Rocky Mountain Region

Williston Basin – Bakken/Three Forks Formation 

Participation Agreement – Zavanna LLC
U.S. Energy Corp. entered into two Participation Agreements with a private Denver, Colorado based company, Zavanna LLC and other affiliated sellers ("Zavanna") in December 2010, to acquire approximately 6,200 net mineral acres located in McKenzie County, North Dakota for $10.95 million.

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.

Assuming three wells per formation per spacing unit, under the agreements, USE 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.

Under the terms of the agreements, Zavanna has the right to a 30% back-in of USE's working interest in the prospects after:

• USE has recovered 130% of its capital outlay (payout) for all property development costs incurred during the first 36 months (including the initial $10.95 million payment), and
• 36 months for all undeveloped acreage.

Drilling Participation Agreement – Brigham Exploration Company
In August 2009, U.S. Energy Corp. entered into a Drilling Participation Agreement (DPA) with Brigham Exploration Company ("Brigham"), and has earned working interests in fifteen 1,280 acre spacing units in Brigham's Rough Rider project area located in Williams and McKenzie Counties of North Dakota. Upon the drilling and completion of the first or initial well in each 1,280 acre spacing unit, USE earned 36% of Brigham's original working interest in the remaining acreage (or drilling locations) in each 1,280 acre unit. With USE participating in the drilling of the initial wells in all fifteen 1,280 acre spacing units, it earned working interests in 19,200 gross (5,500 net) acres in the Rough Rider project area.  The ultimate number of wells to be drilled in the units could reach 90-120 based on North Dakota Industrial Commission well spacing allowances and whether continued testing of the Three Forks formation (~100’ below the Bakken formation) is proven to be productive.

Upon receiving a pooled payout of all of the costs and expenses incurred to drill and complete the six initial wells in the six initial 1,280 acre spacing units, USE 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. Following that, USE will own 42.25% of Brigham's original working interest in the initial well in each 1,280 acre spacing unit. With USE electing to participate in the second group of four wells and spacing units, it is also entitled to a pooled payout similar to the first six well program. With USE electing to participate in the third group of five wells and spacing units, it is entitled to an initial well by initial well per spacing unit payout before a 27.7% back in assignment on each initial well drilled in each spacing unit to Brigham.

San Joaquin Basin – California
U.S. Energy Corp. entered into an acquisition, exploration and development agreement with private Denver, Colorado-based Cirque Resources LP ("Cirque") in November 2010, to acquire a 40% working interest in an oil and gas prospect located in Kern County, California.

Under the terms of the agreement, USE has committed to pay approximately $2.5 million to earn a 40% working interest in approximately 6,200 net acres and to carry Cirque for a component of its drilling cost in a commitment well, with all subsequent wells will be drilled on a heads up basis.  The prospect is a Miocene target in the San Joaquin basin with an expected total drilling depth of approximately 13,000 feet. The commitment well is targeting up to 300 feet of layered Stevens Sands in a stratigraphic trap on the flank of a prolific oil producing field in the basin.

Based on the results of the commitment well, additional seismic analysis may be applied to further delineate the overall prospect and prospective drilling program. Geologic evaluation and current spacing suggest potential for numerous drilling locations. 
 

Gulf Coast Region

PetroQuest
In 2007, the Company entered into an Exploration and Area of Mutual Interest Agreement (the "E&AMI Agreement") with PetroQuest Energy Inc. ("PetroQuest"), which relates to three prospect areas in the Gulf Coast region of the United States. In connection with that agreement, the parties have also signed an Operating Agreement for PetroQuest to be the operator on all wells. The E&AMI Agreement provides the Company with the right, through September 13, 2011, to acquire a 20% working interest in each lease acquired by PetroQuest, within any of the three prospect areas.

Houston Energy
In April 2009, the Company entered into a Participation Agreement with Houston, Texas-based Houston Energy L.P. ("HE"), a privately held, independent oil and gas company exploring South Louisiana, Texas Gulf Coast, and the Permian Basin of West Texas.

Yuma  Exploration and Production Company Inc.
In April 2008, the Company entered into a four year Joint Exploration Agreement with Yuma Exploration and Production Company, Inc. ("Yuma"), a private exploration and production company based in Houston, Texas. Under the Joint Exploration Agreement, the Company has purchased a working interest in a seismic, lease acquisition and drilling program covering approximately 138 square miles in South Louisiana. Net acreage acquired will depend on the terms of leases acquired, but is expected to be in excess of 50,000 net acres. Yuma holds a 48% working interest and the balance is held by the Company (4.55%) and third parties (approximately 47.45%).  All land and exploration costs going forward are to be paid according to the working interest percentages. A large 3-D seismic survey was conducted in first and second quarter 2009. Yuma is now utilizing the data to identify prospect areas and propose lease and drilling activities.  It is expected that the program will yield multiple prospects, with exploration activities continuing for a number of years.