Underground Energy reaches target depth on Chamberlin 3-2 well

Top Quote Underground Energy Corporation ("Underground", "UGE" or the "Company") (TSX VENTURE: UGE; OTCQX: UGGYF) today announced that it reached target depth of 7,685 feet in the Chamberlin 3-2 well at the 7,750 acre Chamberlin lease in the Zaca Field Extension Project in Santa Barbara County, California. End Quote
  • (1888PressRelease) May 23, 2012 - The Company holds an 80% working interest in the Chamberlin lease, which surrounds the existing Zaca Oil Field on three boundary sides. The Chamberlin 3-2 well is a "twin" well offsetting the previously drilled Chamberlin 4-2 well by approximately 300 feet. This well was designed to directly target the Chamberlin East Fault Block that was discovered during the drilling of the Chamberlin 4-2 well. The information gained in drilling the Chamberlin 4-2 well was used in designing and drilling the Chamberlin 3-2 well.

    The Chamberlin 3-2 well encountered approximately 1,700 feet of oil saturated shale oil shows, including more than 1,200 feet of continuous Monterey oil shows in the deeper Chamberlin East Fault Block. An extensive suite of open hole logs were completed on May 20, 2012 and confirmed that the oil saturation, fracture intensity, and formation thickness in the lower Monterey reservoir are consistent with the productive Monterey sections in the shallower fault block in the original Zaca Oil Field to the west of the Chamberlin 3-2 well. Typically the wells at the original Zaca Oil Field had approximately 1,100 feet of pay.

    On the strength of these initial drilling results, the Company intends to complete, stimulate, and begin production testing the lower continuous 1,200 feet Monterey shale interval of the Chamberlin 3-2 well. These production test results are expected by mid-June. In the original Zaca Oil Field, the 61 wells drilled on 10-acre spacing (including later infill wells) had average initial production rates in excess of 200 barrels of oil per day (bopd) and cumulative production of more than 540,000 barrels of oil.

    The Key 98 drilling rig will be moved to a drilling pad to the west of the Chamberlin 3-2 well and will drill a 4,350 foot well, the Chamberlin 2-2 well, into the shallower fault block of the Monterey shale. This well will offset two wells in the original Zaca Oil Field which have each produced in excess of 500,000 barrels of oil. Subsequent to drilling the Chamberlin 2-2, the Key 98 rig will be released from contract. In view of the discovery of the new Chamberlin East Fault Block, and the potential of additional deeper structures which Underground has identified by seismic, the Company has begun negotiations for a larger rig that is capable of more effectively drilling into these new structures. Subject to finalization of a drilling contract, it is anticipated that the larger rig will be mobilized and moved to the Zaca Extension Project in approximately 45 to 55 days to continue the Company's drilling program.

    "The data gained from the drilling and logging of the Chamberlin 3-2 well mirrors and validates what we saw in the Chamberlin 4-2 well before we encountered mechanical and resulting well bore stability issues. With the knowledge gained from drilling the Chamberlin 4-2 well, we successfully designed and drilled the Chamberlin 3-2 well. We can now assess the full extent of the key oil bearing formation which has demonstrated extensive, high quality oil saturation. In addition, we are pleased to have met our targeted well budget of $2.4 million for the Chamberlin 3-2 well and are confident that we will continue to improve our well cost efficiency," said Mike Kobler, President and CEO of Underground Energy. "We will immediately move forward with the completion and production testing of the Chamberlin 3-2 well now that we have confirmed the discovery of the Chamberlin East Fault Block, along with the potential for virgin oil production east of the original Zaca Oil Field."

    In the past week, the Company also entered into a lease on a nearby 3,334 net acre parcel of land which the Company believes to have similar potential to the Zaca Field Extension Project. The addition of the new lease brings Underground's current acreage position in the Zaca Extension Project to 11,084 gross/9,534 net acres and a total of 16,934 gross/15,384 net acres in the immediate vicinity of the Greater Zaca Project area.

    About Underground Energy Corporation

    Underground 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 70,000 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" and is quoted on the OTCQX under the 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 nature of the formation encountered by the Chamberlin 3-2 well; (ii) the Company's plans to complete, stimulate, and begin production testing the lower continuous 1,200 feet of Monterey Shale interval with the Chamberlin 3-2 well and the availability of production results by mid-June; (iii) the Company's plans to move the Key 98 drilling rig to a drilling pad to the west of the Chamberlin 3-2 well and drill the Chamberlin 2-2, a 4,350 foot well into the upper fault block of the Monterey Shale; (iv) the contracting of a larger drilling rig and mobilization of such right to Zaca in approximately 45 to 55 days; and (v) the Company's expectation with respect to improving well cost efficiency.

    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) the formations encountered by the Chamberlin 3-2 well will demonstrate characteristics similar to formations encountered by other industry participants that have drilled wells on the Zaca Field; (ii) 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; (iii) Underground will have sufficient financial resources with which to conduct its planned capital expenditures; and (iv) 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.

    Information in respect of the initial production rates and cumulative production from wells drilled by other industry participants on the Zaca field may be considered to be "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 historic production of wells drilled by other industry participants on 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 initial production rates and aggregate production for certain wells drilled or to be drilled by Underground at the Zaca Field, although there can be no assurance that the wells drilled or to be drilled by Underground will demonstrate production characteristics to such historic wells or at all.

    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.

    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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