Underground Energy Corporation announced that it has executed a letter of intent with Sovereign Resources LLC whereby it is proposed that Sovereign will joint venture on and have the right to earn up to a 75% working interest in Underground's and its joint operating partner's interest in 2,857 gross acres of the Northwest corner of the Zaca Field Extension Project in Santa Barbara County, California. UGE owns 80% of the leasehold interest in the Joint Venture Lands, and a total 10,482 net acres across its Zaca asset. Under the terms of the Letter Agreement, Sovereign will enter into a continuous drilling program to drill a maximum of seven wells to earn its full working interest.

UGE and its minority partners will be carried for wells one and two, but, thereafter, will have the right, but not the obligation, to pay their share of drilling and related costs for each subsequent well. UGE anticipates drilling to commence within 6 months.