Shares of U.S. Energy Corp. (NASDAQ: USEG) rose about 32% today on about 13x average volume on the news that the company had entered into a drilling participation agreement with Brigham Exploration (NASDAQ: BEXP) in the Bakken oil field. From the release:
"We are delighted to be teaming up with one of the best and most technologically advanced operators in the Bakken oil field," stated Mark Larsen, President of U.S. Energy. "Brigham has proven itself to be one of the premier companies in the Williston Basin through the advancement of their multi-stage frac completions and their consistent improvement of production rates. We look forward to a long term relationship with Brigham and developing low cost reserves well into the future," he added.
"Our patient search for a sound investment in oil and gas has now come to light with today's announcement," stated Keith Larsen, CEO of U.S. Energy Corp. "At a time when natural gas appears to be poised for an extended period of low prices our main focus has been to expand our oil production and reserves. This agreement does just that by providing us with the potential to rapidly expand our oil production and increase our reserves by participating with an experienced operator that has a track record of lowering its finding and development costs. Furthermore, I am confident that our drilling schedule for the balance of 2009 will allow us to reach our corporate production goal of 7,000 MCFED or approximately 1,200 BOED by year end," he added.
This is a pretty large commitment by USEG -- according to the press release, USEG's "expenditures are anticipated to approximate $17.6 million for the first six initial well program." That's a little less than half of USEG's remaining cash and Treasuries, going by the company's most recent balance sheet. Judging by the relative performance of USEG and BEXP today though, without drilling down further, I'd assume this deal is on pretty favorable terms to USEG. Which would make sense, since it appears that BEXP had a more acute need for the cash than USEG had for the participation deal. I'd venture that some BEXP shareholders bought into USEG today.
I got a voice mail about this today from Reggie Larsen at USEG, but we didn't get a chacne to speak. If he and I connect tomorrow, I'll update this post accordingly. Investor relations via social media: just like in those trendy marketing books.