2011-01-14-2010-12-14
To buy 6,200 net mineal acres in Yellowstone & SE HR prospects in McKenzie County.
U.S. Energy Corp., Riverton, Wyo., (Nasdaq: USEG) plans to acquire approximately 6,200 net mineral acres in McKenzie County, North Dakota, from Denver-based privately held Zavanna LLC and other undisclosed sellers 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.
Including the new acreage, the company's current Williston Basin lease holdings now total approximately 72,800 gross acres (22,400 net).
U.S. Energy has funded $1.4 million into an escrow account, representing 35% of the estimated cost to drill the first well under the Yellowstone agreement. Zavanna retains the right to a 30% back-in of U.S. Energy's working interest in the prospects after U.S. Energy has recovered 130% of its capital outlay for all property development costs incurred during the first 36 months (including the initial $10.95 million payment), and after 36 months for all undeveloped acreage.
Assuming three wells per formation per spacing unit, U.S. Energy 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. Zavanna will operate the drilling programs in both prospects.
Zavanna tentatively plans to spud the first well in the 2011 drilling program, Cheryl 14-23 #1H (Yellowstone prospect), in first-quarter 2011. The Yellowstone prospect is between two of U.S. Energy's existing producing wells, which were drilled with Brigham Exploration, (Papineau Trust 17-20 #1H and Sedlacek Trust 33-4 #1H) and had initial production rates of 3,042 BOE/D and 2,695 BOE/D, respectively. A second well is also anticipated to spud in the SE HR prospect in first-quarter 2011.
U.S. Energy and the Zavanna partners expect to drill six to eight gross wells in 2011, and will contract a full-time rig during second-quarter 2011.
"We are pleased to announce the addition of two new acreage positions and an additional drilling program in the heart of the Williston Basin with another proven operator," says U.S. Energy chief executive Keith Larsen. "To date, we have completed 13 successful wells in Williams and McKenzie counties with Brigham Exploration, and look forward to adding meaningfully to that well total with our 2011 Zavanna drilling program."
The effective date is Dec.1. Madison Williams and Co. LLC is financial advisor to U.S. Energy.