         |   |   | 578,400 |   |   | 275,000 |   |
| Initial                  valuation of asset                          |   |   |   |   |   |   |   |
| retirement                  obligation                          |   |   | 83,400 |   |   | -- |   |
| Amortization                  of debt discount                       |   |   | -- |   |   | 3,136,100 |   |
| Noncash                  interest expense                            |   |   | -- |   |   | 720,000 |   |
| (Gain)                  on sale of assets                            |   |   | (3,063,500 | ) |   | (890,600 | ) |
| Loss                  on valuation of Enterra units                  |   |   | 3,845,800 |   |   | -- |   |
| Loss                  (gain) on valuation of derivatives             |   |   | 630,900 |   |   | (4,194,300 | ) |
| Gain                  on sale of discontinued segment                |   |   | -- |   |   | (15,533,500 | ) |
| Loss                  (gain) on sale of marketable securities        |   |   | 860,500 |   |   | (1,156,200 | ) |
| Proceeds                  from the sale of trading securities        |   |   | 8,304,300 |   |   | -- |   |
| Gain                  on sale of Pinnacle Resources                  |   |   | (10,842,300 | ) |   | -- |   |
| Noncash                  compensation                                |   |   | 1,481,200 |   |   | 270,900 |   |
| Noncash                  services                                    |   |   | 670,200 |   |   | 35,600 |   |
| Net                  changes in assets and liabilities:              |   |   | 1,295,300 |   |   | (178,600 | ) |
| NET                  CASH USED IN                                    |   |   |   |   |   |   |   |
| OPERATING                  ACTIVITIES                                |   |   | (6,131,100 | ) |   | (3,898,900 | ) |
|                                                                 |   |   |   |   |   |   |   |
| CASH                  FLOWS FROM INVESTING ACTIVITIES:               |   |   |   |   |   |   |   |
| Proceeds                  from sale of marketable securities         |   |   | 491,600 |   |   | 5,916,600 |   |
| Sale                  of RMG                                         |   |   | -- |   |   | (270,000 | ) |
| Proceeds                  from sale of investments                   |   |   | 13,800,000 |   |   | 117,700 |   |
| Acquisition                  of unproved mining claims               |   |   | (644,800 | ) |   | (602,600 | ) |
| Proceeds                  on sale of property and equipment          |   |   | 2,410,400 |   |   | 925,200 |   |
| Purchase                  of property and equipment                  |   |   | (599,800 | ) |   | (361,600 | ) |
| Investment                  in marketable securities                 |   |   | -- |   |   | (338,800 | ) |
| Net                  change in restricted investments                |   |   | 8,100 |   |   | 111,500 |   |
| Net                  change in notes receivable                      |   |   | (20,200 | ) |   | 500 |   |
| Net                  change in investments in affiliates             |   |   | 30,600 |   |   | -- |   |
| NET                  CASH PROVIDED BY                                |   |   |   |   |   |   |   |
| BY                  INVESTING ACTIVITIES                             |   |   | 15,475,900 |   |   | 5,498,500 |   |
|                                                                 |   |   |   |   |   |   |   |

