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Underground Energy announces agreement to acquire 44,172 acres (33,037 net) of oil and gas leases in the Santa Maria / San Joaquin basins of California and provides operational update at Asphaltea

November 1, 2011

SANTA BARBARA, CA, Nov. 1, 2011 /PRNewswire/ – Underground Energy Corp.
(“Underground”, “UGE” or the “Company”) (TSX VENTURE: UGE) today
announced that through its wholly-owned subsidiary, Underground Energy,
Inc., it has entered into a purchase and sale agreement to acquire
44,172 gross acres (33,037 net) of oil and gas leases in California for
total consideration of US$5.5 million comprising $4.6 million in cash
and $0.9 million in assumed liabilities.  Underground will satisfy the
cash component of the purchase price with its available cash on hand.
The assets acquired include three producing wells (two oil wells and
one gas well, with total production of approximately 60 boepd), a
number of drill ready locations and multiple exploitation and
exploration prospects in two trends in the Santa Maria Basin and four
trends in the San Joaquin Basin. In line with the Company’s aggregation
strategy, the acquired lands are primarily prospective for Monterey and
other analogous oil-prone shale plays. Closing of the transaction is
subject only to the completion of final due diligence by the Company
and is expected to occur on or about November 15, 2011. Upon closing,
Underground will become the operator at each of the acquired
properties.

“This agreement allows us to dramatically increase our land position in
California from 7,314 net acres previously to 40,350 net acres post
acquisition while providing us with assets that can be evaluated
through a flexible capital expenditure program,” said Michael Kobler,
President and CEO of Underground. “It allows us to efficiently access
an array of complementary assets, including lower risk, drill-ready
sites that are in close proximity to our existing properties in the
Santa Maria Basin. It also moves us in a meaningful way into the San
Joaquin Basin, where close to 20 billion barrels of recoverable oil
have historically been discovered and more than 1.5 billion barrels of
oil have been produced from the Monterey and other shale formations.
The acquisition allows us to maintain our strategic focus on the
Monterey shale (post acquisition the Company will hold 27,380 net acres
prospective for oil in the Monterey shale), while also providing
exposure to analogous shale plays and conventional sandstone plays
where we can leverage advanced exploration and production techniques as
well as the wealth of California-specific experience from our technical
team.”

Santa Maria Basin Assets

The Santa Maria Basin assets are comprised of the Zaca Field Extension
and adjacent exploratory prospects and the Santa Rita Prospects.
Through the acquisition, Underground is gaining an 80% working interest
and operatorship in these areas with the Monterey shale being the
primary target.

The Zaca Field Extension is comprised of 7,750 acres (6,200 net) and
includes the eastern extension of the Zaca oil field which has
historically produced more than 32 million barrels of oil and is an
analogous oil field to the Company’s Asphaltea project. The Zaca Field
Extension includes one producing well (15-20 bopd) and Management of
UGE estimates that there is the potential for an additional 20 to 30
drilling locations on this extension. The Company has also identified
additional structures on the leased lands utilizing 2D seismic.  These
structures, which are adjacent to the Zaca Field Extension, are also
prospective for oil and gas in the Monterey shale.

The 61 vertical wells previously drilled into the western part of the
Zaca field have produced in excess of 500,000 barrels of oil per well
on average.  Typical initial oil production rates for the historical
vertical wells were in excess of 200 bopd with the most productive
wells having initial production rates over 700 bopd. In addition, the
last 18 vertical wells, which were infill wells drilled in the 1970′s
through the 1990′s, had average initial production rates in excess of
70 bopd and produced in excess of 375,000 barrels of oil per well.
Management of UGE believes that internal sealing cross faults within
the field extension have the potential to result in near virgin
reservoir pressure which would provide the potential for wells with
initial production rates and ultimate recoveries comparable to the
historical averages of the existing Zaca field.

The Company intends to reprocess existing 2D seismic on the Zaca assets
in advance of drilling its initial step-out extension well late in the
fourth quarter of 2011 or early in the first quarter of 2012 and the
Company will also look to increase production from the existing well
through stimulation work.

