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U.S. Energy Corp. (ticker:USEG) is a natural resource exploration and development company with a primary focus on the exploration and development of its oil and gas assets in the Williston Basin and Eagle Ford play.

A recent announcement out of its Williston Basin drilling partnership with Zavanna, LLC, USEG reported early 24-hour IP rates on the Wang 10-3 #1H well (18% WI, 14% NRI) and the Crescent Farms 7-6 #1H well (27% WI, 21% NRI) of 2,208 BOEPD and 2,437 BOEPD, respectively.

These wells are a part of USEG’s Yellowstone drilling program with Zavanna, LLC in the Williston Basin, North Dakota. The Wang well’s production stream consisted of 88% oil, and the Crescent Farms well’s production stream consisted of 89% oil. These two wells, along with Skorpil 11-2 #1H (23% WI, 18% NRI) and CDK 15-22 #1H (32% WI, 25% NRI) wells scheduled to be stimulated in April 2012, are expected to have a meaningful impact on the company’s Q2’12 production results.

OAG360 notes the expects this Zavanna program will result in 27 gross, 1,280-acre spacing units with various working interests of up to 35% for its first 10 wells. These interest commitments are in line with its Williston Basin activity. According to the company’s March 2012 investment presentation, the company’s historic Bakken activity profile has a 35% average working interest. These wells have an average 30 day IP rate of 877 BOEPD. It will be interesting to see how these four upcoming Zavanna wells perform over coming weeks, and exactly what impact this new production will have on Q2’12 numbers.

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Borrowing Base Increase:

The company reported a 15.7% increase in proved reserves from 2,286,302 BOE at June 30, 2011 to 2,644,779 BOE at January 31, 2012. More importantly, USEG’s proved reserves increased 63% YOY from 2010 to 2011.
Click here for the previous write-up on USEG’s Q4’11 results.

These positive increases in reserve growth have been rewarded. On March 29, 2012, USEG announced that the commitment amount under its credit facility with BNP Paribas was increased from $75 million to $100 million, and the borrowing base was increased from $28 million to $30 million. Currently, USEG has the full $30 million available and will utilize the facility to supplement its cash flow for re-investment in its drilling and completion activities in 2012 and 2013. In addition to the credit revolver, during 2011 USEG generated a total of $30.4 million in two recent Bakken sale transactions. Given USEG’s financial liquidity position, we believe USEG could fully fund its $48.1 million 2012 CAPEX budget.

During 2012, USEG plans to allocate $18.4 million to the Williston Basin in the Rough Rider and Yellowstone/SEHR programs with Brigham and Zavanna, $24.9 million to its exploration initiatives in the Eagle Ford with Crimson Exploration (ticker: CXPO), and the remaining $4.8 million originally budgeted for the San Joaquin Basin prospect will be redirected towards other programs over the course of the year.

 


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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.