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**AGREEMENT      AND PLAN OF MERGER**

**dated      as of January 23, 2007**

**by      and between**

**U.S.      ENERGY CORP., a Wyoming corporation, **

**and**

**CRESTED      CORP., a Colorado corporation**

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**TABLE      OF CONTENTS**

**                                                                                                                                                                                                                                                            Page**

| ARTICLE                1 | THE                MERGER                                    | 3                                                                                                                      |
|--------------------------|--------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------|
|                     | 1.1                                                          | The                Merger                                                                                              | 3 |
|                     | 1.2                                                          | Closing                                                                                                                | 3 |
|                     | 1.3                                                          | Effective                Date                                                                                          | 4 |
|                     | 1.4                                                          | Effects                of the Merger                                                                                   | 4 |
|                     | 1.5                                                          | Effect                on Capital Stock                                                                                 | 4 |
|                     | 1.6                                                          | Stock                Options, and Equity and Other Compensation Plans and                Benefits                      | 5 |
|                     | 1.7                                                          | Exchange                Of Certificates                                                                                | 5 |
|                     | 1.8                                                          | Taking                of Necessary Action; Further Action                                                              | 7 |
| ARTICLE                2 | REPRESENTATIONS                AND WARRANTIES OF THE COMPANY | 8                                                                                                                      |
|                     | 2.1                                                          | Organization                                                                                                           | 8 |
|                     | 2.2                                                          | Capital                Stock of the Company                                                                            | 9 |
|                     | 2.3                                                          | Authority                Relative to this Agreement                                                                    | 9 |
|                     | 2.4                                                          | SEC                Reports and Financial Statements                                                                    | 10 |
|                     | 2.5                                                          | Certain                Changes                                                                                         | 11 |
|                     | 2.6                                                          | Litigation                                                                                                             | 11 |
|                     | 2.7                                                          | Disclosure                in Proxy Statement                                                                           | 11 |
|                     | 2.8                                                          | Broker’s                or Finder’s Fees                                                                   | 11 |
|                     | 2.9                                                          | Employee                Plans                                                                                          | 11 |
|                     | 2.10                                                         | Board                Recommendation; Company Action; Requisite Vote of the Company’s                Stockholders | 12 |
|                     | 2.11                                                         | Taxes                                                                                                                  | 12 |
|                     | 2.12                                                         | Environmental                                                                                                          | 14 |
|                     | 2.13                                                         | Compliance                with Laws                                                                                    | 15 |
|                     | 2.14                                                         | Employment                Matters                                                                                      | 15 |
|                     | 2.15                                                         | Certain                Contracts and Arrangements                                                                      | 15 |
|                     | 2.16                                                         | Financial                and Commodity Hedging                                                                         | 16 |
|                     | 2.17                                                         | Properties                                                                                                             | 16 |
|                     | 2.18                                                         | Accounting                Controls                                                                                     | 16 |
|                     | 2.19                                                         | Intellectual                Property                                                                                   | 16 |
| ARTICLE                3 | REPRESENTATIONS                AND WARRANTIES OF PARENT      | 16                                                                                                                     |
|                     | 3.1                                                          | Organization                                                                                                           | 16 |
|                     | 3.2                                                          | Capital                Stock                                                                                           | 17 |
|                     | 3.3                                                          | Authority                Relative to this Agreement                                                                    | 18 |
|                     | 3.4                                                          | SEC                Reports and Financial Statements                                                                    | 18 |
|                     | 3.5                                                          | Certain                Changes                                                                                         | 19 |
|                     | 3.6                                                          | Litigation                                                                                                             | 19 |
|                     | 3.7                                                          | Disclosure                in Proxy Statement                                                                           | 19 |
|                     | 3.8                                                          | Broker’s                or Finder’s Fees                                                                   | 20 |
|                     | 3.9                                                          | Employee                Plans                                                                                          | 20 |
|                     | 3.10                                                         | Board                Recommendation                                                                                    | 22 |
|                     | 3.11                                                         | Taxes                                                                                                                  | 22 |
|                     | 3.12                                                         | Environmental                                                                                                          | 23 |
|                     | 3.13                                                         | Compliance                with Laws                                                                                    | 24 |
|                     | 3.14                                                         | Employment                Matters                                                                                      | 24 |

