Approximately one-third of the net mineral acres are held by production, and the purchase represents the acquisition of 35% of Zavanna’s collective interest in two separate contiguous lease parcels known as the Yellowstone and SE HR Prospects.
The purchase includes 100% of the rights to the Bakken and Three Forks formations throughout both parcels and includes shallow mineral rights on approximately two-thirds of the acreage.
In addition, US Energy funded $1.4m into an escrow account, which represents 35% of the estimated cost to drill the first well under the Yellowstone agreement.
Assuming three wells per formation per spacing unit, the company can participate in 31 gross 1,280-acre drilling units (at varying working interests up to 35%) with the potential of 93 gross Bakken wells and 93 gross Three Forks wells.
Under the agreements, Zavanna has the right to a 30% back-in of US Energy’s working interest in the prospects after US Energy has recovered 130% of its capital outlay (payout) for all property development costs incurred during the first 36 months (including the initial $10.95m payment), and 36 months for all undeveloped acreage.
The effective date of both agreements is 1 December 2010 and Zavanna will operate the drilling programs in both prospects.
Zavanna tentatively plans to spud the first well in the 2011 drilling program, the Cheryl 14-23 #1H (Yellowstone Prospect), in the first quarter of 2011.
The Yellowstone Prospect is primarily located between two of US Energy’s existing producing wells drilled with Brigham Exploration.
The second well is also anticipated to spud in the SE HR Prospect in the first quarter of 2011.
Looking forward, it is currently anticipated that US Energy and the Zavanna partners will drill six to eight gross wells in 2011.