----

| **U.S.                  ENERGY CORP. AND SUBSIDIARIES**              |
|----------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED STATEMENTS OF CASH FLOWS** |
| **(Unaudited)**                                                      |
|                                                                 |   |   |   |   |   |
|                                                                 |   | Nine                  months ended September 30, |
|                                                                 |   | 2006 |   | 2005 |   |
| CASH                  FLOWS FROM FINANCING ACTIVITIES:               |   |   |   |   |   |
| Issuance                  of common stock                            |   | $ | 915,900 |   | $ | 2,834,900 |   |
| Issuance                  of subsidiary stock                        |   |   | 3,173,700 |   |   | -- |   |
| Proceeds                  from long term debt                        |   |   | 184,300 |   |   | 3,764,900 |   |
| Repayments                  of long term debt                        |   |   | (327,000 | ) |   | (3,285,000 | ) |
| NET                  CASH PROVIDED BY                                |   |   |   |   |   |   |   |
| FINANCING                  ACTIVITIES                                |   |   | 3,946,900 |   |   | 3,314,800 |   |
|                                                                 |   |   |   |   |   |   |   |
| Net                  cash used in operating activities of            |   |   |   |   |   |   |   |
| discontinued                  operations                             |   |   | -- |   |   | (453,500 | ) |
| Net                  cash used in investing activities of            |   |   |   |   |   |   |   |
| discontinued                  operations                             |   |   | -- |   |   | (215,000 | ) |
| Net                  cash used in financing activities of            |   |   |   |   |   |   |   |
| discontinued                  operations                             |   |   | -- |   |   | (8,500 | ) |
|                                                                 |   |   |   |   |   |   |   |
| NET                  INCREASE IN                                     |   |   |   |   |   |   |   |
| CASH                  AND CASH EQUIVALENTS                           |   |   | 13,291,700 |   |   | 4,237,400 |   |
|                                                                 |   |   |   |   |   |   |   |
| CASH                  AND CASH EQUIVALENTS                           |   |   |   |   |   |   |   |
| AT                  BEGINNING OF PERIOD                              |   |   | 6,998,700 |   |   | 3,842,500 |   |
|                                                                 |   |   |   |   |   |   |   |
| CASH                  AND CASH EQUIVALENTS                           |   |   |   |   |   |   |   |
| AT                  END OF PERIOD                                    |   | $ | 20,290,400 |   | $ | 8,079,900 |   |
|                                                                 |   |   |   |   |   |   |   |
| SUPPLEMENTAL                  DISCLOSURES:                           |   |   |   |   |   |   |   |
| Income                  tax paid                                     |   | $ | -- |   | $ | -- |   |
|                                                                 |   |   |   |   |   |   |   |
| Interest                  paid                                       |   | $ | 97,600 |   | $ | 242,800 |   |
|                                                                 |   |   |   |   |   |   |   |

----

| **U.S.                  ENERGY CORP. AND SUBSIDIARIES**              |
|----------------------------------------------------------------------|
| **CONDENSED                  CONSOLIDATED STATEMENTS OF CASH FLOWS** |
| **(Unaudited)**                                                      |
|                                                                 |   |   |   |   |   |
|                                                                 |   | Nine                  months ended September 30, |   |
|                                                                 |   | 2006 |   | 2005 |   |
| NON-CASH                  INVESTING AND FINANCING ACTIVITIES:        |   |   |   |   |   |   |   |
| Conversion                  of Enterra shares                        |   |   |   |   |   |   |   |
| to                  tradable units                                   |   | $ | 13,880,100 |   | $ | -- |   |
|                                                                 |   |   |   |   |   |   |   |
| Issuance                  of stock warrants in                       |   |   |   |   |   |   |   |
| conjunction                  with agreements                         |   | $ | 727,300 |   | $ | -- |   |
|                                                                 |   |   |   |   |   |   |   |
| Acquisition                  of assets                               |   |   |   |   |   |   |   |
| through                  issuance of debt                            |   | $ | 355,800 |   | $ | 113,400 |   |
|                                                                 |   |   |   |   |   |   |   |
| Unrealized                  loss/gain                                |   | $ | 42,200 |   | $ | -- |   |
|                                                                 |   |   |   |   |   |   |   |
| Satisfaction                  of receivable - employee               |   |   |   |   |   |   |   |
| with                  stock in company                               |   | $ | 30,600 |   | $ | 20,500 |   |
|                                                                 |   |   |   |   |   |   |   |
| Issuance                  of stock warrants in                       |   |   |   |   |   |   |   |
| conjunction                  with debt                               |   | $ | -- |   | $ | 1,226,200 |   |
|                                                                 |   |   |   |   |   |   |   |
| Issuance                  of stock as conversion of                  |   |   |   |   |   |   |   |
| subsidiary                  stock                                    |   | $ | -- |   | $ | 499,700 |   |
|                                                                 |   |   |   |   |   |   |   |
| Issuance                  of stock for services                      |   | $ | -- |   | $ | 35,600 |   |
|                                                                 |   |   |   |   |   |   |   |
| Issuance                  of stock to satisfy debt                   |   | $ | -- |   | $ | 4,000,000 |   |
|                                                                 |   |   |   |   |   |   |   |

