US Energy enters participation agreement in South Texas

US Energy Corp.

Riverton, WY-based US Energy Corp. (Nasdaq:USEG) has entered into a participation agreement covering lands in Dimmit County, Texas with a private South Texas based oil and gas company.

Under the agreement, the US Energy Corp. acquired 33% of the seller's interest in approximately 12,100 gross (3,384 net) acres. The acreage consists of 3,870 gross (1,080 net) acres of primary leasehold acreage and 8,080 gross (2,203 net) acres of farm-in acreage, to be earned through a continuous drilling program. The farm-in acreage has an initial two well commitment and a 12.5% working interest carry for the leaseholder (the farmor) in the first 10 wells. After 100% payout of all costs for the first 10 wells that are drilled under the farm-in program, the farmor will back in for their 12.5% retained working interest in the prospect. The seller also retained a 25% working interest back-in after 115% of project payout has been received by the company.

The company paid $3.9 million to enter into the transaction, which includes leasehold and farm-in acquisition costs as well as our proportionate share of drilling costs for the initial test well in the prospect. A minimum of three Buda formation wells are scheduled to be drilled during the balance of 2014. The first well in the program spud the week of May 5th and is currently drilling in the vertical portion of the wellbore.

In addition to the Buda limestone formation, there are multiple stacked hydrocarbon-bearing formations present in this region of South Texas. The Austin Chalk and Eagle Ford Shale formations will be analyzed during the drilling of the first three Buda formation wells.

"We continue to refine our focus on South Texas due to the multiple hydrocarbon-bearing formation potential in the region. Our initial tests will target the Buda formation, which we believe is highly prospective in the leasehold. In keeping with our 2014 budget and plan, this acquisition can increase our net leasehold in the region by 58% to 8,975 net acres. We have sought acquisitions that are drill ready and we are now participating in three Buda drilling programs. If successful, we believe that our combined drilling programs could add meaningfully to our production and revenues throughout the year and beyond," said Keith Larsen, CEO of US Energy.

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