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NEW YORK CITY AND NORTH YORKSHIRE, ENGLAND, Jan. 26, 2007 - U.S. Energy Systems, Inc. (Nasdaq: USEY or "the Company") and its UK Energy Systems, Ltd. (UKES) subsidiary today reported that Phase One of the Company's UK natural gas exploration and production growth strategy has been completed more than two months ahead of schedule, with power generation and gas production levels exceeding initial estimates. As a result, UKES is able to access all of its capital in support of Phase Two of its strategy. Phase One development of the Company's UK natural gas exploration and production strategy had been scheduled to be completed by March 7, 2007.
Phase Two of the Company's UK natural gas exploration and production growth strategy includes the full development of proved and probable gas fields, the construction of a pipeline to connect the project to the National Transmission System ("NTS") network, situated approximately two miles away, as well as 3D seismic exploration of UKES's North Yorkshire prospects.
In test results certified by an independent power engineer, PB Power, and a reserves engineer, Gaffney, Cline & Associates, UKES reported:
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Gas Production: total average gas production averaging 8.652 MMscfd delivered to the Knapton Generating Station ("Knapton facility") for a minimum of 28 consecutive days, for a total production volume of 242 MMscf during the period;
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Power Production: Knapton facility ran for a period of 28 consecutive days and produced a total of 25,951 MWh, sent out at a load factor of 85%, and;
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Proved Developed Reserves: total Proved Developed reserves as of December 31, 2006 exceeded 20 Bcf from the Malton, Kirby Misperton, Marishes and Pickering fields.
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These results exceeded the milestone requirements under UKES's August 2006 financing agreement by a wide margin, UKES said.
"We are very pleased that our UK natural gas growth strategy has surpassed important performance milestones far ahead of schedule," said Grant G. Emms, UKES Chief Executive Officer. "The Knapton facility is operating 24/7, power generation and gas production levels are growing, and with continued exploration and upgrades, gas reserve estimates are exceeding expectations. Our operations team has been successfully executing to this point and we fully expect that this excellent record of performance will continue going forward as we now begin Phase Two of our strategy."
Asher E. Fogel, USEY's Chief Executive Officer, stated that the Company's UK natural gas properties are distinguished by uniquely combining offshore production potential with an onshore cost structure. Located in the lightly explored Cleveland Basin, the 100,000 acres of gas properties are an onshore extension of the Southern North Sea Gas Basin with geology identical to less accessible offshore fields. "We believe that USEY's UK gas properties hold exciting offshore-sized potential," said Mr. Fogel. "We have a clear growth strategy for increasing production of economical proved and probable reserves, and we have a proven team of managers with more than 30 years of industry experience to execute the strategy. We are proud that our team was able bring Phase One of our UK natural gas growth strategy to completion ahead of schedule and enable UKES to move swiftly into Phase Two."
UKES stated that drilling, testing and production from KM-4, its fifth North Yorkshire producing well and the first producing well in the main reservoir in its Kirby Misperton gas field, in addition to the installation of compression, were driving factors behind its ability to successfully increase gas flow and production potential considerably more than it had initially estimated.
As discussed in a press release issued December 6, 2006, the Company expects that 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 and that the upward revision may be by a significant amount.
UKES also stated that on December 31, 2006, the Knapton Power facility experienced a power production stoppage due to a malfunction of the 42 MW gas turbine. The turbine was replaced by a leased unit and put into service on January 13, 2007 and the Knapton facility is again operating on a 24/7 basis. Due to business interruption insurance coverage and the expeditious installation of the leased unit, the Company said it expects no material financial impact to be associated with the event.
USEY is a "clean and green" energy company that owns and operates renewable energy, clean energy and power generation businesses in the U.S. and UK.
Additional information is available on the Company's website at: http://www.useyinc.com.
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.
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 USEB's Chapter 11 filing, 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.
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