US ENERGY CORP
FALKNER SERVICE AGMT. & OPTION
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>6
<FILENAME>ex10-3may2001_10k.txt
<DESCRIPTION>FALKNER SERVICE AGMT. & OPTION
<TEXT>
                                                                    EXHIBIT 10.3

RJ FALKNER
    AND                                          Investment Research
  COMPANY                                           and Financial Communications
--------------------------------------------------------------------------------
Crested Butte  -  New York  -  Austin

                                    CONTRACT


Customer:  U.S. Energy Corp.

Date:  April 11, 2001

Term of Contract:  Two Years

Contract Begins:  April 11, 2001

**********************************************************************

The undersigned,  acting on behalf of U.S. ENERGY CORP. ("the customer"), hereby
contracts with R.J.  Falkner & Company,  Inc., for a period of not less than two
years, for the provision of consulting services to include the following:

(1) The preparation of at least two "Research  Profile"  reports duing each next
twelve-month period of the contract;

(2)  Distribution  of such reports to the brokerage  community,  money-managers,
mutual funds, and individual  investors,  upon request,  or as instructed by the
ustomer,  along  with  exposure  of such  reports  on the on the R.J.  Falkner &
Company, Inc. website (www.rjfalkner.com);

(3) Distribution of news releases and other company communiques to the brokerage
community,   instituional  and  individual  investors,  and  researcgh  analysts
throughout the U.S., Europe, and Canada;

A cash retainer fee for these services will be payable at the rate of $2,000 per
month, in advance.  In addition to such monthly  retainer,  the customer will be
invoiced for  reimbursement  of expenses  directly  incurred in the provision of
these  services  on a  monthly  basis.  Such  expenses  will  primarily  involve
publishing,  printing and postage costs related to the distribution of "Research
Profile" reports;  telephone calls placed on the customer's  behalf;  and travel
expenses  required  to visit the  customer  and/or for trips to visit  brokerage
firms/investor  groups/insitutions on behalf of the customer (such trip expenses
are pro-rated among several customers).  Documentation of these expenses,  which
should not exceed $500 per month unless  pre-approved  by the customer,  will be
provided on each  monthly  invoice,  and the customer  agrees to reimburse  R.J.
Flakner & Company,  Inc. for such expenses  within 30 days following  receipt of
such invoices.



                    P. O. Box 1230 * Crested Butte, CO 81224
                      (970) 349-0846 ** Fax (970) 349-0852


                                       86

<PAGE>



In addition to the cash  compensation  outlined  above,  R. Jerry Falkner (as an
individual)  will be granted a fully- vested  5-year  option to purchase  20,000
shares of U.S. Energy Corp. common stock, with the exercise price of such option
equivalent  to the closing  market price of USEG shares as of April 11, 2001, or
$3.98 per share.  Customer hereby agrees to register the shares  underlying this
option within 24 months of the "start date" of this contract.

This  contract may be  cancelled  by either party to the contract  upon 60 days'
written notice.

In the even of  dispute,  the  prevailing  party will be entitled to recover its
costs, including reasable attorney's fees.

The  parties  acknowledge  that this  contract  is entered  into in the state of
Wyoming and that any  litigation  arising from this contract must be adjudicated
in Wyoming courts in accordance with Wyoming law.

This contract cannot be assigned without the agreement of both parties.

Signed:


   /s/   Keith G. Larsen
--------------------------------------------
Keith G. Larsen
President
U.S. ENERGY CORP.


   /s/   R. Jerry Falkner
--------------------------------------------
R. Jerry Falkner CFA
President
R. J. Falkner & Company, Inc.

Date:    4/11/01
      --------------------------------------

Note:  Please retain one original of this contract for your records,  and return
on original copy to R.J. Falkner & Company, Inc.



                                       87

<PAGE>



                               U. S. ENERGY CORP.

                             STOCK OPTION AGREEMENT


This stock option agreement is made in Riverton, WY this 11th day of April, 2001
by and between U.S.  ENERGY CORP.  (herein  referred to as the "Company") and R.
JERRY FALKNER (hereinafter referred to as the "Optionee").

1.   The Company hereby grants to the Optionee a five year option to purchase an
     aggregate of 20,000  shares of the common  stock of the Company,  $0.01 par
     value (hereinafter referred to as the "Shares") at an option price of $3.98
     per share. The Option shall be available for exercise immediately.

2.   This option,  to the extent not exercised,  shall expire on April 10, 2006,
     or earlier upon the death of the Optionee.

3.   The Optionee may exercise this option at any time, or from time to time, as
     to all or any part of the Shares by giving  written  notice to the Company,
     at its  principal  office,  specifying  the  number  of Shares to which the
     exercise shall apply, and accompanied by payment of the full purchase price
     for the Shares being  purchased.  Optionee shall also execute an investment
     representation  statement  in a form  approved by the board of directors of
     the company prior to issuance of share  certificates.  Upon compliance with
     the  terms  of  this  Agreement,  certificate(s)  representing  the  Shares
     purchased  shall be issued as soon as practicable  after notice of exercise
     is given to the Company.

4.   This option is not transferable by the Optionee and is exercisable only  by
     him.

5.   In the event of  Optionee's  death  prior to the  complete  exercise of the
     option, any remaining portion of the option may be exercised in whole or in
     part after the date of the  Optionee's  death,  but only by the  Optionee's
     estate or by or on behalf of the  person(s) to whom the  Optionee's  rights
     pass under his will or the laws of descent and distribution.  To the extent
     not exercised,  the option shall terminate sixty (60) days after Optionee's
     death.

6.   The Optionee hereby  represents  that the option granted  hereunder and the
     Shares  purchased by him pursuant to the exercise of all or any part of the
     option are and will be acquired by him for  investment  and not with a view
     to the  distribution  thereof.  The  option is  granted  by the  Company in
     reliance  upon  this  representation.  Upon  the  exercise  of the  option,
     Optionee shall not thereafter  transfer,  encumber or dispose of the Shares
     so purchased unless: (a) an effective  registration statement covering such
     Shares is filed  pursuant to the  Securities  Act of 1933, as amended,  and
     applicable state law; or (b) an opinion letter of the Optionee's counsel is
     obtained,  satisfactory to the Company and its counsel,  that such transfer
     is not in violation of any applicable  federal or state  securities laws or
     regulations.


                                       88

<PAGE>


IN WITNESS WHEREOF,  the Company has caused this Agreement to be executed on its
behalf by its duly authorized  officer and to be sealed with its corporate seal,
attested by its  secretary,  and Optionee has executed this  Agreement  with the
intent to be legally bound as of the date written below.


                                                U. S. ENERGY CORP.



Attest:   /s/   Max T. Evans                    By:   /s/   Keith G. Larsen
       --------------------------------            -----------------------------
        Max T. Evans,                               Keith G. Larsen,
        Secretary                                   President


                                                OPTIONEE:



Dated:  As of 4/11/01                               /s/   R. Jerry Falkner
      ---------------------------------         --------------------------------
                                                R. Jerry Falkner


                                       89

<PAGE>



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