Underground Energy Announces Acquisition of Minority Interests at Zaca and Other Projects

SANTA BARBARA, CA, May 31, 2012 /PRNewswire/ - Underground Energy Corp. ("Underground", "UGE" or the "Company") (TSXV: UGE) (OTCQX:  UGGYF) announced today that it has signed purchase and sale agreements for the acquisition of certain minority interests in petroleum leases at its Zaca Field Extension Project as well as at its Burrel, Buttonwillow and Devil's Den properties. In addition, through this acquisition, the Company will also acquire minority interests in small additional prospects in the San Joaquin Basin, California.

On November 23, 2011, through its wholly-owned subsidiary, Underground Energy, Inc., the Company acquired the majority working interests in petroleum leases at a number of properties in the Santa Maria and San Joaquin Basins for total consideration of US$5.5 million ($4.6 million in cash and $0.9 million in assumed liabilities). The vendors of the interests now being acquired by Underground are minority working interest holders in certain of the petroleum leases acquired by the Company on November 23, 2011.

As a result of this acquisition, Underground will increase its working interest at the Zaca Field Extension Project from 80% to 96.7%, its working interest at Buttonwillow from 80% to 93.3%, its working interest at Burrel from 80% to 88.167%, and its working interest at Devil's Den from 92.9% to 98.2%. In addition, the Company's overall acreage in California will increase from 39,481 net acres to 42,020 net acres and, in particular, the Company's acreage at the Zaca Field Extension Project will increase to 11,811 net acres

Under the terms of the purchase and sale agreements, the aggregate total purchase price is approximately US$1.3 million and the Company has the ability to satisfy the consideration in cash or through the issuance of shares and share purchase warrants of Underground.  In either case, the Company will also issue a total of 750,000 share purchase warrants to certain of the vendors.  Under the purchase and sale agreements, Underground has until July 15, 2012 to settle the consideration and close the transaction.  Accordingly, closing, which is subject to customary terms and conditions, including approval of the TSX Venture Exchange, is anticipated to take place on or before July 15, 2012.

"We continue to consolidate our holdings in petroleum leases at our core assets in the Santa Maria and San Joaquin basins with a focus on acreage prospective for the Monterey shale, in particular at the Zaca Field Extension Project," said Michael Kobler, President and CEO of Underground. "We have already seen positive initial indications from our drilling program at the Zaca Field Extension and believe that the acquisition of these minority interests will be accretive for the Company as we continue to roll out our business plan and bring previously underutilized exploration and production techniques to our core assets."

About Underground Energy Corporation

Underground is focused on identifying, acquiring rights to, exploring for, developing and producing oil from shale formations in North America using the latest exploration and recovery techniques and technologies. Underground focuses on identifying and acquiring sizable land positions and prospects in historically prolific but under-explored shale formations as well as in emerging shale plays that, in both instances, hold large volumes of prospective resources. 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 Company's anticipated increase in working interest at its core asset areas as a result of the acquisitions and the addition of incremental production; and (ii) the anticipated closing date of the acquisitions. 

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) that the acquisitions will close in accordance with the terms and conditions of the purchase and sale agreements; (ii) the conditions to closing the acquisitions will be fulfilled and the regulatory approvals required to close the acquisitions will be obtained prior to July 15, 2012; and (iii) the current tax and regulatory 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 are 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: general economic conditions in Canada, the United States and globally, the risks associated with the oil and gas industry, commodity prices and exchange rate changes.  Industry related risks could 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 risks as detailed in the Company's annual information form dated April 25, 2012 and available on the Company's SEDAR profile at www.sedar.com.  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.

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