Oil & Gas
Rocky Mountain Region
Williston Basin - Bakken Participation Agreement
In In August 2009, U.S. Energy Corp. entered into a Drilling Participation Agreement (DPA) with Brigham Exploration Company ("Brigham") to earn working interests in up to fifteen 1,280 acre spacing units in Brigham's Rough Rider project area located in Williams and McKenzie Counties of North Dakota. The terms of the DPA call for the drilling of 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 90-120 based on North Dakota well spacing allowances and whether the Three Forks formation (~100’ below the Bakken formation) is proven to be productive.
Under the terms of the DPA, USE committed to drilling all 15 initial wells under the program. Upon the drilling and completion of the first or initial well in each 1,280 acre spacing unit, USE will earn 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 will earn working interests in 19,200 gross acres in the Rough Rider project area.
USE participates for 65% of Brigham's original working interest in each initial well drilled in the first six well program. 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.
In the second groups of four wells, and the third group of five wells for a total of 15 initial wells, that USE is participating in, Brigham has elected to participate 50% in those wells allowing USE to participate for 50% of Brigham's original working interest. Each participation amount for both Brigham and USE will be subject to dilution or expansion based on other working interest owners' participation in the initial wells and/or subsequent wells in each 1,280 acre spacing unit.
The drilling of each well typically takes 30 days while the completion typically takes 21-28 days. Brigham will operate all of the wells. With USE electing to participate in all 15 initial wells and earning subsequent working interests in each 1,280 acre spacing unit, the Company has earned the right to drill up to 15 total wells in the Bakken formation and an additional 15 wells in the Three Forks formation, for a total of 30 wells, based on the current spacing in North Dakota. If the spacing is ultimately increased to three or four wells per 1,280 acre spacing unit, the potential number of drilling locations could increase to 90-120.
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 the Offshore Gulf of Mexico, South Louisiana, Texas Gulf Coast, West Texas, and Southeastern New Mexico. We have since expanded our relationship with Participation Agreements for additional prospects in southeast Texas as well as the Permian Basin in 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.
