May 15, 2009 (FinancialWire) — Exploration and development company U.S. Energy Corp. (NASDAQ: USEG) has spudded its first well under a participation agreement with Houston, Texas-based Houston Energy L.P. in which USE acquired a 10% working interest in an oil and gas prospect located in southeast Texas. Houston Energy is the operator of the project.

The well is located in Matagorda County and is the first of up to three prospects that may be drilled on the leasehold. HE believes the first well has a resource potential of 6.6 BCF and 1,296 MBO. The well will be drilled to an initial depth of approximately 11,100 feet and USE’s commitment is approximately $216,000 to a casing point decision. Drilling is expected to be completed in 30 days after initial spud.

Under the terms of the agreement, USE is responsible for 10% of the costs to drill an initial test well to earn an 8.5% after casing point working interest (6.2% net revenue interest). There is also a 10% after prospect payout back-in working interest due the operator, which would reduce USE’s working interest to 7.65% (5.6% net revenue interest) APO.

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