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**TABLE        OF CONTENTS**

**                                                                                                                                                                                                                                                  Page**

|                     | 3.15                                                  | Certain                Contracts and Arrangements                              | 25 |
|--------------------------|-------------------------------------------------------|--------------------------------------------------------------------------------|----|
|                     | 3.16                                                  | Financial                and Commodity Hedging                                 | 25 |
|                     | 3.17                                                  | Properties                                                                     | 25 |
|                     | 3.18                                                  | Accounting                Controls                                             | 25 |
|                     | 3.19                                                  | Intellectual                Property                                           | 25 |
| ARTICLE                4 | CONDUCT                OF BUSINESS PENDING THE MERGER | 26                                                                             |
|                     | 4.1                                                   | Conduct                of Business by the Company Pending the Merger           | 26 |
|                     | 4.2                                                   | Conduct                of Business of Parent                                   | 27 |
| ARTICLE                5 | ADDITIONAL                AGREEMENTS                  | 28                                                                             |
|                     | 5.1                                                   | Shareholders’                Meeting                                     | 28 |
|                     | 5.2                                                   | Registration                Statement                                          | 28 |
|                     | 5.3                                                   | Employee                Benefit Matters                                        | 29 |
|                     | 5.4                                                   | Consents                and Approvals                                          | 29 |
|                     | 5.5                                                   | Public                Statements                                               | 30 |
|                     | 5.6                                                   | Commercially                Reasonable Best Efforts                            | 30 |
|                     | 5.7                                                   | Notification                of Certain Matters                                 | 30 |
|                     | 5.8                                                   | Access                to Information; Confidentiality                          | 31 |
|                     | 5.9                                                   | No                Solicitation                                                 | 31 |
|                     | 5.10                                                  | Section                16 Matters                                              | 32 |
|                     | 5.11                                                  | Voting                Agreement                                                | 32 |
|                     | 5.12                                                  | Nasdaq                Listing                                                  | 33 |
|                     | 5.13                                                  | Tax                Treatment                                                   | 33 |
|                     | 5.14                                                  | Indemnification                                                                | 33 |
| ARTICLE                6 | CONDITIONS                                            | 33                                                                             |
|                     | 6.1                                                   | Conditions                to the Obligation of Each Party to Effect the Merger | 33 |
|                     | 6.2                                                   | Additional                Conditions to the Obligations of Parent              | 34 |
|                     | 6.3                                                   | Additional                Conditions to the Obligation of the Company          | 34 |
| ARTICLE                7 | TERMINATION,                AMENDMENT AND WAIVER      | 35                                                                             |
|                     | 7.1                                                   | Termination                                                                    | 35 |
|                     | 7.2                                                   | Effect                of Termination                                           | 36 |
|                     | 7.3                                                   | Fees                and Expenses                                               | 36 |
|                     | 7.4                                                   | Amendment                                                                      | 37 |
|                     | 7.5                                                   | Waiver                                                                         | 37 |
| ARTICLE                8 | GENERAL                PROVISIONS                     | 38                                                                             |
|                     | 8.1                                                   | Notices                                                                        | 38 |
|                     | 8.2                                                   | Representations                and Warranties                                  | 38 |
|                     | 8.3                                                   | Governing                Law; Waiver of Jury Trial                             | 38 |
|                     | 8.4                                                   | Counterparts;                Facsimile Transmission of Signatures              | 39 |
|                     | 8.5                                                   | Assignment;                No Third Party Beneficiaries                        | 39 |
|                     | 8.6                                                   | Severability                                                                   | 39 |
|                     | 8.7                                                   | Entire                Agreement                                                | 39 |