Management’s best estimate is that the Zaca Field extension contains 6.1
million barrels of proved and probable reserves and an additional 4.75
million barrels of possible reserves net to Underground. In addition,
Management’s best estimate is that the identified adjacent exploration
prospects could hold 12.2 million barrels of additional prospective
resources net to Underground. GLJ Petroleum Consultants, the Company’s
independent qualified reserves evaluator, has been engaged to evaluate
reserves and prospective resources in the Zaca Field Extension and it
is anticipated that this report will be completed in early December
2011.

The nearby Santa Rita Prospects comprise 1,218 acres (974 net) and are
on trend with the Lompoc field which has produced more than 50 million
barrels of oil. The Company intends to conduct additional geological
and geophysical evaluation at Santa Rita prior to applying for drilling
permits.

Notes:

      1. Prospective resources are those quantities of petroleum estimated,
         as of a given date, to be potentially recoverable from
         undiscovered accumulations by application of future development
         projects. Prospective resources have both an associated chance of
         discovery and a chance of development.  There is no certainty that
         any portion of the prospective resources will be discovered and,
         if discovered, there is no certainty that it will be commercially
         viable to produce any portion of those resources.  Prospective
         resources are undiscovered resources that indicate exploration
         opportunities and development potential in the event a commercial
         discovery is made and should not be construed as reserves or
         contingent (discovered) resources.  Prospective resources in this
         press release are reported on an unrisked, company interest basis.
      2. The reserve and resource estimates in respect of the prospective
         resources for the Zaca Field for Underground were prepared on
         October 27, 2011 with an effective date of November 1, 2011 and
         prepared in accordance with COGE Handbook and National Instrument
         51-101 - Standards of Disclosure for Oil and Gas Activities ("NI
         51-101") by a member of management of Underground who is a
         "qualified reserves evaluator" as defined under NI 51-101.
      3. The "best estimate" is considered to be the best estimate of the
         quantity that will actually be recovered.  In terms of prospective
         resources, it is equally likely that the actual quantities
         recovered will be greater or less than the best estimate. In terms
         of discovered reserves, the "best estimate" is the combination of
         the proved plus probable reserves. If probabilistic methods are
         used, there should be at least a 50 percent probability that the
         quantity actually recovered will equal or exceed the best
         estimate.
      4. The significant positive factors that are relevant to the
         management's estimate of the reserves and prospective resources
         include production in close proximity to the assets and oil and
         gas shows in wells drilled in close proximity to the assets.  A
         significant negative factor that is relevant to management's
         estimate of prospective resources is that seismic attribute
         mapping in the areas can be indicative but not certain in
         identifying resources.
      5. Possible reserves are those additional reserves that are less
         certain to be recovered than probable reserves.  There is a 10%
         probability that the quantities actually recovered will equal or
         exceed the sum of proved plus probable plus possible reserves.
      6. The estimates of reserves and resources for individual properties
         may not reflect the same confidence level as estimates of reserves
         and resources for all properties, due to the effects of
         aggregation.

San Joaquin Basin Assets

The San Joaquin Basin assets are comprised of the Buttonwillow Deep Test
and the Foxtrotter Trend Area of Mutual Interest (“AMI”) in Kern
County, the Burrel Redevelopment Project in Fresno County, and the
Challenger Gas Trend AMI in Madera and Merced Counties.

Underground is obtaining an 80% working interest in 1,625 acres (1,300
net) prospective for oil and gas in the Monterey and McClure shales and
other conventional reservoirs under the Buttonwillow gas field.  The
Buttonwillow Deep Prospect lies within the previously announced
Occidental Petroleum (“Oxy”)/Venoco Inc. (“Venoco”) 500 square mile 3D
seismic shoot and Underground will receive data from this shoot across
its prospect. Venoco has permitted a deep well to test a prospect on an
adjacent lease which will be closely monitored before drilling is
planned on Underground’s acreage.

Underground will assume a 65% working interest in the Foxtrotter Trend
AMI comprising 4,393 acres (2,855 net) that includes shallow Monterey
diatomite and deeper oil-prone shale prospects. The Foxtrotter Trend
AMI lies within the boundaries of a 3D seismic survey being acquired by
Oxy and the Company will be entitled to the data over its leases.  The
Company intends to interpret both existing and new seismic data prior
to permitting and future drilling.

