Noting that there is much that remains to be accomplished, Riverton, WY-based U.S. Energy Corp. and its Crested Corp. subsidiary said Wednesday that their joint subsidiary, Rocky Mountain Gas Inc. (RMG) has made “notable progress” towards its stated goal of becoming a significant coalbed methane (CBM) producer in the Rocky Mountain region.

RMG is actively exploring in the Powder River Basin of Wyoming and Montana and southwest Wyoming for CBM.

“I am pleased to report significant progress on our portfolio of coalbed methane projects since we announced the formation and initial capitalization of Pinnacle Gas Resources, Inc. on June 25, 2003,” commented Mark Larsen RMG’s new president. “We are now participating in the development of over 310,000 gross acres of coalbed methane (CBM) leases through our direct working interest participation in the Oyster Ridge, Wyoming and the Castle Rock, Montana properties indirectly through Pinnacle. RMG currently owns a 22+% equity interest in Pinnacle.

Commenting on its CBM interest in Montana, RMG said Galaxy Energy Corp. has recently raised $5.6 million and planned to use a portion of the proceeds to exercise an option to purchase approximately 50,000 net acres in the Kirby and Castle Rock prospects in the Powder River Basin from Quaneco LLC of Sheridan, WY. If the option is fully exercised, Galaxy would own an undivided 25% working interest in both of the prospects. RMG made it clear that the buy-in would not affect RMG’s or Pinnacle’s current working interest in those prospects. RMG currently holds a 43.75% working interest in the Castle Rock prospect and Pinnacle holds a 50% working interest in the Kirby prospect.

“We are pleased to welcome Galaxy into the Castle Rock prospect. Their entrance into Montana represents an expanding interest by a company with senior level personnel that have participated in the growth of both Pennaco Energy and Ultra Petroleum,” Larsen said. “We look forward to working with all of our associates in the Castle Rock prospect and in developing a unified plan of development on this large acreage position.”

Pump testing is currently underway on three wells at RMG’s Oyster Ridge prospect in southwestern Wyoming. RMG added that it has been negotiating with Anadarko Petroleum to enter into a modified farmout agreement with improved terms that would allow RMG to conduct more meaningful drilling programs at Oyster Ridge. Upon completion and review of the testing program now underway, RMG said it intends to further delineate the prospect with a drilling program for the 2004 spring/summer consisting of a minimum of 12 wells.

Updating Pinnacle’s status, RMG said the company has focused the majority of its efforts on maximizing production from approximately 120 producing wells on the Gastar and adjacent Bobcat properties in Wyoming as well as drilling additional wells on the properties.

Current gross production from the Pinnacle properties is approximately 5 MMcf/d of methane. In certain areas, the company said it is employing completion technology and procedures that allow multiple coal zone completions and production within a single well bore. In addition to the ongoing drilling program in Wyoming, Pinnacle has submitted a plan of development to the State of Montana to drill an 8-well pilot program on its Kirby property in Montana.

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