----

**U.S.            ENERGY CORP. & SUBSIDIARIES**

**Notes            to Condensed Consolidated Financial Statements**
**            (Unaudited)**

*5)*

----

**U.S.              ENERGY CORP. & SUBSIDIARIES**

**Notes              to Condensed Consolidated Financial Statements**
**              (Unaudited)**

|                                                                                                                                                               |   | Nine                  Months Ended |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|------------|
|                                                                                                                                                               |   | September                  30,     |       |
|                                                                                                                                                               |   | 2005                               |       |
|                                                                                                                                                               |   |                               |       |
| Net                  gain                                                                                                                                          |   | $                                  | 13,344,500 |   |
| Deduct:                                                                                                                                                            |   |                               |       |   |
| Stock-based                  employee compensation determined under fair value method for all                  awards,                  net of related tax effects |   | $                                  | (311,100   | ) |
|                                                                                                                                                               |   |                               |       |   |
| Net                  income available to common stockholders - pro forma                                                                                           |   | $                                  | 13,033,400 |   |
|                                                                                                                                                               |   |                               |       |   |
| Basic                  gain per share as reported                                                                                                                  |   | $                                  | 0.85       |   |
| Diluted                  gain per share as reported                                                                                                                |   | $                                  | 0.83       |   |
| Basic                  gain per share pro forma                                                                                                                    |   | $                                  | 0.83       |   |
| Diluted                  gain per share pro forma                                                                                                                  |   | $                                  | 0.81       |   |
|                                                                                                                                                               |   |                               |       |   |
| Weighted                  average basic common stock outstanding                                                                                                   |   | $                                  | 15,681,519 |   |
|                                                                                                                                                               |   |                               |       |   |
| Weighted                  average diluted common stock outstanding                                                                                                 |   | $                                  | 16,124,259 |   |
|                                                                                                                                                               |   |                               |       |   |

----

**U.S.                ENERGY CORP. & SUBSIDIARIES**

**Notes                to Condensed Consolidated Financial Statements**
**                (Unaudited)**

|                                           |   |   |       | Accumulated                    |   |                        |   |
|------------------------------------------------|--------|--------|------------|--------------------------------|--------|-----------------------------|--------|
|                                           |   |   |       | Amortization                   |   |                        |   |
|                                           |   |   |       | Depletion                  and |   | Net                         |   |
|                                           |   | Cost   |       | Depreciation                   |   | Book                  Value |   |
|                                           |   |   |       |                           |   |                        |   |
| Mining                  and oil properties     |   | $      | 3,129,400  |                           | $      | (1,773,600                  | )      | $ | 1,355,800 |   |
| Buildings,                  land and equipment |   |   | 11,671,800 |                           |   | (5,559,400                  | )      |   | 6,112,400 |   |
| Totals                                         |   | $      | 14,801,200 |                           | $      | (7,333,000                  | )      | $ | 7,468,200 |   |
|                                           |   |   |       |                           |   |                        |   |   |   |   |

|                                                      |   | Nine                  months ended September 30, |        |
|-----------------------------------------------------------|--------|--------------------------------------------------|-------------|
|                                                      |   | 2006                                             |        | 2005 |   |
| Net                  (loss) gain                          |   | $                                                | (10,279,700 | ) | $ | 13,344,500 |   |
|                                                      |   |                                             |        |   |   |   |   |
| Comprehensive                  loss from the              |   |                                             |        |   |   |   |   |
| unrealized                  loss on marketable securities |   |                                             | (127,000    | ) |   | (7,700 | ) |
|                                                      |   |                                             |        |   |   |   |   |
| Comprehensive                  loss                       |   | $                                                | (10,406,700 | ) | $ | 13,336,800 |   |
|                                                      |   |                                             |        |   |   |   |   |

