Underground Energy provides operational update

Source: Underground Energy Corp.

Underground Energy Corp. ("Underground", "UGE" or the "Company") (TSX VENTURE: UGE) today provided an operational update as it continues the process of integrating the six properties covering 39,778 gross acres (29,854 net) that were acquired on November 23, 2011 .

"Following the completion of our recent acquisition, we are working to rapidly integrate the acquired assets into our portfolio and promptly advance the nearest-term development opportunities, particularly at the Zaca field," said Michael Kobler , President and CEO of Underground. "Our focus for the balance of the year will be on completing the necessary logistics required to ensure that we can begin drilling at both Zaca and Asphaltea as early in 2012 as possible."

Zaca Field Extension

At the recently acquired Zaca Field Extension in the Santa Maria Basin where Underground is now the operator and has an 80% working interest in 7,750 acres (6,200 net), the Company has completed reprocessing existing 2D seismic and has planned the well path for its initial "step out" development well. The Company intends to commence drilling this well early in 2012 and, on that basis, is in the process of scheduling an appropriately sized rig.

The Company has also commenced acquisition of a 2D seismic swath survey over an area of more than 30 miles to obtain infill coverage between existing older seismic lines. The new seismic survey is expected to conclude in two weeks with processing and interpretation expected to be completed by the end of January 2012 . The Company will also stimulate the existing well at Zaca which currently produces 15-20 bopd; this process is expected to increase current production from this well.

The Zaca field has produced more than 32 million barrels of oil from the Monterey formation to the West of UGE's lease. The existing 2D seismic indicates that the field extends up dip to the Northeast of the developed portion of the field and that multiple adjacent untested Monterey prospects exist on Underground's lease. UGE has identified an additional 20 to 30 drilling locations on the Zaca Field Extension and several more in the adjacent exploratory prospects.

Asphaltea

The seismic swath survey shot at the Company's Asphaltea property in the Santa Maria Basin in July 2011 has now been largely processed. Based on the information received to date, the Company has identified an initial drilling location and has elected to conduct a small, follow-on seismic shoot which it believes will provide it with additional precision in positioning the bottom-hole location of the initial well. Processing and interpretation of all seismic data from Asphaltea is expected to be complete by the end of January 2012 with drilling expected to commence thereafter.

Other Operational Activities

As part of its recent acquisition, the Company acquired significant 2D and 3D seismic over a number of the properties and the Company is in the process of loading this data into its geophysical models for interpretation and evaluation of potential drilling targets across its portfolio. Over the next several months, the Company will also receive 3D seismic relating to its Buttonwillow Deep Prospect in the San Joaquin Basin from the large 3D shoot being jointly undertaken by Occidental and Venoco; it will also monitor a planned Venoco well which offsets its Buttonwillow property.

At the Burrell Redevelopment Prospect in the San Joaquin Basin, work was recently undertaken to shut off sand production by packing the well with resin-coated sand. This recompletion work appears to have stabilized the current production of the well at approximately 35 bopd. In addition, Underground is planning to re-complete the producing well at its Challenger Gas Trend property by perforating a shallower sand formation that showed good gas saturation when the well was initially drilled. Underground believes that it can significantly and efficiently increase production from this well from its current 60 mcf/d.

GLJ Petroleum Consultants, the Company's independent qualified reserves evaluator, has initiated work on the Company's year-end 2011 NI 51-101 compliant reserves assessment of the properties acquired by the Company and it is anticipated that this report will be completed by the end of January 2012 .


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