The Burrel Redevelopment Project consists of 10,245 acres (8,196 net)
and one producing oil well (30-40 bopd). The Company will look to
increase this production through additional stimulation work on this
existing well. Underground also intends to interpret existing 2D
seismic in preparation for future drilling. The project has multiple
oil targets including Kreyenhagen and Monterey type shales and
conventional sandstones.

Underground will also assume a 70.49% working interest in the Challenger
Gas Trend AMI which represents 18,400 acres (12,970 net) and includes
one producing natural gas well (60 mcf/d). The key targets at
Challenger are the Blewitt and Zilch sands, the Temblor/Vaqueros sands,
as well as the Kreyenhagen and Moreno shales. A gas gathering system
has been built by a third party to transport gas produced from the area
to the PG&E gas transmission system.  The remaining $0.9 million
pipeline commitment will be assumed by Underground as part of this
transaction. Given its focus on oil exploration and production,
Underground will assess how best to exploit the gas assets going
forward.

“We believe this acquisition is fully in line with our stated strategy
of aggregating quality assets in our core areas of focus,” said Bruce
Berwager, Chief Operating Officer of Underground. “Our team has
leveraged its California-focused expertise and relationships to provide
us with critical mass in the Santa Maria Basin, while launching us in a
significant way into the San Joaquin Basin. The assets provide us with
production, proved reserves, a number of drill ready targets and a
pipeline of quality exploratory prospects and leads primarily focused
on Monterey and analogous oil-prone shales.”

Operational Update at Asphaltea

Following the completion of an initial 2D seismic shoot in early July,
and based on the quality of the data initially received using newly
available techniques, the Company elected to expand the shoot to
maximize the extent and quality of the data and potentially eliminate
the need for a separate 3D shoot in 2012. The expanded shoot was
completed in late July and has provided the Company with seismic
coverage over the majority of its key prospects.

Fairfield Nodal is currently processing the seismic data and it is
expected that processing will be completed by mid-November.  Once the
seismic data has been processed, the Company will complete an
integrated geophysical and geological interpretation of the data in
order to select the bottom-hole location for the initial wells and to
precisely target its initial appraisal well. Drilling will commence
once the seismic data has been fully interpreted. Although the Company
has a drilling rig scheduled in December 2011, it is likely that
drilling will not commence at Asphaltea until Q1 2012.

The objective of the Company’s first Asphaltea well will be to evaluate
the rock properties and potential commercial productivity of the
Monterey formation as well as to potentially evaluate prospective
deeper geological horizons. Information gained from this first vertical
well will be key to fully understanding how best to exploit the pay,
and in particular, whether it is best to use deviated or horizontal
wells.

“By employing the latest seismic techniques, we have been able to obtain
seismic coverage over 95% of our prospects at a fraction of the cost
and with none of the permitting and implementation challenges
associated with a traditional 3D seismic shoot,” said Bruce Berwager,
Chief Operating Officer of Underground. “We believe that the expanded
shoot will provide us with better, more detailed information that we
can use to target the final site for the first appraisal well at
Asphaltea and potentially eliminate the need to conduct an additional
costly and time consuming 3D shoot in 2012. We intend to utilize this
new seismic technology going forward believing we can use it to quickly
and efficiently de-risk additional assets, saving time and capital in
the overall exploration and development of our portfolio of
opportunities.”

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 mineral rights on approximately 83,086 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

Historical production data for both Zaca and Lompoc is based upon a
report titled “California Monterey Reservoir Study Project”, prepared
by Spivak, Mannon, Brigham, Surdam, Coombs, and Sageev and dated
September 11, 1985 and the records of the California Division of Oil
and Gas and Geothermal Resources obtained by the Company on August 24,
2011.

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 closing and closing date of the Company’s proposed
acquisition of oil and gas leases in California; (ii) the Company’s
planned seismic operations to be conducted on such oil and gas leases;
and (iii) the prospectivity of such oil and gas leases for oil and gas
and the anticipated drilling, completion and production results
therefrom.  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.

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


Source: PR Newswire