|                               |   |   |    |                          |   | Unrealized |   |
|------------------------------------|--------|--------|---------|-------------------------------|--------|------------|--------|
|                               |   | Cost   |    | Market                  Value |   | Loss       |   |
| Equity                  Securities |   |   |    |                          |   |       |   |
| UPC                  shares        |   | $      | 677,700 |                          | $      | 550,700    |   | $ | (127,000 | ) |
| Dynasty                  shares    |   |   | 40,200  |                          |   | 40,200     |   | $ | - |   |
| Total                              |   | $      | 717,900 |                          | $      | 590,900    |   | $ | (127,000 | ) |
|                               |   |   |    |                          |   |       |   |   |   |   |

----

**U.S.            ENERGY CORP. & SUBSIDIARIES**

**Notes            to Condensed Consolidated Financial Statements**
**            (Unaudited)**

| Current                portion of long term debt for the purchase of aircraft, equipment                and                insurance policies at various interest rates and due dates |   | $      | 207,500   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|
|                                                                                                                                                                                  |   |   |      |   |
| Long                term portion of debt for the purchase of aircraft, equipment and                insurance                policies at various interest rates and due dates         |   |   | 1,042,400 |   |
|                                                                                                                                                                                  |   | $      | 1,249,900 |   |

----

**U.S.            ENERGY CORP. & SUBSIDIARIES**

**Notes            to Condensed Consolidated Financial Statements**
**            (Unaudited)**

|                                        |   | Nine                  months ended September 30, |      |
|---------------------------------------------|--------|--------------------------------------------------|-----------|
|                                        |   | 2006                                             |      | 2005 |   |
| Balance                  December 31, 2005  |   | $                                                | 5,902,200 |   | $ | 8,075,100 |   |
| Addition                  to Liability      |   |                                             | 83,400    |   |   | -- |   |
| Liability                  Settled          |   |                                             | --        |   |   | -- |   |
| Sale                  of RMG                |   |                                             | --        |   |   | (463,700 | ) |
| Accretion                  Expense          |   |                                             | 578,400   |   |   | 275,000 |   |
| Balance                  September 30, 2006 |   | $                                                | 6,564,000 |   | $ | 7,886,400 |   |
|                                        |   |                                             |           |   |   |   |   |