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**                                             Schedule of Definitions**

| **Term**                                            | **Section** |
|-----------------------------------------------------|-------------|
| '33                Act                              | 2.3(c)      |
| '34                Act                              | 2.3(c)      |
| Action                                              | 5.14        |
| Agreement                                           | Preamble    |
| Articles                of Merger                   | 1.3         |
| Book-Entry                Shares                    | 1.7(a)      |
| CBCA                                                | 1.1(a)      |
| CCCA                                                | 1.3         |
| CERCLA                                              | 2.12(h)     |
| Closing                                             | 1.2         |
| Closing                Date                         | 1.2         |
| Code                                                | Recitals    |
| Company                                             | Preamble    |
| Company                Board                        | 1.6         |
| Company                Cases                        | 2.6         |
| Company                Common Stock                 | 1.5         |
| Company                Disclosure Letter            | 2           |
| Company                Financial Statements         | 2.4(b)      |
| Company                Material Adverse Effect      | 2.1(a)      |
| Company                SEC Reports                  | 2.4(a)      |
| Company                Stock Option                 | 1.6         |
| Company                Stock Plan                   | 1.6         |
| Company                Subsidiaries                 | 2.1(a)      |
| Dissenters’                Rights Statute     | 1.5(b)      |
| Effective                Date                       | 1.3         |
| Electing                Cash Out Holders            | 1.5(d)      |
| Employee                Benefit                Plan | 2.9(b)      |
| Environmental                Laws                   | 2.12(h)     |
| ERISA                                               | 2.9(b)      |
| Exchange                Agent                       | 1.7(a)      |
| Exchange                Ratio                       | 1.5(b)      |
| GAAP                                                | 2.4(b)      |
| Hazardous                Substance                  | 2.12(i)     |
| Indemnified                Liabilities              | 5.14        |
| Indemnitees                                         | 5.14        |
| Intellectual                Property                | 2.19        |
| Intended                Tax Treatment               | 5.13        |
| Law                                                 | 2.13        |
| Liens                                               | 2.1(b)      |
| Merger                                              | 1.1(a)      |
| Merger                Consideration                 | 1.5(b)      |
| Navigant                                            | 3.10(a)     |
| Order                                               | 2.3(b)      |
| Other                Filings                        | 5.2(b)      |
| Outside                Date                         | 7.1(c)      |

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| Parent                                        | Preamble |
|-----------------------------------------------|----------|
| Parent                Board                   | 3.3(a)   |
| Parent                Cases                   | 3.6      |
| Parent                Common Stock            | 1.5(a)   |
| Parent                Financial Statements    | 3.4(b)   |
| Parent                Material Adverse Effect | 3.1(a)   |
| Parent                SEC Reports             | 3.4(a)   |
| Parent                Subsidiaries            | 3.1(a)   |
| person                                        | 2.1(b)   |
| Proxy                Statement/Prospectus     | 2.7      |
| RCRA                                          | 2.12(h)  |
| S-4                                           | 5.2(a)   |
| SARs                                          | 2.2(b)   |
| SEC                                           | 2        |
| SGMI                                          | 2.1(a)   |
| Shareholders’                Meeting    | 5.1      |
| Statement                of Merger            | 1.3      |
| Stock                Certificate              | 1.5(c)   |
| Superior                Proposal              | 5.9(c)   |
| Surviving                Company              | 1.1(a)   |
| Takeover                Proposal              | 5.9(c)   |
| Termination                Fee                | 7.3(a)   |
| USECB                Joint Venture            | 1.4      |
| Voting                Agreement               | Recitals |
| WBCA                                          | 1.1(a)   |

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**AGREEMENT      AND PLAN OF MERGER**

**ARTICLE      1**

**THE      MERGER**

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**ARTICLE      2**

**REPRESENTATIONS      AND WARRANTIES OF THE COMPANY**

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**ARTICLE      3**

**REPRESENTATIONS      AND WARRANTIES OF PARENT **

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**ARTICLE      4**

**CONDUCT      OF BUSINESS PENDING THE MERGER**

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**ARTICLE      5**

**ADDITIONAL      AGREEMENTS**

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***(a)***

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**ARTICLE      6**

**CONDITIONS**

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**(e)**

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**ARTICLE      7**

**TERMINATION,      AMENDMENT AND WAIVER**

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**ARTICLE      8**

**GENERAL      PROVISIONS**

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**U.S.      ENERGY CORP.**

**CRESTED      CORP.**

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