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U.S. Energy Corp. Enters Into Participation Agreements With Zavanna LLC And Other Sellers In The Williston Basin Of North Dakota

RIVERTON, Wyo., Dec. 14, 2010 (GLOBE NEWSWIRE) -- U.S. Energy Corp. (Nasdaq:USEG) ("USE" or the "Company"), a natural resources exploration and development company with interests in oil and gas, molybdenum, geothermal, and real estate assets, today announced that it has entered into two Participation Agreements with a private Denver, Colorado based company, Zavanna LLC and other affiliated sellers ("Zavanna"), to acquire approximately 6,200 net mineral acres located in McKenzie County, North Dakota for $10.95 million. Approximately one-third of the net mineral acres are held by production.

The purchase represents the acquisition of 35% of Zavanna's collective interest in two separate contiguous lease parcels known as the Yellowstone and SE HR Prospects. The purchase includes 100% of the rights to the Bakken and Three Forks formations throughout both parcels and includes shallow mineral rights on approximately two-thirds of the acreage. In addition, USE funded $1.4 million into an escrow account, which represents 35% of the estimated cost to drill the first well under the Yellowstone agreement. Assuming three wells per formation per spacing unit, under the agreements, USE can participate in 31 gross 1,280 acre drilling units (at varying working interests up to 35%) with the potential of 93 gross Bakken wells and 93 gross Three Forks wells.

Under the terms of the agreements, Zavanna has the right to a 30% back-in of USE's working interest in the prospects after:

  • USE has recovered 130% of its capital outlay (payout) for all property development costs incurred during the first 36 months (including the initial $10.95 million payment), and
  • 36 months for all undeveloped acreage. 

The effective date of both agreements is December 1, 2010 and Zavanna will operate the drilling programs in both prospects.

Zavanna tentatively plans to spud the first well in the 2011 drilling program, the Cheryl 14-23 #1H (Yellowstone Prospect), in the first quarter of 2011. The Yellowstone Prospect is primarily located between two of USE's existing producing wells drilled with Brigham Exploration, (the Papineau Trust 17-20 #1H and the Sedlacek Trust 33-4 #1H, which had initial production rates of 3,042 BOE/D and 2,695 BOE/D, respectively). The second well is also anticipated to spud in the SE HR Prospect in the first quarter of 2011. Looking forward, it is currently anticipated that USE and the Zavanna partners will drill 6-8 gross wells in 2011. Additionally, to allow for this drilling pace, the parties plan to secure a fulltime contract rig during the second quarter of 2011.

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