----

**U.S.            ENERGY CORP. & SUBSIDIARIES**

**Notes            to Condensed Consolidated Financial Statements**
**            (Unaudited)**

----

|                                                     |   |                          |       |   |   | Additional |   |
|----------------------------------------------------------|--------|-------------------------------|------------|--------|--------|------------|--------|
|                                                     |   | Common                  Stock |       |   |   | Paid-In    |   |
|                                                     |   | Shares                        |       | Amount |   | Capital    |   |
|                                                     |   |                          |       |   |   |       |   |
| Balance                  December 31, 2005               |   |                          | 18,825,134 |   | $      | 188,200    |   | $ | 68,005,600 |   |
|                                                     |   |                          |       |   |   |       |   |   |   |   |
| Stock                  issued to outside directors       |   |                          | 3,140      |   |   | 100        |   |   | 17,900 |   |
|                                                     |   |                          |       |   |   |       |   |   |   |   |
| 2001                  stock compensation plan            |   |                          | 45,000     |   |   | 400        |   |   | 239,300 |   |
|                                                     |   |                          |       |   |   |       |   |   |   |   |
| Exercise                  of options, net                |   |                          | 185,129    |   |   | 1,900      |   |   | 110,400 |   |
|                                                     |   |                          |       |   |   |       |   |   |   |   |
| Exercise                  of warrants                    |   |                          | 221,400    |   |   | 2,200      |   |   | 801,400 |   |
|                                                     |   |                          |       |   |   |       |   |   |   |   |
| Expense                  of employee options             |   |                          |       |   |   |       |   |   |   |   |
| vesting                                                  |   |                          | -          |   |   | -          |   |   | 273,600 |   |
|                                                     |   |                          |       |   |   |       |   |   |   |   |
| Forfeitable                  stock released for a former |   |                          |       |   |   |       |   |   |   |   |
| employee                                                 |   |                          | 145,200    |   |   | 1,500      |   |   | 850,900 |   |
|                                                     |   |                          |       |   |   |       |   |   |   |   |
| Stock                  issued for a professional service |   |                          |       |   |   |       |   |   |   |   |
| agreements                                               |   |                          | 111,824    |   |   | 1,100      |   |   | 635,200 |   |
|                                                     |   |                          |       |   |   |       |   |   |   |   |
| Value                  of company warrants issued        |   |                          |       |   |   |       |   |   |   |   |
| for                  a professional service agreement    |   |                          | -          |   |   | -          |   |   | 251,800 |   |
|                                                     |   |                          |       |   |   |       |   |   |   |   |
| Value                  of company warrants issued and    |   |                          |       |   |   |       |   |   |   |   |
| extended                                                 |   |                          | -          |   |   | -          |   |   | 508,100 |   |
|                                                     |   |                          |       |   |   |       |   |   |   |   |
| Valuation                  of Company warrants issued    |   |                          |       |   |   |       |   |   |   |   |
| for                  professional services               |   |                          | -          |   |   | -          |   |   | (16,700 | ) |
|                                                     |   |                          | 19,536,827 |   | $      | 195,400    |   | $ | 71,677,500 |   |
|                                                     |   |                          |       |   |   |       |   |   |   |   |

----

**U.S.            ENERGY CORP. & SUBSIDIARIES**

**Notes            to Condensed Consolidated Financial Statements**
**            (Unaudited)**

**Subsequent      Events**

**Lucky      Jack Molybdenum Property - Kobex Resources, Ltd.**

----

**U.S.            ENERGY CORP. & SUBSIDIARIES**

**Notes            to Condensed Consolidated Financial Statements**
**            (Unaudited)**

----

**U.S.            ENERGY CORP. & SUBSIDIARIES**

**Notes            to Condensed Consolidated Financial Statements**
**            (Unaudited)**

| Date                or                |   | Option  |      |         |   |
|---------------------------------------|--------|---------|-----------|--------------|--------|
| Anniversary*                          |   | Payment |      | Expenditures |   |
|                                  |   |    |      |         |   |
| 10                business days       |   |    |      |         |   |
| after                Effective Date** |   | $       | 1,450,000 |         |   | -0- |   |
|                                  |   |    |      |         |   |   |   |
| By                first anniversary   |   | $       | 500,000   |         | $      | 3,500,000 |   |
|                                  |   |    |      |         |   |   |   |
| By                second anniversary  |   | $       | 500,000   |         | $      | 5,000,000 |   |
|                                  |   |    |      |         |   |   |   |
| By                third anniversary   |   | $       | 500,000   |         | $      | 5,000,000 |   |
|                                  |   |    |      |         |   |   |   |
| By                fourth anniversary  |   | $       | 500,000   |         | $      | 2,500,000 |   |
|                                  |   |    |      |         |   |   |   |
| By                fifth anniversary   |   | $       | 500,000   |         |   | *** |   |
|                                  |   | $       | 3,950,000 |         | $      | 16,000,000 |   |

| *      | Anniversary                of Effective Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **     | If                paid in KBX stock, 10 business days after Canadian regulatory and                stock                exchange approval.                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| ***    | Delivery                of a bankable feasibility study (“BFS”) on the Property. If the total                Option Payments and Expenditures and costs to prepare the BFS are                less                than $50 million, KBX will pay U.S. Moly the difference in cash.                If the                total is more than $50 million before the BFS is completed, U.S.                Moly and                KBX each will pay 50% of the balance needed to complete the BFS. |

