U.S. Energy Corp. (NASDAQ: USEG) entered into a participation agreement covering lands in Dimmit County, Texas with a private South Texas-based oil and gas company, it said May 8. That company is the seller under the agreement, U.S. Energy noted.

It acquired 33% of that company's interest in some 12,100 gross (3,384 net) acres. There are 3,870 gross (1,080 net) acres of primary leasehold acreage and 8,080 gross (2,203 net) acres of farm-in acreage, the company said. These will be earned through a drilling program, U.S. Energy added.

The farm-in acreage has an initial two-well commitment and a 12.5% working interest carry for the leaseholder in the first 10 wells, the company said. After 100% payout of all costs for the first 10 wells that are drilled under the farm-in program, the leaseholder will back in for its 12.5% retained working interest in the prospect.

The seller also retained a 25% working interest back-in after 115% of project payout has been received by the company. U.S. Energy Corp. paid $3.9 million to enter into the transaction, which includes leasehold and farm-in acquisition costs as well as its proportionate share of drilling costs for the initial test well in the prospect.

A minimum of three Buda formation wells are scheduled to be drilled throughout 2014, the company said, noting that the first vertical well in the program was spudded the week of May 5 and is currently drilling.

There are multiple stacked hydrocarbon-bearing formations present in the region, the company said, noting that the Austin Chalk and Eagle Ford Shale formations will be analyzed when the first three Buda wells are drilled.

"We continue to refine our focus on South Texas due to the multiple hydrocarbon-bearing formation potential in the region. Our initial tests will target the Buda formation, which we believe is highly prospective in the leasehold. In keeping with our 2014 budget and plan, this acquisition can increase our net leasehold in the region by 58% to 8,975 net acres. We have sought acquisitions that are drill ready and we are now participating in three Buda drilling programs. If successful, we believe that our combined drilling programs could add meaningfully to our production and revenues throughout the year and beyond," said Keith Larsen, CEO.

Riverton, Wyo.-based U.S. Energy Corp. explores and produces domestic oil and natural gas.