Underground Energy Confirms Improved Operational Efficiencies and Production Gains From its Gabriel 1-35 Well at Burrel

SANTA BARBARA, CA, Sept. 19, 2012 /CNW/ - Underground Energy Corporation ("Underground", "UGE" or the "Company") (TSXV: UGE), (OTCQX: UGGYF) today confirmed significantly improved operational performance from its Gabriel 1-35 well at Burrel, in the San Joaquin Valley following optimization work carried out by the Company.

Online efficiency at this well has increased from 59% in Q2 to 85% in August.  Average August production from Gabriel 1-35 was 52 barrels of 30 API oil per day; resulting from August production of 62 barrels of oil per stream day, with an online efficiency of 85%.  This is a significant improvement from the 20 barrels of oil per day ("bopd") the well was producing when UGE acquired the asset and with light oil in California receiving a significant premium to the West Texas Intermediate oil price; this well is providing an enhanced source of cash-flow for the Company.

The Company has 7,311 net acres at Burrel, of which, 2,300 net acres is core to the Gabriel 1-35 well geology. Given the solid operational performance it is now achieving from its Gabriel 1-35 well, the Company has re-evaluated its geologic mapping at Burrel and, in addition to the previously identified proved undeveloped drilling location, management has identified additional future well locations. Management is preparing a permit application for the next well.

The Gabriel 1-35 well has a high water cut of close to 99%.  However, it has a water disposal well on-site and by optimizing this disposal well, and implementing a number of other measures to improve operational efficiency, the Company has increased the capacity of the water disposal well by approximately 70%, a key factor in the improvement in online efficiency to 85% and the resulting improvement in production.  The Company will look to optimize this well further with the goal of achieving online efficiency of over 90%.  It is also implementing additional measures to reduce operating costs and increase the already strong netbacks it receives from this well.

"We are pleased with the performance of Gabriel 1-35 and how it has reacted to optimization and this further increases our belief in the ultimate potential of the surrounding acreage and the ability to drill more wells offsetting this well," said Mike Kobler, President and CEO of Underground. "The success of this project also demonstrates how an efficient, on-site water disposal facility can make wells with high water cut economic, which will be very relevant when we come to finalize commercial testing of our Chamberlin 3-2 well at our Zaca Field Extension Project. With the improved performance at Burrel, and the relatively low cost of drilling additional wells, the Company will now begin to permit an additional offsetting well."

About Underground Energy Corporation

Underground is focused on developing its Zaca Field Extension Project in Santa Barbara County, California. In total, Underground currently holds mineral rights on approximately 70,000 net acres of prospective lands in California and Nevada with an initial focus on the Monterey Shale in California. Underground is listed on the TSX Venture Exchange under the ticker symbol "UGE" and quoted on the OTCQX trading platform under the ticker symbol "UGGYF". For more information on Underground, including a copy of the Company's latest corporate presentation, please visit www.ugenergy.com. Underground's regulatory filings are available under the Company's profile at www.sedar.com.

Cautionary Statements

Statements in this press release contain forward-looking information and forward-looking statements within the meaning of applicable securities laws (collectively, "forward-looking information").  Forward-looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur.  In particular, forward-looking information in this press release includes, without limitation, statements with respect to: (i) the further optimization of the Gabriel 1-35 well with the goal of achieving online efficiency of over 90%; and (ii) the implementation of additional measures with a view to decreasing operating costs.  Although we believe that the expectations and assumptions reflected in the forward-looking information are reasonable, there can be no assurance that such expectations or assumptions will prove to be correct. In particular, assumptions have been made that: (i) Underground will be able to obtain equipment, qualified staff and regulatory approvals in a timely manner to carry out its planned exploration and development activities; (ii) Underground will have sufficient financial resources with which to conduct its planned capital expenditures; and (iii) the current regulatory and tax regime will remain substantially unchanged. Certain or all of the forgoing assumptions may prove to be untrue.

Forward-looking information is based on the opinions and estimates of management at the date the statements are made, and is subject to a variety of risks and uncertainties and other factors (many of which are beyond the control of Underground) that could cause actual events or results to differ materially from those anticipated in the forward-looking information.  Some of the risks and other factors could cause results to differ materially from those expressed in the forward-looking information include, but are not limited to: operational risks in exploration, development and production; delays or changes in plans; competition for and/or inability to retain drilling rigs and other services; competition for, among other things, capital, acquisitions of reserves, undeveloped lands, skilled personnel and supplies; risks associated to the uncertainty of reserve and resource estimates; governmental regulation of the oil and gas industry, including environmental regulation; geological, technical, drilling and processing  problems and other difficulties in producing reserves; the uncertainty of estimates and projections of production, costs and expenses; unanticipated operating events or performance which can reduce production or cause production to be shut in or delayed; incorrect assessments of the value of acquisitions; the need to obtain required approvals from regulatory authorities; stock market volatility; volatility in market prices for oil and  natural gas; liabilities inherent in oil and natural gas operations; access to capital; and other factors.  Readers are cautioned that this list of risk factors should not be construed as exhaustive. 

The forward-looking information contained in this news release is expressly qualified by this cautionary statement.  Underground does not undertake any obligation to update or revise any forward-looking statements to conform such information to actual results or to changes in our expectations except as otherwise required by applicable securities legislation.  Readers are cautioned not to place undue reliance on forward-looking information.

Possible reserves are those additional reserves that are less certain to be recovered than probable reserves.  There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.  The estimates of reserves for individual properties may not reflect the same confidence level as estimates of reserves for all properties of Underground.  The total proved, plus probable plus possible reserves for Underground for the year ending December 31, 2011 as set forth in GLJ Report was 3,268 Mbbls.  The reserves reported in this press release are "net" reserves meaning Underground's working interest (operating and non-operating) share after deduction of royalty obligations, plus Underground's royalty interest in reserves.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE: Underground Energy Corporation

For further information:

Peter Ballachey      
Chief Financial Officer     
Underground Energy Corporation   
Tel: 805-845-4700 x 17

Simon Clarke
Vice President, Corporate Development 
Underground Energy Corporation    
Tel: 604-551-9665

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Underground Energy Corporation

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