----

**U.S.            ENERGY CORP. & SUBSIDIARIES**

**Notes            to Condensed Consolidated Financial Statements**
**            (Unaudited)**

**Cancellation      of SEDA with Cornell Capital **

----

**U.S.            ENERGY CORP. & SUBSIDIARIES**

**Notes            to Condensed Consolidated Financial Statements**
**            (Unaudited)**

**Special      Committee of the Company Directors**

----

**ITEM      2. **
**Management's      Discussion and Analysis of Financial Condition and Results of      Operations**
**.**

**Overview      of Business**

**Uranium**

**Gold**

----

**Molybdenum**

| ·   | Whether                the Company can negotiate terms with industry partners which will                return a                substantial profit to the Company for its retained interest and the                project’s development costs to that point in                time. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Whether                a feasibility study will show volumes and grades of mineralization                and                manageable costs of mining, transportation and processing, which                are                sufficient to make a profit and to bring industry partners or other                investors to the point of further                investment. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Forward      Looking Statements**

**Critical      Accounting Policies**

*Asset      Impairments*

*Mineral      Claims*

----

*Asset      Retirement Obligations*

*Revenue      Recognition*

*Use      of Accounting Estimates*

*Income      Taxes*

*Marketable      Securities *

----

**Recent      Accounting Pronouncements**

**SFAS      123(R)**

**Liquidity      and Capital Resources**

----

----

**Capital      Resources**

----

----

**Capital      Requirements**

**Maintaining      Mineral Properties**

**Uranium      Properties**

**Sutter      Gold Mining Inc. (“Sutter”) Properties**

----

**Lucky      Jack Molybdenum Property**

**Debt      Payments**

**Reclamation      Costs**

----

**Other**

**Results      of Operations**

**Nine      Months Ended September 30, 2006 compared with the Nine Months Ended September      30, 2005**

----

----

**Nine      Months Ended September 30, 2005 compared with the Nine Months Ended September      30, 2004**

----

----

**Contractual      Obligations**

|                                         |   | Payments                  due by period |
|----------------------------------------------|--------|-----------------------------------------|
|                                         |   |                                    |   | Less |   | One                  to |   | Three                  to |   | More                  than |   |
|                                         |   |                                    |   | than                  one |   | Three |   | Five |   | Five |   |
|                                         |   | Total                                   |   | Year |   | Years |   | Years |   | Years |   |
| Long-term                  debt obligations  |   | $                                       | 1,249,900 |   | $ | 207,500 |   | $ | 978,000 |   | $ | 64,400 |   |   | - |   |
|                                         |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other                  long-term liabilities |   |                                    | 6,564,000 |   |   | 233,200 |   |   | 430,600 |   |   | 2,099,800 |   |   | 3,800,400 |   |
| Totals                                       |   | $                                       | 7,813,900 |   | $ | 440,700 |   | $ | 1,408,600 |   | $ | 2,164,200 |   | $ | 3,800,400 |   |
|                                         |   |                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

**Subsequent      Events**

**Lucky      Jack Molybdenum Property - Kobex Resources, Ltd.**

----

| Date                or                |   | Option  |      |         |   |
|---------------------------------------|--------|---------|-----------|--------------|--------|
| Anniversary*                          |   | Payment |      | Expenditures |   |
|                                  |   |    |      |         |   |
| 10                business days       |   |    |      |         |   |   |   |
| after                Effective Date** |   | $       | 1,450,000 |         |   | -0- |   |
|                                  |   |    |      |         |   |   |   |
| By                first anniversary   |   | $       | 500,000   |         | $      | 3,500,000 |   |
|                                  |   |    |      |         |   |   |   |
| By                second anniversary  |   | $       | 500,000   |         | $      | 5,000,000 |   |
|                                  |   |    |      |         |   |   |   |
| By                third anniversary   |   | $       | 500,000   |         | $      | 5,000,000 |   |
|                                  |   |    |      |         |   |   |   |
| By                fourth anniversary  |   | $       | 500,000   |         | $      | 2,500,000 |   |
|                                  |   |    |      |         |   |   |   |
| By                fifth anniversary   |   | $       | 500,000   |         |   | *** |   |
|                                  |   | $       | 3,950,000 |         | $      | 16,000,000 |   |

