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NEW YORK CITY AND NORTH YORKSHIRE, ENGLAND, Dec. 6, 2006 - U.S. Energy Systems, Inc. (Nasdaq: USEY) and its UK Energy Systems, Ltd. (UKES) subsidiary today reported that KM-4, UKES's fifth North Yorkshire producing well and the first producing well in the main reservoir in its Kirby Misperton gas field, was connected to the project's permanent production facilities on November 29, 2006, and since has flowed gas continually to the associated 42MW gas turbine at the company's Knapton Generating Station.
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UKES stated that three meaningful results of KM-4's overall performance are that:
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more than two months ahead of schedule, the Knapton facility has an excess supply of producing gas to enable it to operate at full capacity, and the facility is now operating on a full capacity basis;
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reserve estimates associated with the Kirby Misperton field are expected to increase significantly after review by its consulting engineer; and
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substantially all reserves associated with the Kirby Misperton field are expected to be categorized as Proved Developed Producing.
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UKES stated that currently KM-4 is producing gas at a rate of approximately 7 mmscfd, with another well, KM-1, typically contributing most of the remaining production to supply the maximum (approximately 9.3 mmscfd) volume to the Knapton facility. UKES said that wells in its three other producing North Yorkshire fields will contribute gas to the Knapton facility as needed.
UKES's Chief Executive Officer Grant G. Emms stated, "We are very pleased that by enabling Knapton to operate at full capacity sooner than planned, and by demonstrating a more attractive reserve profile than previously indicated, the Kirby Misperton field is enhancing both the near- and long-term value of the North Yorkshire gas project. We also are very pleased with the work of our operations team in executing successfully to this point."
North Yorkshire Reserves
It is expected that as a result of KM-4's drilling and production results, reserve calculations for UKES's six North Yorkshire gas licenses will be upwardly revised from an estimated 46 bcf of proved reserves and 16.4 bcf of probable reserves (cumulative 62.4 bcf) to reflect increased estimates associated with the Kirby Misperton field. To date, the Kirby Misperton field has been indicated to contain 9.1 bcf of 2P reserves, consisting of 6.4 bcf of proved reserves and 2.7 bcf of probable reserves. UKES believes that Kirby Misperton's total reserves may be revised upward by a significant amount due to the increased thickness of the gas pay in KM-4. In addition, further enhancement of the North Yorkshire reserves is expected from the installation of compression, the re-mapping of the fields on re-processed seismic, and additional drilling and testing.
KM-4's Drilling and Production Results
KM-4 was drilled, logged and completed in August and September 2006. Drilling logs indicate a pay section of superior quality to the original producing well, KM-2, including a gross pay interval of 169', an interval that is 45' higher and thicker than at KM-2. This represents a 36% increase in gross pay thickness.
KM-4 was perforated and tested on November 23, 2006, into a temporary test separator and flow line tied into the gathering system. That test yielded better than expected results of 7.5 mmscfd through a ¼" choke with a 200psi drawdown.
Since KM-4 was connected on November 29, 2006, it has flowed gas at choked back rates of between 7 mmscfd and 9.3 mmscfd, with small drawdown. Though KM-4's absolute open flow potential is unknown, as it would considerably exceed the approximate 9.3 mmscfd capacity of the Knapton facility, UKES believes KM-4's open flow potential could be in excess of 15 mmscfd.
About U.S. Energy Systems, Inc.
U.S. Energy Systems, Inc. is an owner of green power and clean energy and resources. USEY owns and operates energy projects in the United States and United Kingdom that generate electricity, thermal energy and gas production. Additional information is available on the Company's website at: http://www.useyinc.com.
Certain matters discussed in this press release are forward-looking statements, and certain important factors may affect the Company's actual results and could cause actual results to differ materially from any forward-looking statements made in this release, or which are otherwise made by or on behalf of the Company. Such factors include, but are not limited to, the effect of the Chapter 11 filing by U.S. Energy Biogas Corp. (a USEY subsidiary), access to needed financing or refinancing on acceptable terms, our ability to continue as a going concern, revisions in the initial estimates in the fair market value of the acquired assets, failure to realize the estimated savings or operating results of the acquisition, and other risks associated with acquisitions generally, including risks relating to managing and integrating acquired businesses, changes in market conditions, the impact of competition, changes in local or regional economic conditions, and the amount and rate of growth in expenses, dependence on management and key personnel, changes in federal or state laws and their interpretation with respect to regulation, energy policy and other business issues, the inability to commence planned projects in a timely manner, our ability to continue our growth strategy, and the ability to complete acquisitions, as well as other risks detailed from time to time in U.S. Energy's Securities and Exchange Commission filings, including its Annual Report on Form 10-K for the year ended December 31, 2005 as well as the 10-Q for the period ended September 30, 2006. We do not undertake to update any of the information set forth in this press release.
The SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We have used certain terms in this news release, such as "probable" reserves, that the SEC's guidelines strictly prohibit us from including in filings with the SEC. These estimates are by their nature more speculative than estimates of proved reserves and accordingly are subject to substantially greater risk of being actually realized by the company.
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