2009-09-24-2009-08-26

JV to earn 65% WI in 6 initial Williston Basin wells in Williams, McKenzie counties, ND, with option to participate in up to 90 wells.

Facing near-term lease expirations in its Rough Rider project area in Williams and McKenzie counties, North Dakota, Austin, Texas-based Brigham Exploration Co. (Nasdaq: BEXP) has farmed out an interest in up to 15 units to U.S. Energy Corp., Riverton, Wyoming, (Nasdaq: USEG) for an estimated $17.6 million for drilling the initial six wells. The terms of the agreement involve drilling up to 15 initial Bakken wells in 15 separate 1,280-acre spacing units. The ultimate number of wells to be drilled in the units could reach 90. U.S. Energy has committed to drilling six initial wells with the option to drill additional wells. U.S. Energy will participate for 65% of Brigham's original working interest in each initial well drilled in the first six-well program. Upon payout of costs and expenses, U.S. Energy will assign back 35% of its 65% of Brigham's original working interest in the first well in each 1,280-acre spacing unit to Brigham for a 42.25% working interest. Subsequent to the initial six wells, U.S. Energy has the option to participate in nine additional 1,280-acre spacing units in Williams and McKenzie counties as selected by Brigham. Brigham may retain up to 50% of its original working interest in the nine spacing units. Brigham would back in after payout, on a combined basis, in the first four optional wells for 35% of U.S. Energy's original working interest. Should U.S. Energy elect into the final five wells, Brigham would back in for 27.7% of U.S. Energy's original working interest on a well-by-well basis. Brigham will serve as operator and will drill the first six initial wells during the remainder of 2009 using two drilling rigs. If U.S. Energy participates in the drilling of the initial wells in all 15 spacing units, it will earn working interests in 19,200 gross acres in the Rough Rider project area and will have earned the rights to drill up to 30 total wells in the Bakken formation and an additional 30 wells in the Three Forks formation, for a total of 60 wells. If the spacing is ultimately increased to three wells per 1,280-acre spacing unit, the potential number of drilling locations could increase to 90. U.S. Energy president Mark Larsen says, "We are delighted to be teaming up with one of the best and most technologically advanced operators in the Bakken oil field. Brigham has proven itself to be one of the premier companies in the Williston Basin through the advancement of their multi-stage frac completions and their consistent improvement of production rates. We look forward to a long-term relationship with Brigham and developing low-cost reserves well into the future." Brigham Exploration president and chief executive Bud Brigham says, "This transaction provides us with the opportunity to accelerate drilling in Rough Rider by drilling and completing six wells before year end, and also addresses the leases, particularly the state leases, that could not otherwise be extended. In addition, we expect the location of the subject wells to further delineate the substantial value we believe is attributable to our large acreage position within our Rough Rider development area. Finally, the transaction enables us to maintain the financial flexibility to internally fund 10 operated wells in 2010 without accessing the capital markets or increasing our financial leverage. Assuming our original working interest averages 75% in the 15 spacing units, two infill Bakken wells per spacing unit and we participate for the full interest allowed under the participation agreement, U.S. Energy would earn roughly 5,500 net acres of our current 100,300 net acres in the Rough Rider area." SMH Capital is financial advisor to U.S. Energy. Analysts at Pritchard Capital Partners say the participation agreement allows Brigham to accelerate Williston Basin drilling and hold some leases without taking on more leverage. "We are big fans of the Williston Basin and with some 290,000 acres Brigham is one of the most leveraged to the play relative to its size."