U.S. Energy Corp. has entered into a Lease Purchase and Drilling Agreement with a private, Texas-based oil and gas company to acquire a 25% non-operating working interest in an oil prospect located in east Texas.
Under the terms of the agreement, U.S. Energy will pay a $45,000 prospect fee and be responsible for 33% of the costs for the first well to the tanks, if successful. The initial commitment under the agreement is approximately $360,000, and dry hole costs are estimated at $230,000 net to USE. Subsequent wells will be drilled on a "heads-up" basis, with the Company responsible for 25% of all costs. Spudding of the first well is expected to commence in late 2008 or the 1st quarter of 2009 with a planned drilling depth of approximately 6,000 feet. The currently envisioned drilling program could include up to 10 wells.
"Our oil and gas strategy continues to gain momentum having now secured a third working interest partner," stated Keith Larsen, CEO of U.S. Energy Corp. "We remain committed to assembling a solid and diverse portfolio of oil and gas assets and are actively seeking and carefully evaluating additional opportunities to acquire working interests in known producing regions," he added.
The prospect is adjacent to an oil field that produces low gravity oil from the Upper Cretaceous sandstones, and is characterized as a low-to-moderate risk stepout drilling prospect. Well recoveries in the immediate area have averaged 100,000 to 250,000 barrels per well.
The Bluffs Prospect Update
The Company also announced today that the Operator of the Bluffs Prospect, PetroQuest Energy LLC, recently announced in an October 6th Operations and Guidance Update that it is currently installing facilities to produce the recently completed Bluffs prospect. The well logged approximately 85 net feet of pay and production is expected to commence within approximately four weeks at an initial gross rate of approximately 10,000 Mcfe per day. U.S. Energy Corp. has an approximate 15% working interest and an approximate 11% net revenue interest in the well.
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