Underground Energy commences drilling program at its Zaca Project in the Santa Maria Basin

SANTA BARBARA, CA, Feb. 28, 2012 /PRNewswire/ - Underground Energy Corp. ("Underground", "UGE" or the "Company") (TSX VENTURE: UGE) today announced that it has initiated drilling at its Zaca Field Extension Project ("Zaca") in Santa Barbara County, California. As part of its previously announced five well drilling program, the Company will initially drill two wells from the same drilling location at Zaca and will then complete and test both wells with initial results from the first well expected by mid-April.

The first well will be a vertical well and is expected to reach a depth of approximately 6,250 feet. The second well will be deviated, drilled perpendicular to the primary fracture plane, and is expected to reach a depth of approximately 6,500 feet.  The initial well will be drilled to a de-risked location situated on one of the seismic lines acquired by the Company in December and the second well will be a 10-acre offset to two existing wells that each produced more than 500,000 barrels of oil.

The historical production from the 61 vertical wells previously drilled in the western part of the existing Zaca field, utilizing primary recovery techniques only, averaged initial 30-day production ("IP") rates in excess of 200 barrels of oil per day ("bopd") and have produced in excess of 500,000 barrels of oil per well. Even the last 18 of these vertical wells, that were infill wells drilled in pressure depleted parts of the reservoir in the 1970's through the 1990's, had average IP rates in excess of 70 bopd and have produced on average more than 375,000 barrels of oil per well.

"We have commenced our 2012 drilling program with an initial focus on the Zaca Field Extension in the Santa Maria Basin which we believe has the potential to generate near term production and material reserve additions for the Company. We expect to be able to drill and generate results in fairly short order," said Mike Kobler, President and CEO of Underground Energy. "Our goal with the initial step-out wells is to determine the pressure and production potential in this part of the reservoir in comparison with historical levels and to bring on new production for the Company. California has significant infrastructure in place for heavy oil and given the fact that our benchmark has been trading at a premium to WTI for more than a year, even production in line with historical infill drilling is expected to provide robust economics."

These wells are the first wells of an initial five-well program for which Underground has budgeted approximately US$7 million. The program is comprised of three wells at Zaca, two additional wells at one or more of the Company's other assets, with a subsequent option for up to five additional wells. The locations for the additional two wells and the five optional wells will be dependent upon ongoing seismic and geological interpretation and the results of the initial drilling program.

About Underground Energy Corporation

Underground Energy is focused on identifying, acquiring rights to, exploring for, developing and producing oil reserves 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 hydrocarbon rights on approximately 71,015 net acres of highly 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". 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 planned 2012 drilling program; (ii) the prospectivity of Underground's leases for oil and the ability to add near term production and reserve additions; (iii) the potential for economic production based on the regional pricing environment for California oil; and (iv) the timing of results from the drilling program.  Readers are cautioned that assumptions used in the preparation of forward-looking information may prove to be incorrect. 

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 and regulatory approvals in a timely manner to carry out exploration and development activities; (ii) Underground will have sufficient financial resources with which to conduct its planned capital expenditures; 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 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.

Certain information contained herein is considered "analogous information" as defined National Instrument 51-101.  Underground is unable to verify whether such information has been prepared in accordance with NI 51-101 and the Canadian Oil and Gas Evaluation Handbook and Underground is unable to confirm whether such estimates have been prepared by a qualified reserves evaluator. The information on the IP rates and aggregate production of wells drilled and located on the western part of the Zaca field was obtained from California Division of Oil, Gas and Geothermal Resources on August 24, 2011. The information has been provided to demonstrate the potential for similar IP rates and aggregate production for certain wells to be drilled by Underground under its 2012 drilling program.

BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl has been used and is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

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