Underground Energy Corporation announced that it has signed a drilling contract with Key Energy Services to secure a drilling rig for the initial portion of the company's 2012 drilling program. The contract provides for drilling and completing a minimum of five wells with an option for an additional five wells. The rig is expected to move to the first location and commence drilling at the company's recently acquired Zaca Field Extension project in Santa Barbara County, California by mid-February. Site preparations are currently being finalized at this location. Underground has budgeted approximately $7 million for the initial five-well program, which will be comprised of three wells at Zaca and two additional wells at one or more of the company's other assets. The rig has been sized and equipped to be deployed at the Zaca and Asphaltea projects in the Santa Maria Basin and the company's other projects in the San Joaquin Basin. The locations for these additional two wells and the subsequent five optional wells will be dependent upon ongoing seismic and geological interpretation and the results of the initial drilling program. The company has received all necessary approvals to spud its first step-out development well at Zaca and is currently filing its Notices of Intent to Drill permit applications with the California Division of Oil, Gas and Geothermal Resources for the additional wells at Zaca as well as at Asphaltea and Devil's Den. Land use permits have already been granted for each of these projects. The first well at Zaca will be a 6,530 foot deviated well, drilled to a location, which has been de-risked through seismic and existing well data, in the main Monterey intervals that have historically been the most productive in the existing Zaca field. This well will be drilled as a 10-acre offset to two existing wells that have each produced more than 500,000 barrels of oil. The well has been designed from recently acquired seismic to cross two thrust faults below the primary Monterey target to test potentially virgin pressured reservoirs below each thrust fault. The well is expected to take approximately two weeks to drill followed by an additional week to complete. The historical production from the 61 vertical wells previously drilled into the western part of the existing Zaca field, utilizing primary recovery techniques only, has been robust. These wells had average initial production (IP) rates in excess of 200 bopd and have produced in excess of 500,000 barrels of oil per well. Even the last 18 of these vertical wells, which were infill wells drilled in pressure depleted reservoirs in the 1970's through the 1980's, had average IP rates in excess of 70 bopd and have produced in excess of 375,000 barrels of oil per well. The company continues to process and interpret seismic and evaluate well data at a number of its other properties in California and Nevada. GLJ Petroleum Consultants, the company's independent qualified reserves evaluator, has initiated work on the company's 2011 year-end NI 51-101 compliant reserves assessment, which is expected to be completed by the end of February.