| *      | Anniversary                of Effective Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **     | If                paid in KBX stock, 10 business days after Canadian regulatory and                stock                exchange approval.                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| ***    | Delivery                of a bankable feasibility study (“BFS”) on the Property. If the total                Option Payments and Expenditures and costs to prepare the BFS are                less                than $50 million, KBX will pay U.S. Moly the difference in cash.                If the                total is more than $50 million before the BFS is completed, U.S.                Moly and                KBX each will pay 50% of the balance needed to complete the BFS. |

----

----

**Cancellation      of SEDA with Cornell Capital **

**Special      Committee of the Company Directors**

----

**ITEM      3. **
**Quantitative      and Qualitative Disclosures About Market Risk**

**Risk      Factors**
** **

**The      following risk factors should be considered in evaluating the information in      this Form 10-Q.**

**Uncertainties      in the value of the mineral properties**

| ·   | In                the event that Uranium One does not purchase our uranium assets,                the                Company and Crested will have to continue to pursue an equity or                industry                partner to assist in the development of the properties. Profitability                of                the uranium properties will depend on several factors which include                continued sustained higher prices for uranium oxide, cost controls                at the                Shootaring Canyon Mill and the surrounding uranium properties including                mining, transportation and milling of ores and successful financing                and                commencing refurbishment of the mill. Additional mineral properties                in the                vicinity of the Shootaring Canyon Mill or ore from contract miners                in the                area may need to be acquired to feed the                mill. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                profitable mining and processing of gold by Sutter will depend on                many                factors, including compliance with permit conditions; delineation                through                extensive drilling and sampling of sufficient volumes of mineralized                material, with sufficient grades, to make mining and processing economic                over time; continued sustained high prices for gold; and obtaining                the                capital required to initiate and sustain mining operations and build                and                operate a gold processing mill. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The                Lucky Jack molybdenum property has had extensive work conducted by                prior                owners, but this data will have to be updated to the level of a current                feasibility study to determine the viability of starting mining                operations. Obtaining mining and other permits to begin mining the                molybdenum property may be very difficult, and, like any mining operation,                capital requirements for a molybdenum mine/mill operation will be                substantial. There is a history of opposition by local government                entities                and environmental organizations to the prior owners seeking permits                to                mine this property. This opposition has been expressed in litigation                from                time to time. Continued legal challenges may delay putting the Lucky                Jack                property into production. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ·   | The                Company and Crested have not yet obtained feasibility studies on                any of                our mineral properties. These studies would establish the economic                viability, or not, of the different properties based on extensive                drilling                and sampling, the design and costs to build and operate mills, the                cost of                capital, and other factors. Feasibility studies can take many months                to                complete. These studies are conducted by professional third party                consulting and engineering firms, and will have to be completed,                at                considerable cost, to determine if the deposits contain proven reserves                (amounts of minerals in sufficient grades that can be extracted profitably                under current pricing assumptions for development and operating costs                and                commodity prices). A feasibility study usually must be completed                in order                to raise the substantial capital needed to put a property into production.                The Company and Crested have not established any reserves (economic                deposits of mineralized materials) on any of our molybdenum, uranium                or                gold properties, and future studies may indicate that some or all                of the                properties will not be economic to put into production. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Compliance      with environmental regulations may be costly**

