SANTA BARBARA, CA, Nov. 8, 2012 /CNW/ - Underground Energy Corporation ("Underground", "UGE" or the "Company") (TSX VENTURE: UGE; OTCQX: UGGYF) is pleased to announce today that it has executed a letter of intent ("Letter Agreement") with AmRich, LLC ("AmRich" or "AmRich Energy") whereby it is proposed that AmRich will farm-in on and have the right to earn up to a 75% working interest in Underground's and its joint operating partners' interest in 1,062 gross acres of the Central Southern section of the Zaca Field Extension Project ("Zaca") in Santa Barbara County, California (the "Farm-out Lands"). UGE currently owns 80% of the leasehold interest in the Farm-out Lands, and a total 10,482 net acres across its Zaca assets. It is anticipated the final documentation for the Farm-out (the "Farm-out Agreement") will be executed on or before November 21, 2012.
Under the terms of the Letter Agreement, it is proposed that AmRich will enter into a continuous drilling program of up to 3 wells to earn its full working interest and acreage position in the Farm-out Lands. It will also be required to put these 3 wells into production and to install appropriate facilities and infrastructure to support these wells. Included in the Farm-out Lands are 2 wells originally drilled by Texaco in the mid-1980's ("the Hathaway wells"). Under the terms of the Farm-out Agreement, Amrich will be required to re-complete the Hathaway wells to a depth of at least 5,990 feet each as part of its 3 well commitment. AmRich will also be required to carry UGE on the drilling and completion costs of these initial 3 wells and also the costs of installing facilities and infrastructure to support the wells.
Under the Farm-out Agreement, AmRich will be required to commence drilling operations on the initial Hathaway re-completion by March 1, 2013 and to follow this initial well with the second Hathaway re-completion and finally a new well. In addition, under the Farm-out Agreement, AmRich will only earn interests down to the Upper Monterey Block at Zaca. Should AmRich decide that it would like to earn interests in the deeper sub-thrust play recently discovered by Underground, then it will be required to drill and carry UGE on a 4th well which will be required to be drilled to a sufficient depth to test the sub-thrust play. Under the Farm-out Agreement, this 4th well will be required to be drilled by December 31, 2014. Once the initial program is complete and AmRich has earned its full acreage position, the parties will look to drill additional wells as operating partners with each responsible for its respective share of costs.
"AmRich is pleased to farm-in with Underground Energy on its Zaca Field Extension Project," said Dr. Amiel David, President and co-founder of AmRich. "AmRich believes that, as with a number of fields in the Santa Maria Basin, Zaca has been significantly under-explored and its potential largely over-looked. We look forward to working with Underground in realizing the asset's upside potential through the latest re-development and drilling techniques. Our exploitation and exploration operations at Midway Sunset in Kern County, along with Casmalia and Santa Maria Valley oil fields in Santa Barbara County have been successfully implemented and we believe we bring with us this in-depth knowledge of unlocking oil production in the Santa Maria Basin."
"We are pleased to welcome AmRich as a farm-in partner at our Zaca Field Extension Project with their prominent knowledge and long history of success in California's oil business," said Mike Kobler, President and CEO of Underground. "We believe that this Farm-out Agreement will provide a strong development and production opportunity on our Zaca acreage and we are excited to work in partnership with such a prominent operator and producer of the Monterey Shale in the Santa Maria Basin."
"Through this Farm-out Agreement, and our joint venture with Sovereign announced last week, UGE will be carried on a total of 5 wells over the next 12-18 months which will see new drilling operations commencing across the Zaca Field Extension Project which will complement our core operations and our initial wells drilled on the South East side of the acreage," finished Kobler.
About AmRich Energy
AmRich Energy is a private oil production company located in Santa Maria, California that focuses on the production, acquisition, redevelopment, exploitation and exploration of hydrocarbons in various California basins. The Company's current areas of operations are in the Santa Maria Basin and in Kern County, and they are the operator of more than 200 wells in California. AmRich's company strategy is to develop reserves/resources in existing oil fields dismissed by previous operators. President and co-founder of AmRich, Dr. Amiel David has over 40 years of expertise in the energy sector and holds a Ph. D as a Petroleum Engineer from Stanford University.
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 63,000 net acres of prospective lands in California and Nevada with an initial focus on the Monterey Shale in California. For more information on Underground, please visit www.ugenergy.com. Underground's regulatory filings are available under the Company's profile at www.sedar.com.
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 the execution of agreements arising from the Letter Agreement and the transactions and operations contemplated by the proposed Farm-out Agreement.
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 and AmRich will obtain all required regulatory approvals for the farm-in; and (ii) that the parties will utilize the existing well permits in the farm-in; and (iii) AmRich will have the necessary capital to complete its obligations under the proposed Farm-out Agreement.
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, 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 Farm-out Agreement is subject to the entry by Underground and AmRich into a definitive agreement prior to November 21, 2012. While the parties expect that a definitive agreement will be successfully concluded upon the terms set forth in the Letter Agreement, there can be no assurance that a definitive agreement will be concluded on such terms or at all.
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.
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:
Chief Financial Officer
Underground Energy Corporation
Tel: 805-845-4700 x 17
Vice President, Corporate Development
Underground Energy Corporation