**Possible      Dilution to Shareholders**

----

**ITEM      4. **
**Controls      and Procedures**

----

**PART      II. OTHER INFORMATION**

**ITEM      1. **
**Legal      Proceedings**

**Phelps      Dodge Corporation Litigation**

**Mt.      Emmons Patents Litigation**
** **

----

**Plateau      Resources Ltd. Christian Murer vs. Plateau Resources Limited,      Inc.**

**Enterra      Energy Trust Indemnification on Rocky Mountain Gas,      Inc.**

----

**ITEM      2. **
**Changes      in Securities and Use of Proceeds**

**ITEM      3. **
**Defaults      Upon Senior Securities**

**ITEM      4. **
**Submission      of Matter to a Vote of Shareholders**

**ITEM      5. **
**Other      Information**

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**ITEM      6. **
**Exhibits      and Reports on Form 8-K**

|   | (a)    | Exhibits.                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | 31.1                                                                                                                                                                                         | Certification                of Chief Executive Officer Pursuant to Rule 13a-15(e) / Rule                15d-15(e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   | 31.2                                                                                                                                                                                         | Certification                of Chief Financial Officer Pursuant to Rule 13a-14(a) / Rule                15(e)/15d-15(e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   | 32.1                                                                                                                                                                                         | Certification                of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as                adopted                by Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | 32.2                                                                                                                                                                                         | Certification                of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as                adopted                by Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |   | 10.1                                                                                                                                                                                         | Exclusivity                Agreement with sxr “Uranium One” Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   | 10.2                                                                                                                                                                                         | Settlement                Agreement with Phelps Dodge Corp.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   | 10.3                                                                                                                                                                                         | Stock                Purchase Agreement with DLJ MB Partners III, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | (b)    | **Reports                on Form 8-K.**                The Company filed 4 reports on Form 8-K for the quarter ended September                30, 2006. The events reported were as follows: |
|   |   |                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | 1.                                                                                                                                                                                           | The                report filed on July 13, 2006, under Item 8.01 referenced the signing                of                an Exclusivity Agreement with sxr “Uranium One” Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | 2.                                                                                                                                                                                           | The                report filed on July 28, 2006, under Item 8.01 referenced the U.S.                District Court’s Order for Payment of Attorney Fees and Costs related to                litigation with Phelps Dodge Corporation and U.S. Tenth Circuit Court                of                Appeals Affirmation of Court dismissal of Challenges to Mt. Emmons                Patents.                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | 3.                                                                                                                                                                                           | The                report filed on September 6, 2006, under Item 8.01 referenced the                signing                of an amendment to the May 5, 2006 registration rights agreement                with                Cornell Capital Partners, PL.                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | 4.                                                                                                                                                                                           | The                report filed on September 22, 2006, under Item 1.01 referenced signing                of                a stock purchase agreement with DLJ Merchant Banking III, Inc., Item                2.01                referenced sale of Pinnacle Gas Resources Gas, Inc. shares under                the stock                purchase agreement and Item 8.01 referenced entering into a settlement                agreement and the payment of $7.0 million to Phelps Dodge Corporation                to                resolve outstanding litigation and the sale of 100% of the Enterra                Energy                Trust units by the Company. |

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**SIGNATURES**

|                                   |   | U.S.                ENERGY CORP. |
|----------------------------------------|--------|----------------------------------|
|                                   |   | (Company)                        |
|                                   |   |                             |   |   |
|                                   |   |                             |   |   |
|                                   |   |                             |   |   |
| Date:                November 14, 2006 |   | By:                              | /s/                Keith G. Larsen |   |
|                                   |   |                             | KEITH                G. LARSEN, |   |
|                                   |   |                             | Chairman                and CEO |   |
|                                   |   |                             |   |   |
|                                   |   |                             |   |   |
|                                   |   |                             |   |   |
|                                   |   |                             |   |   |
| Date:                November 14, 2006 |   | By:                              | /s/                Robert Scott Lorimer |   |
|                                   |   |                             | ROBERT                SCOTT LORIMER |   |
|                                   |   |                             | Principal                Financial Officer and |   |
|                                   |   |                             | Chief                Accounting Officer |   |

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